SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(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
OR
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-13826
DISCUS ACQUISITION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1456350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2430 Metropolitan Centre, 333 South Seventh Street, Minneapolis, Minnesota 55402
Registrant's telephone number, including area code: (612) 305-0339
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK (NO PAR VALUE)
(TITLE OF CLASS)
CHECK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE
FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE
PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS. YES _X_ NO ___
CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO
ITEM 405 OF REGULATION S-B NOT CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL
BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB
OR ANY AMENDMENT TO THIS FORM 10-KSB. [ ]
THE REGISTRANT'S REVENUES FOR ITS MOST RECENT FISCAL YEAR WERE
$1,419,000.
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT BASED ON THE AVERAGE BID AND ASKED PRICES OF THE COMMON STOCK
AS REPORTED BY NATIONAL ASSOCIATION OF SECURITIES DEALERS BULLETIN BOARD ON
MARCH 18, 1996 WAS APPROXIMATELY $2,751,499.
THE NUMBER OF SHARES OF THE COMMON STOCK OF THE REGISTRANT OUTSTANDING
AS OF MARCH 19, 1996 WAS 6,231,174, INCLUDING 1,227,273 CLASS B COMMON SHARES.
DOCUMENTS INCORPORATED BY REFERENCE
CERTAIN PORTIONS OF THE DOCUMENTS LISTED BELOW HAVE BEEN INCORPORATED
BY REFERENCE TO THE INDICATED PART OF THIS FORM 10-KSB.
Document Incorporated by Reference Part of Form 10-KSB
- -------------------------------------------- -------------------------------
Proxy Statement for 1996 Annual Meeting of Items 9, 10, 11 and 12 of Part III
Shareholders to be held May 1, 1996
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
STRATEGIC REPOSITIONING OF THE COMPANY
In June 1994, the Discus Acquisition Corporation (the "Company") sold
to Fuddruckers Inc. its nine franchised Fuddruckers restaurants for a purchase
price of approximately $5.5 million. The restaurants sold included nine units
operated by the Company's subsidiaries in Minneapolis-St. Paul (4), Milwaukee
(1), St. Louis (3) and Omaha, Nebraska (1). The Company's remaining operations
and property consisting of a Fuddruckers restaurant operated in Cottage Grove,
Minnesota and a limited partnership interest in a non-Fuddruckers restaurant
facility were disposed of in 1995. The Company used the major portion of the net
proceeds from the sale of the restaurants after payment of obligations, together
with other equity and debt financing raised in 1995 and 1996, to acquire the
Peerless Chain Company in December 1995.
The Company was incorporated in Minnesota in 1983. Its principal
executive offices are located at 2430 Metropolitan Centre, 333 South Seventh
Street, Minneapolis, Minnesota 55402. Its telephone number is (612) 305-0339.
GENERAL
The business of Peerless Chain Company (the "Company" or "Peerless"),
the Company's operating subsidiary, was founded in 1917 in Winona, Minnesota.
The business of Peerless is comprised of one industry segment: the manufacture
and sale of a varied line of traction products, all types of hardware and
industrial chain and wire form products in various lengths, diameters and
shapes.
Principal Products, Markets and Methods of Distribution. Peerless chain
products, consisting primarily of hardware and industrial chain, traction
products (tire chains) and wire form products, are sold to customers throughout
the United States and most of Canada with expanding sales in England and Mexico.
Its major customers include retailers and distributors engaged in selling
automotive, farm, hardware and home center products, industrial and specialty
distributors and original equipment manufacturers (OEM).
Traction Products. The Company's traction products primarily include
automobile, farm tractor, truck, snowblower and garden tractor tire chains
available in numerous sizes, weights, and cross link designs. Traction cable
products for automobiles and light trucks are also manufactured and sold.
Hardware and Industrial Chain. These chains include a broad variety of
both welded and unwelded chain available in various link sizes and designs,
finishes and wire diameters up to 1-1/4". Many of these chains are sold in
straight, continuous lengths of 100 feet or more and are merchandised with
special packaging and displays to facilitate resale by the Company's retail
customers. A substantial portion of the Company's chain sales is comprised of
chain assemblies fabricated by the Company with attachments. Applications for
the Company's lower strength chains and chain assemblies include an extremely
broad range of home, farm, shop and recreational uses, such as for animal
restraints, playground equipment, padlocks, boats, sign hangings, towing, load
binding and comparatively light lifting. The Company's higher strength chain and
chain assemblies have many heavy duty industrial and commercial applications,
such as auto tie downs, flailing, heavy binding, and heavy overhead lifting and
hoisting.
Wire Form Products. The Company has the wire forming, welding,
flattening, punching and plating capacities to manufacture a wide variety of
wire form products calling for a continuous piece or pieces of wire. Principal
examples of its numerous products include axles for toys, peg board hooks, "S"
hooks, soft tie-down hooks and hitch pin clips. A significant portion of the
Company's wire form products are custom designed to meet specific customer
requirements. The balance of its wire form products are sold to its broad range
of retail customers and to support the Company's traction products.
Sources and Availability of Raw Materials. The Company's operations are
based upon the continuing availability of steel, primarily in the form of steel
wire rod, special wire, chain attachments and forging, all of which are now
generally available to it at competitive prices from alternative sources of
supply.
Patents. The Company has four U.S. patents relating to its products and
one patent application pending. The Company believes its success depends
primarily on the proprietary know-how, the manufacturing skills and marketing
abilities of its employees.
SALES AND DISTRIBUTION
The Company's sales network presently consists of 11 direct employee
sales people and selected manufacturers' representative firms. Major retail,
distributor and OEM customers are served from the Company's manufacturing
facilities in Minnesota and Iowa and strategically located company distribution
centers within the United States. Foreign sales are generally served through
distributors. Company owned distribution centers are maintained in Atlanta, GA;
Dallas, TX; Sparks, NV with public warehouse facilities utilized in Denver, CO
and York, PA to provide the regional customers with convenient, quick service.
The Company has added many sizable customers over the past several years due to
improved deliveries and level of customer service, continuing efforts to become
more cost effective, adaptation of information technology and expanded product
assortments. The Company does not sell a material portion of its annual sales to
any government.
The Company has developed a major relationship with its primary
customer, Wal-Mart, which accounted for approximately 20% of the Company's total
sales for the calendar years 1995 and 1994. While other significant customers
are served by the Company, the Company believes that the loss of one of such
customers would not materially affect the Company's operating results.
Seasonal Operations. Apart from traction products, the Company's
business is not seasonal in nature. The major portion of traction product sales
occurs from September to January in anticipation of consumer and commercial use
during the winter season. These sales also fluctuate according to winter
severity. Despite these seasonal aspects, manufacture of traction products is
relatively even throughout the year with inventory stockpiled until needed.
Backlog. Since purchase orders for the Company's products are generally
processed and shipped within one to three weeks, the Company's backlog of
unfilled orders is not significant to its business. It generally endeavors to
maintain a 30 to 60 day inventory of standardized products, work-in-process and
raw materials. Backlog as of December 31, 1995 was $3,954,000, as compared to
$5,480,000 on the same date last year. See Item 6 for a discussion of the
economic and climatic conditions which contributed to this decrease.
COMPETITION
The Company is subject to substantial competition with respect to all
of its product groups. The Company believes it is one of the major manufacturers
of hardware and industrial chain in the country. There are four other
significant manufacturers of these products, which are part of large companies
and have greater financial resources than the Company. There are several other
smaller competitors which are quite cost effective for the products they
manufacture. In the absence of published statistics for the industry or for
specific competitors, it is not possible to state reliably the Company's
relative position in the industry although the Company believes it is the third
leading producer of chain products in the country. The Company also competes
with many small, independent or local firms, as well as with a number of larger
national firms, in the manufacture of wire form products, but it does not
believe that it is a significant factor in this industry. The Company believes
that its products are generally competitive in price, product quality and
performance, and speed of manufacture and delivery, the principal competitive
factors in the foregoing industries.
The Company maintains an engineering staff, headed by its Director of
Engineering. This staff includes design and industrial engineers, draftsmen and
a metallurgist. These employees expend a substantial portion of their time
designing and developing a new equipment or improving the operation of existing
equipment to upgrade the quality of the Company's products. Although
engineering, research and development expenditures have not been significant in
themselves, these expenditures and the need for ever greater productive capacity
have led to substantial capital expenditures and are anticipated to lead to
substantial new and replacement equipment expenditures annually in the
immediately foreseeable future.
COMPLIANCE WITH ENVIRONMENTAL PROVISIONS
The Company believes that compliance with federal, state and local
statutes, ordinances and regulations, which have been enacted or adopted to
regulate the discharge of materials into the environment, will not have a
materially adverse effect upon its capital expenditures, earnings or competitive
position in future periods, and that it is presently in substantial compliance
with all such provisions applicable to it. Accordingly, the Company does not
anticipate the need to make any material capital expenditures for environmental
control facilities in the foreseeable future.
EMPLOYEES
At December 31, 1995, the Company had approximately 335 employees, of
which 333 were full-time, 234 of whom were engaged in production, 14 in
engineering, 21 in sales, 34 in clerical and 30 in administrative capacities.
The Company also employed 2 persons in various capacities on a part-time basis.
Approximately 198 employees at the Company's Winona, Minnesota plant
are represented by the Winona Chain Makers, Local 1030, affiliated with the
International Association of Machinists and Aerospace Workers, under an
agreement effective September 1, 1994, expiring September 1, 1997. Peerless
experienced an eleven-day strike in September of 1991. Management believes that
its current relations with its union and non-union employees are good.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
Harry W. Spell 72 Chairman
William H. Spell 39 Chief Executive Officer and
Director of the Company
Jan C. van Osnabrugge 53 President of the Company
Robert E. Deter 51 Chief Financial Officer of the
Company
Bruce A. Richard 66 Secretary and Director
of the Company
Harry W. Spell has been a Director of the Company since 1994 and is the
father of William H. Spell. He has been Chairman of the Board and Chief
Executive Officer of Eagle Pacific Industries, Inc. ("Eagle Pacific") since
1992. Eagle Pacific manufactures PVC pipe and polyethylene tubing in plants in
Nebraska, Oregon and Utah. He was employed by Northern States Power from 1949
until August 1988, when he retired from all positions. Mr. Spell was Senior Vice
President - Finance and Chief Financial Officer of Northern States Power Company
from May 1983 until April 1988. Mr. Spell currently serves as a Director of
Appliance Recycling Centers of America, Inc.
William H. Spell has been a Director of the Company since 1994 and is
the son of Harry W. Spell, also a Director of the Company. He has been President
and Chief Operating Officer of Eagle Pacific and a member of its Board of
Directors since January 1992. From October 1990 through May 1993, Mr. Spell was
a founder, President and Chairman of the Board of National Acquisition Corp., a
public company which merged with Garment Graphics, Inc. a designer, producer and
marketer of silkscreen imprinted, embroidered and decorative activewear. From
1981 to May of 1988, Mr. Spell was Vice President and Director of Corporate
Finance for John G. Kinnard and Company, Incorporated, a regional investment
banking firm. He also serves on the Board of Directors of Garment Graphics, Inc.
Mr. Spell holds a BS degree and an MBA from the University of Minnesota. Mr.
Spell is subject to an employment agreement between himself and Peerless dated
December 13, 1995.
Jan C. van Osnabrugge has been employed by Peerless Chain Company,
since January 1994 and has served as the President and Chief Executive Officer
of Peerless since November 1994. Prior to joining Peerless, he served as Chief
Executive Officer of Wolfking Belam BV (NL) from September 1992 through
September 1993. Between November 1990 and September 1992 he was employed by
Stork RMS BV and Stork NON BV in various executive capacities, including Chief
Executive Officer and Vice President of Sales and Marketing. Van Osnabrugge is
subject to an employment agreement between himself and Peerless dated December
13, 1995.
Robert E. Deter has been employed by Peerless since 1979. Mr. Deter has
served as the Company's Controller since 1987 and as its Chief Financial Officer
since April 1995. Mr. Deter is subject to an employment agreement between
himself and Peerless dated December 13, 1995.
Bruce A. Richard has been a Director of the Company since 1994 and
currently serves as its Secretary. He has been a Director of Eagle Pacific since
March 1992, is its Vice Chairman, and has served as its Vice Chairman,
Secretary, Treasurer and a Director since September 1993. From 1985 through
October 1986, he was President and Chief Operating Officer of Northern States
Power Company, from which duties he retired. From July 1954 through 1984, Mr.
Richard held various management and other positions with Northern States Power
Company.
All executive officers are elected by the Company's Board of Directors
or Peerless and serve subject to termination, resignation or until their
successors are duly elected.
ITEM 2. DESCRIPTION OF PROPERTY
The executive offices of Discus Acquisition Corporation are located at
2430 Metropolitan Centre, 333 South Seventh Street, Minneapolis, Minnesota. The
principal manufacturing operations of Peerless are located at a acre site
located in Winona, Minnesota. The Minnesota manufacturing facility consists of a
324,700 square foot building and an adjacent 13,000 square foot office building
which is not currently utilized by Peerless. The facility is leased from CPA
Peerless Limited Partnership under a full net lease expiring in July, 2011 and
providing for monthly rent in the current amount of $105,788, subject to
increases tied to the Consumer Price Index ("CPI") in 1996, 2001 and 2006. The
Company currently has the option to limit the CPI increase in each of the
adjustment years to 50% of the CPI increase, provided that, on or before May 1,
1996, the Company tenders to the landlord the sum of $1.3 Million. The Company's
Iowa manufacturing facility consists of a 30,000 square foot building located in
Manchester, Iowa, leased from Manchester Enterprises, Inc. under a lease
currently expiring in 2005. The Manchester lease currently provides for an
annual net rent of approximately $83,040. The Company also leases warehouse
facilities in Manchester, Iowa; Atlanta, Georgia; Dallas, Texas; and Sparks,
Nevada.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to litigation in the ordinary course of its
business, generally involving product liability claims for which the Company
submits claims to products insurance carrier. The Company does not expect that
any pending claims or proceedings will have a material adverse effect upon the
Company or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the Company's
most recently completed fiscal year.
PART II.
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on a limited basis in the
over-the-counter market on the Bulletin Board, an inter-dealer electronic
quotation system operated by the National Association of Securities Dealers,
Inc. for securities not quoted on the Nasdaq SmallCap Market or the Nasdaq
National Market System. From August 1985 until June 1992, the Company's Common
Stock was traded on Nasdaq under the symbol "DISC." On June 17, 1992, the
Company's Common Stock was delisted from Nasdaq because its capital and surplus
and the bid price of its Common Stock did not meet requirements for continued
listing. Bid prices reflect interdealer prices, without retail markups,
markdowns or commissions and may not reflect actual transactions.
1994 1995
---------------- --------------
High Low High Low
------- ------ ------- -----
Calendar Quarter
First......................... 3/4 2/10 7/8 7/8
Second........................ 3/4 3/4 1-1/8 7/8
Third......................... 1-1/8 3/4 1-3/4 1
Fourth........................ 1-1/8 7/8 1-1/2 1-1/4
The loss of the Nasdaq listing for the Company's Common Stock has had
an adverse effect on the market for such shares because the shares are
classified as a "designated security" under Rule 15c2-6 of the Securities and
Exchange Commission. Under such rule, a broker or dealer may not effect
transactions in a designated security unless the transaction is exempt or the
broker or dealer has made certain suitability determinations, obtained
information from the purchaser, and maintains certain information, all of which
procedures discourage trading in the Company's shares.
The Company has paid no dividends on its Common Stock since its
inception, and the Board of Directors presently intends to retain any earnings
for use in operations for the foreseeable future. At March 26, 1996, the Company
had 388 shareholders of record.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
TWO YEAR SUMMARY
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, 1995 DECEMBER 25, 1994
---------------------------- --------------------------
HISTORICAL(1) PRO FORMA(2) HISTORICAL PRO FORMA(2)
<S> <C> <C> <C> <C>
Operating data:
Net sales $ 1,419 $ 41,951 $ 42,843
Cost of sales 1,162 31,662 34,995
----------- ----------- -----------
Gross profit 257 10,289 7,848
Selling, general and administrative expenses 513 7,518 $ 225 7,457
----------- ----------- ----------- -----------
Operating income (loss) (256) 2,771 (225) 391
Interest expense (32) (1,404) (1,200)
Interest income 116 74
----------- ----------- ----------- -----------
Income (loss) from continuing
operations before income taxes (172) 1,367 (151) (809)
----------- ----------- ----------- -----------
Provision for income taxes (30) (400) (30)
----------- ----------- -----------
Income (loss) from
continuing operations (202) 967 (151) (839)
----------- ----------- ----------- -----------
Loss from discontinued operations
associated with restaurant operations
disposed of in June 1994 (390) (600)
Gain on disposal of all restaurant operations 2,259 2,562
----------- -----------
Net gain from discontinued operations 1,869 1,962
----------- ----------- ----------- -----------
Net income (loss) $ (202) $ 967 $ 1,718 $ 1,123
=========== =========== =========== ===========
Per share amounts (3):
Income (loss) from continuing operations $ (.08) $ .16 $ (.07) $ (.14)
Gain from discontinued operations .80 .32
----------- ----------- ----------- -----------
Net income (loss) $ (.08) $ .16 $ .73 $ .18
=========== =========== =========== ===========
Weighted average number of shares outstanding (3) 2,508,334 6,221,174 2,350,401 6,172,708
=========== =========== =========== ===========
</TABLE>
TWO YEAR SUMMARY, CONTINUED
(dollars in thousands, except share and per share data)
AS OF
DECEMBER 25,
BALANCE SHEET DATA AS OF DECEMBER 31, 1995 1994
- ----------------------------------- ------------------------ -------
AS ADJUSTED FOR
EARLY JANUARY
1996 EQUITY
ACTUAL PLACEMENT(3) ACTUAL
Working capital $ 1,792 $ 3,178 $ 2,418
Total assets 39,497 40,883 2,669
Long-term debt, net of current portion 7,767 7,767 43
Shareholders' equity 5,094 6,480 2,436
(1) Includes the results of operations of the Company's new wholly owned
subsidiary, Peerless Chain Company for the period December 15 to
December 31, 1995.
(2) The pro forma statement of operations for the years ended December 31,
1995, and December 25, 1994, are based on the assumption that the
acquisition had occurred on December 27, 1993 (the first day of fiscal
1994). The pro forma data includes the effects of adjustments to
historical asset values as required by the purchase accounting method,
adjustments to interest expense to reflect financing costs of the
acquisition, amortization of intangibles related to the acquisition and
the related income tax effect of the preceding items (see Note 2 to the
Consolidated Financial Statements). These pro forma results have been
prepared for comparative purposes only and do not purport to be
indicative of the Company's consolidated operating performance had the
acquisition been made at December 27, 1993, or the results which may
occur in the future.
(3) As discussed in Note 8 to the Consolidated Financial Statements, in
early January of 1996, 1,260,000 shares of common stock were sold for
total proceeds of $1,386,000. The January 1996 equity sale is deemed an
integral part of the December 15, 1995 acquisition of Peerless and,
accordingly, proceeds have been incorporated in the comparative
presentations set forth above, with respect to "as adjusted" balance
sheet data, pro forma earnings per share and weighted average number of
shares for the fiscal years ended December 31, 1995, and December 25,
1994.
GENERAL:
On December 15, 1995, Discus Acquisition Corporation (the Company or Discus)
completed the acquisition of Peerless Chain Company from Bridgewater Resources
Corp. Peerless Chain Company (Peerless), a Minnesota-based company that employs
over 310 production and administrative personnel, was founded in 1917 and has
operated as manufacturer and distributor of long-standing branded consumer and
industrial chain and other products throughout the United States. The operating
results and cash flows of Peerless for the last 15 days of fiscal year 1995 are
included in the Company's 1995 historical consolidated financial statements.
Hereafter Peerless is also referred to as the Company's "continuing operations."
Details summarizing the acquisition of Peerless and related financing are as
follows:
* The purchase price of Peerless was approximately $23 million, of which
approximately $20.5 million was cash, including $1.2 million funded in
January 1996, with the remaining $2.5 million consisting of a seller
subordinated note which is interest only for three years until it
matures in December of 1998.
* Discus had approximately $2.3 million in shareholders' equity shortly
before the acquisition. This was supplemented by approximately $4.2
million of additional equity that was raised through a private
placement of 3.8 million shares of common stock at $1.10 per share. The
$2.3 million of pre-acquisition equity represented $.97 per share
before the private placement. The new shares were placed with a select
group of institutional and accredited individual investors. The price
of $1.10 per share was determined by the Board of Directors taking into
account the book value per share pre-private placement, the price of
the public stock, and the demand for Discus stock in the marketplace.
The Board of Directors also obtained an opinion/fairness letter from
Summit Investment Corp.
* The Company obtained a $23.7 million senior credit facility from CIT
Business Credit. CIT is a joint venture of Dai-Ichi Kangyo Bank of
Japan and Chemical Bank of New York. The credit facility includes $6.7
million in term loans, a $13 million revolving line of credit (the
revolver), and a $4 million capital investment line of credit which can
be used during the next several years for capital expenditures. In
addition to the $6.7 million in term loans, Discus used approximately
$8 million of the revolver to complete the acquisition, resulting in an
aggregate of approximately $15 million of CIT senior credit facility.
In addition, approximately $1.3 million of total debt placement and
transaction costs were incurred.
Prior to June 7, 1994, the Company operated ten Fuddruckers(R) restaurants
located in Minnesota, Missouri, Nebraska and Wisconsin pursuant to individual
restaurant franchise agreements with Fuddruckers, Inc. (Fuddruckers). In June
1994, the Company sold nine of its ten restaurants to Fuddruckers for
approximately $5.9 million, resulting in a gain on the sale of approximately
$2.3 million and net proceeds of approximately $2.5 million after satisfying
associated underlying liabilities and transaction costs. The Company's remaining
operations and property consisted of a Fuddruckers restaurant operated in
Cottage Grove, Minnesota, which was closed in June 1994, and a non-Fuddruckers
restaurant facility in Roseville, Minnesota, which was subject to a $400,000
mortgage and sold in 1995 for approximately its net book value to a limited
partnership (in which the Company was, up to the sale date, a limited partner)
for proceeds that satisfied the underlying mortgage and an installment note
receivable of approximately $90,000. Hereafter the terminated restaurant
business is referred to as "discontinued operations." The operating results of
the terminated restaurant operations through June 1994, and gain on disposal of
the restaurant assets, as well as other related disposition activities and costs
subsequent to June 1994, are included in the Company's Consolidated Statements
of Operations under the caption "discontinued operations."
RESULTS OF OPERATIONS:
Effective July 25, 1995, the Board of Directors of the Company voted to change
the Company's fiscal year end from the last Sunday in December of each year to
December 31. This change in financial reporting did not have a material impact
on the Company's reported results of operations or cash flows for the year ended
December 31, 1995, or interim periods in 1995 subsequent to the change.
CONTINUING OPERATIONS/HISTORICAL RESULTS:
Comparison of the Company's fiscal year ended December 31, 1995, with the fiscal
year ended December 25, 1994:
The Company incurred approximately $200,000 in both 1994 and 1995 in connection
with searching for an acquisition candidate and in general and administrative
costs of being a public company while searching for an acquisition candidate.
These costs are included in selling, general and administrative expenses on the
Consolidated Statements of Operations for the respective years.
During the majority of 1995 and during the last half of 1994, the Company earned
approximately $116,000 and $74,000 on cash and cash equivalents (invested
funds). The Company utilized all such invested funds in connection with
acquisition of Peerless and, accordingly, does not anticipate interest income of
any significance in the future.
The Company's continuing operations are solely the operations of Peerless which
was acquired on December 15, 1995. Accordingly, the Company's fiscal year ended
December 31, 1995, includes less than 10 business days of the operations of
Peerless, which are not deemed as representative of any indication of interim
operating results largely due to the impact of lower levels of production and
shipping activity during the holiday season.
CONTINUING OPERATIONS/PRO FORMA:
The following is a discussion and analysis of the unaudited pro forma
consolidated statement of operations for the Company's fiscal year ended
December 31, 1995, compared to the unaudited pro forma consolidated statement of
operations for the Company's fiscal year ended December 25, 1994.
Comparison of the Company's pro forma fiscal year ended December 31, 1995 with
the pro forma fiscal year ended December 25, 1994:
<TABLE>
<CAPTION>
CONTINUING OPERATIONS
--------------------------------------------
PRO FORMA FISCAL 1995 PRO FORMA FISCAL 1994
--------------------- ---------------------
(DOLLARS IN THOUSANDS, EXCEPT % OF % OF
SHARE AND PER SHARE DATA) DOLLARS NET SALES DOLLARS NET SALES
<S> <C> <C> <C> <C>
Net sales $ 41,951 100.0 $ 42,843 100.0
Gross profit 10,289 24.5 7,848 18.3
Selling, general and administrative expenses 7,518 17.9 7,457 17.4
Operating income 2,771 6.6 391 .9
Interest expense, net of interest income 1,404 3.3 1,200 2.8
Income (loss) from continuing operations
before income taxes 1,367 3.2 (809) (1.8)
Provision for income taxes (400) (30)
Income (loss), from continuing operations 967 3.0 (839) (1.9)
Income (loss) per share, continuing operations .16 (.14)
</TABLE>
NET SALES:
Net sales and overall shipment volume decreased slightly from $42,843 in 1994 to
$41,951 in 1995, principally due to a mild early 1995 winter season and the
corresponding softness in demand for traction related chain products and
elimination of low margin wire form business occurring in 1995. The pricing of
the Company's product has remained consistent between 1995 and 1994. The Company
anticipates fiscal 1996 sales to be somewhat better than that of 1994 and 1995,
largely due to the severe winter weather conditions occurring in early 1996 in
the eastern part of the United States and the need for consumer traction related
chain products during the recent winter months as well as springtime demand for
agricultural and commercial chain products, due to anticipated wet conditions in
1996, again as a result of the severe winter. In addition, the Company is in the
process of increasing production capacity associated with "debarking" chain
produced for both the OEM and replacement markets utilized in forestry and
lumber production. This added production capacity is anticipated to come on line
in mid-1996, and contribute to increasing sales throughout the remainder of
fiscal 1996. Actual sales could materially differ from those expressed in the
foregoing forward-looking statements. Actual sales are influenced by many
factors including weather and corresponding effect on the Company's estimates of
net product shipments in 1996 and selling prices, and could be negatively
impacted by continuing soft economic conditions or downturns in selected markets
served, including the OEM debarking specialty products sales.
The Company maintains over 2,000 customers with 500 active accounts greater than
$10,000 in annual sales. Of these active accounts, 85% have been customers for
at least three years. Wal-Mart Stores Inc., a customer for over 25 years,
accounts for approximately 20% of 1995 and 1994 net sales. The Company is the
sole source supplier for Wal-Mart's chain, traction and packaged peg wire form
products. The remaining top ten customers accounted for approximately 13% of
1995 and 1994 net sales with no one account representing more than 5% of total
sales.
GROSS PROFIT:
Gross profit as a percentage of sales increased from 18.3% in 1994 to 24.5% in
1995, principally a result of the inclusion of amortization of approximately
$1.8 million of the Peerless business acquisition purchase price allocated to
opening December 27, 1993, inventories of finished goods and work-in-process,
acquired as part of the Peerless acquisition in a finished or semi-finished
state (hereafter referred to as the "inventory step-up accounting"), all
occurring in fiscal 1994. Excluding the effect of the inventory step-up
accounting in 1994, gross profit as a percentage of sales increased from 22.5%
in 1994 to 24.5% in 1995 principally a result of improved operational
efficiencies due to reengineering of manufacturing processes.
The Peerless employees working in manufacturing operations, constituting
approximately 50% of the Company's workforce, are employed under a union
agreement through September of 1997. This union agreement contains annual wage
increases of 2.0 to 2.5%, which is relatively consistent with past years. The
Company cannot predict if it will be able to increase product prices or identify
and implement labor efficiency necessary to maintain historical gross margins
adequate to meet the contractual increasing cost of labor.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses as a percentage of sales remained
relatively constant between fiscal 1994 and 1995.
Management anticipates that selling, general and administrative expenses for the
year ended December 31, 1996, will be higher than the year ended December 31,
1995, dollar levels due to costs associated with increasing sales, as well as
costs associated with public reporting, although 1996 selling, general and
administrative expenses are anticipated to continue to decline as a percentage
of sales dollars. Actual selling, general and administrative expenses could
differ materially from those expressed in the foregoing forward-looking
statements. Actual selling, general and administrative expenses are dependent on
many factors, including achievement of the Company's sales objectives and the
ability to attract and retain quality sales and administrative team members.
INTEREST EXPENSE:
Pro forma interest expense as a percentage of sales increased from 2.6% in 1994
to 3.3% in 1995, principally a result of the higher borrowing levels during 1995
from that of 1994.
OTHER INCOME:
Other income in 1995 principally consisted of a gain realized on the disposition
of certain production equipment no longer needed in the Company's wire form
manufacturing operations. No such gain or loss of any significance was
experienced in 1994.
PROVISION FOR INCOME TAXES:
The pro forma provision in 1994 represents alternative minimum state and federal
taxes. The pro forma provision in 1995 reflects the utilization of approximately
$300,000 of net operating loss carryforwards (originating subsequent to the sale
of the restaurant business), with the remaining income at the statutory state
and federal tax rate.
DISCONTINUED OPERATIONS, DISPOSAL OF ALL RESTAURANT OPERATIONS IN 1994:
The Company operated ten Fuddruckers restaurants during the first five months of
fiscal year 1994. The Company sold nine of its restaurants and closed its
remaining restaurant in June 1994. For fiscal year 1994, restaurant sales for
the approximately five-month period ended June 7, 1994, was approximately $5.5
million, which resulted in a loss of approximately $600,000 ($390,000, net of
income tax benefit of $210,000).
LIQUIDITY AND CAPITAL RESOURCES:
As described under the caption "General" above, on December 15, 1995, the
Company acquired Peerless in a leveraged transaction, utilizing approximately
$2.3 million of existing cash and cash equivalents that originated in June of
1994 from the sale of the discontinued restaurant operations, $4.2 million in
equity raised in late 1995 and early 1996, and approximately $16.5 million in
lender and seller financing. In addition, see Note 5 to the Company's
Consolidated Financial Statements for further details as to the Company's
financing arrangements.
At December 31, 1995, only the seller financing of $2.5 million carries a fixed
interest rate (8%) payable monthly, which represented only a minor part of the
overall debt incurred to acquire and operate Peerless. The Company's CIT
floating rate financing totaled approximately $15.1 million at December 31,
1995, bears interest payable monthly that floats at rates ranging from .5% and
2.5% over the prime rate. Accordingly, the Company is subject to interest rate
fluctuations. In addition, $6.7 million of the CIT financing requires monthly
scheduled principal repayments. The $2.5 million of seller financing requires no
principal repayment until maturing in December of 1998. The Company is regarded
as highly leveraged but believes the cash flows from continuing operations are
adequate to fund debt service. Actual cash flows could materially differ from
those expressed in the foregoing forward-looking statements. Actual sales are
influenced by many factors including the weather and its corresponding effect on
the Company's current estimates of net product shipments in 1996 and selling
prices and could be negatively impacted by any downturn in demand for the
Company's products. Such a downturn in demand could result in interest rate
increases and, in turn, increase the costs to customers of maintaining their
historical investment in inventories of the Company's products for resale to
consumers or end users.
The Company intends to carefully evaluate capital expenditure needs associated
with continuing operations in light of market opportunities for the Company's
products and corresponding demand. The Company has, subsequent to December 31,
1995, either expended or committed to expend approximately $3 million for
manufacturing equipment. Approximately 75% of this commitment is intended to be
funded under a CAPEX line of credit with CIT. The remainder of the expenditures
will be funded by operations, which are largely supported by the CIT revolving
credit facility. Actual capital expenditures could materially differ from those
expressed in the foregoing forward-looking statements, as such expenditures are
influenced by many factors, including product demand as discussed under the
caption "Sales" above.
Management believes that cash generated from operations and amounts available
under its CIT revolving credit facility and CAPEX line of credit will be
sufficient to fund its anticipated capital expenditures and required debt
repayments for the foreseeable future. Funding availability under the CIT
financing agreement is dependent on the Company's maintenance of adequate levels
of borrowing base (inventory and receivables) as well as compliance with
financial and technical covenants (see Note 5 to the Consolidated Financial
Statements for summary information concerning financial covenant requirements).
There can be no assurance that additional financing will not be required or will
be available. Actual financing available could materially differ from that
expressed in the foregoing forward-looking statements for the reasons set forth
above and earlier under the caption "Liquidity and Capital Resources."
The Company did not pay dividends in 1995 and 1994, and restrictive covenants in
the Peerless CIT credit facility significantly limit the Company's ability to
pay dividends.
INFLATION:
Management believes that inflation has not had a material effect on the
Company's results of operations or financial condition, as the Company has been
able to identify and implement labor efficiency processes to offset increasing
labor costs as discussed earlier under the caption "Gross Profit."
NEW ACCOUNTING STANDARD:
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS No. 123) is effective for the Company in 1996. The Company
has not determined whether it will adopt the expense recognition provisions of
SFAS No. 123 for stock-based compensation or the alternative expanded
disclosures including pro forma disclosures as if the fair value based method of
accounting had been followed.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DISCUS ACQUISITION CORPORATION
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 25, 1994
AND CONSOLIDATING SUPPLEMENTAL SCHEDULES
FOR THE YEAR ENDED DECEMBER 31, 1995
To the Shareholders and Board of Directors of
Discus Acquisition Corporation:
We have audited the accompanying consolidated balance sheets of Discus
Acquisition Corporation as of December 31, 1995, and December 25, 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Discus
Acquisition Corporation as of December 31, 1995, and December 25, 1994, and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 27, 1996
DISCUS ACQUISITION CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 25,
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 108 $ 2,608
Accounts receivable 6,091
Inventories 13,646
Other current assets 510
-------- --------
Total current assets 20,355 2,608
Deferred tax assets 153
Property and equipment, net 12,586 61
Intangible assets, net 6,403
-------- --------
Total assets $ 39,497 $ 2,669
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 11,300 2
Accounts payable 2,823 20
Accrued liabilities 3,770 111
Current portion of accrued postretirement healthcare
benefit liability 670
Net liabilities of discontinued operations 57
-------- --------
Total current liabilities 18,563 190
Long-term debt, less current portion 7,767 43
Accrued pension benefit liability 1,687
Accrued postretirement healthcare benefit liability,
less current portion 6,386
-------- --------
Total liabilities 34,403 233
-------- --------
Shareholders' equity:
Common stock, no par value; 10,000,000 shares authorized;
4,971,174 and 2,356,140 shares issued and outstanding
in 1995 and 1994, respectively 6,629 3,769
Accumulated deficit (1,535) (1,333)
-------- --------
Total shareholders' equity 5,094 2,436
-------- --------
Total liabilities and shareholders' equity $ 39,497 $ 2,669
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
DISCUS ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
DECEMBER 31, DECEMBER 25,
1995 1994
<S> <C> <C>
Net sales $ 1,419
Cost of sales 1,162
-----------
Gross profit 257
Selling, general and administrative expenses 513 $ 225
----------- -----------
Operating loss (256) (225)
Interest expense (32)
Interest income 116 74
----------- -----------
Loss from continuing operations before income taxes (172) (151)
Provision for income taxes (30)
-----------
Loss from continuing operations (202) (151)
------------ ----------
Loss from discontinued operations associated with restaurant operations
disposed of in June 1994, net of income tax benefit of $210 (390)
Gain on disposal of restaurant operations, net of income tax
expense of $302 2,259
-----------
Net gain from discontinued operations 1,869
----------- -----------
Net income (loss) $ (202) $ 1,718
=========== ===========
Per share amounts:
Loss from continuing operations $ (.08) $ (.07)
Gain from discontinued operations .80
----------- -----------
Net income (loss) $ (.08) $ .73
=========== ===========
Weighted average number of shares outstanding 2,508,334 2,350,401
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
DISCUS ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 25, 1994 and December 31, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
<S> <C> <C> <C> <C>
Balance, December 26, 1993 2,060,400 $ 3,474 $ (3,051) $ 423
Issuance of common stock 100,000 75 75
Repurchase of common stock (1,500) (1) (1)
Exercise of stock options 197,240 121 121
Accelerated vesting of stock options 100 100
Net income for the year 1,718 1,718
---------- ---------- ---------- ----------
Balance, December 25, 1994 2,356,140 3,769 (1,333) 2,436
Issuance of common stock 2,595,034 2,854 2,854
Exercise of stock options 20,000 6 6
Net loss for the year (202) (202)
---------- ---------- ---------- ----------
Balance, December 31, 1995 4,971,174 $ 6,629 $ (1,535) $ 5,094
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
DISCUS ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 25,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (202) $ 1,718
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 111 232
Loss on disposal of property and equipment 61
Gain on disposal of restaurant operations (2,259)
Changes in operating assets and liabilities, exclusive of
closed or sold restaurant facilities 601 (1,414)
Other 31
------- -------
Net cash provided by (used in) operating activities 571 (1,692)
------- -------
Cash flows from investing activities:
Purchase of Peerless Chain Company, net of cash acquired (5,259)
Purchase of short-term investments (1,491)
Proceeds from sale of short-term investments 1,501
Proceeds from disposal of restaurant operating assets 4,837
Acquisitions of property and equipment (507) (20)
Other 61
------- -------
Net cash (used in) provided by investing activities (5,766) 4,888
------- -------
Cash flows from financing activities:
Long-term debt:
Borrowings 2,831
Payments (2,996) (812)
Proceeds from issuance of stock and exercise of stock options 2,860 193
Mortgage settlement agreement payments (94)
Termination charges for equipment lease obligations (76)
------- -------
Net cash provided by (used in) financing activities 2,695 (789)
------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
DISCUS ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------
DECEMBER 31, DECEMBER 25,
1995 1994
<S> <C> <C>
Increase (decrease) in cash and cash equivalents $(2,500) $ 2,407
Cash and cash equivalents:
Beginning of year 2,608 201
------- -------
End of year $ 108 $ 2,608
======= =======
Changes in operating assets and liabilities, exclusive of closed
or sold restaurant facilities:
Accounts receivable $ 983
Inventories (453) $ 18
Other current assets (62) 236
Accounts payable 179 (673)
Accrued liabilities (71) (995)
Accrued pension benefit liability 25
------- -------
$ 601 $(1,414)
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS.
DISCUS ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS:
As described in Note 3, the Company disposed of all its restaurant operations in
June 1994. In December 1995, the Company purchased the stock of Peerless Chain
Company (Peerless), as described in Note 2. Peerless' principal operations
include the manufacture and sale of chain and wire form products. From the third
quarter of 1994 and through the acquisition of Peerless, the Company did not
have any significant operating activities.
CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
FISCAL YEAR:
During 1995, the Company changed their fiscal year-end from the last Sunday in
December to December 31. This change did not have a material impact on the
Company's results of operations or cash flows.
CASH EQUIVALENTS:
The Company considers its investments in all highly liquid debt instruments with
original maturities of three months or less at date of purchase to be cash
equivalents. The carrying amount approximates fair value because of the short
maturity of those instruments.
INVENTORIES:
Inventories consist principally of chain and wire form products and are stated
at the lower of cost or market with cost determined on the first-in, first-out
method. An allowance for obsolete inventories is established, as necessary,
based on the Company's continuing analysis of inventory levels in excess of
current requirements or considered to be obsolete. An allowance to reduce
inventories to estimated net realizable value is also established, when
necessary.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation of property and
equipment are computed on the straight-line method over estimated useful lives
of the assets. Maintenance and repairs are charged to expense as incurred.
Renewals and betterments are capitalized. The cost and related accumulated
depreciation of assets disposed of are removed from the accounts and the
resulting gain or loss included in operations.
INTANGIBLE ASSETS:
Intangible assets recorded in connection with the 1995 acquisition of Peerless
are amortized on a straight-line basis from 5 to 40 years. The Company
periodically evaluates the recoverability of the intangible assets based on
analysis of estimated future undiscounted cash flows.
REVENUE RECOGNITION:
Revenue is recognized at the time of shipment.
INCOME TAXES:
Deferred income taxes are recognized for the expected future tax consequences of
differences between the tax bases of assets and liabilities and their financial
reporting amounts using enacted tax rates for the year in which the differences
are expected to reverse. A valuation allowance is provided when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable for the year and the change in deferred tax assets
and liabilities during the year.
Investment tax credits are recognized for financial reporting purposes using the
flow-through method in the year utilized for tax reporting purposes, or in the
year recognized as a deferred tax asset.
NET INCOME (LOSS) PER SHARE:
Net income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding.
Common equivalent shares relate to common stock options when their effect is not
antidilutive.
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 and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant areas
which require the use of management's estimates relate to the determination of
the allowances for uncollectible accounts receivable, product returns and
obsolete inventories, and the valuation allowance for deferred taxes.
2. ACQUISITION:
The Company purchased all outstanding shares of common stock of Peerless on
December 15, 1995, for approximately $23,178 plus $1,268 in related acquisition
costs. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the results of operations of the acquired company have
been included in the consolidated statement of operations since the date of the
acquisition.
The cost of the acquisition was allocated based on the estimated fair values on
the date of acquisition as follows:
Assets:
Accounts receivable $ 7,074
Inventories 13,193
Other current assets 448
Property and equipment 12,184
Deferred tax assets 153
Intangible assets 6,409
Liabilities:
Accounts payable (2,624)
Accrued liabilities (3,673)
Accrued pension benefit liability (1,662)
Accrued postretirement healthcare benefit liability (7,056)
--------
$ 24,446
========
The following represents the unaudited pro forma results of operations as if the
Peerless acquisition had occurred at the beginning of fiscal 1994:
YEAR ENDED DECEMBER 31
--------------------------
1995 1994
Net sales $ 41,951 $ 42,843
Income (loss) from continuing operations 967 (839)
Net gain from discontinued restaurant operations 1,962
Net income 967 1,123
Per share amounts:
Income (loss) from continuing operations $ .16 $ (.14)
Gain from discontinued restaurant operations .32
----------- -----------
Net income $ .16 $ .18
=========== ===========
Weighted average number of shares outstanding 6,221,174 6,172,708
=========== ===========
These pro forma results may not be indicative of results that actually would
have occurred had the acquisition taken place at the beginning of the periods
presented or of results which may occur in the future.
3. DISCONTINUED OPERATIONS:
During 1994, the Company sold substantially all of the business and restaurant
operating assets of the Company's restaurants and its interest in all real
estate leases and certain other contracts, permits and licenses to Fuddruckers,
Inc., its franchisor.
The Company assigned the real estate leases associated with the restaurants to
Fuddruckers, Inc. The Company satisfied all other obligations, including
royalties due to Fuddruckers, Inc., related to the restaurants upon closing of
the transaction.
The following schedule provides revenues and expenses for the discontinued
operations for the year ended December 25, 1994:
Restaurant sales $ 5,477
Other revenues 180
-------
Total revenues 5,657
-------
Cost of sales 1,633
Restaurant operating costs 3,835
Corporate expenses 497
Depreciation and amortization 214
Interest, net 78
Income tax benefit (a) (210)
-------
Total expenses 6,047
-------
Loss from discontinued operations $ (390)
=======
The following schedule provides the components of the gain on disposal:
Cash sale price $5,879
------
Assets sold 1,837
Net assets written off 135
Termination of lease obligations 531
Transaction, severance and other settlement expenses 532
Expense associated with accelerated vesting of stock options 59
Reduction to net realizable value of property and equipment
in closed restaurant 136
Accrual for estimated losses for closed restaurant 88
Income tax expense (a) 302
------
3,620
------
Gain on disposal of restaurant operations $2,259
======
(a) For the year ended December 25, 1994, the loss from discontinued
operations reduced the gain on disposal of restaurant operations.
Accordingly, the $210 income tax benefit shown in the schedule of
revenues and expenses reduces the $302 tax expense shown in the above
schedule of gain on disposal of restaurant operations, resulting in a
net tax expense of $92 for the year ended December 25, 1994.
4. SELECTED FINANCIAL SHEET INFORMATION:
The following provides additional information for selected consolidated balance
sheet accounts as of December 31, 1995 and 1994:
INVENTORIES:
1995
Raw materials $ 1,688
Work-in-process 5,362
Finished goods 6,062
Supplies 534
-------
Total $13,646
=======
PLANT AND EQUIPMENT:
1995 1994
Equipment $ 9,500 $ 205
Leasehold improvements 1,161
Construction in progress 2,030
-------- --------
12,691 205
Less accumulated depreciation and amortization (105) (144)
-------- --------
Total $ 12,586 $ 61
======== ========
INTANGIBLE ASSETS:
1995
Proprietary equipment technology $ 3,574
Customer lists 586
Tradename 518
Goodwill 1,731
-------
6,409
Less accumulated amortization (6)
-------
Total $ 6,403
=======
ACCRUED LIABILITIES:
1995 1994
Accrued payroll and employee benefits $1,692
Income taxes $ 103
Other 2,078 8
------ ------
Total $3,770 $ 111
====== ======
The following provide supplemental disclosures of cash flow activity and noncash
transactions:
1995 1994
Cash paid for interest $ 33 $107
==== ====
Cash paid for income taxes $153
====
In connection with the Peerless acquisition, the Company received $3,700 in
seller financing and issued $2,854 in common stock.
5. FINANCING ARRANGEMENTS:
Consolidated long-term debt of the Company is as follows as of December 31,
1995:
<TABLE>
<CAPTION>
<S> <C>
Senior debt:
Revolving credit facility, interest payable monthly at
the Chemical Bank Rate (CBR) plus 1/2% $ 8,442
Term note payable, interest payable monthly at the CBR
plus 1-1/2%, principal of $50 payable monthly 4,200
Term note payable, interest payable monthly at the CBR
plus 2-1/2%, principal of $69 payable monthly 2,500
CAPEX credit facility, interest payable monthly at the
CBR plus 1-1/2% --
--------
Total senior debt (a) 15,142
--------
Subordinate debt:
Acquisition notes payable (seller financing):
Stock purchase note, repaid January 1996 1,200
Redemption note, maturing December 1998, interest payable
monthly at 8% (b) 2,500
--------
3,700
--------
Other acquisition financing, provided by certain shareholders,
repaid January 1996 225
--------
19,067
Less current portion (11,300)
--------
Long-term portion $ 7,767
========
</TABLE>
(a) The senior debt originated on December 15, 1995 to fund the acquisition
of Peerless. The debt is collateralized by substantially all assets and
stock of Peerless and has been guaranteed by the Company. The CBR was
8.75% at December 31, 1995.
Covenants associated with the senior debt require Peerless to maintain
certain financial levels and ratios, including net worth and net income
(loss) levels and fixed charge coverage and leverage ratios. Peerless
must achieve budgeted performance at each month-end in 1996 and future
years, as well as annual budgeted performance to remain in compliance
with its financial ratio covenants. At December 31, 1995, the Company
was not in compliance with a financial covenant associated with the
senior debt agreement. This noncompliance has been waived by the
creditors.
The agreement also requires the Company to continue to own 100% of
voting stock of Peerless. The agreement also has certain restrictions
on new debt, changes in subordinate indebtedness, acquisitions,
dividends and transactions with affiliates. In the event of a default
under the terms of the agreement, the senior debt bears interest at 2%
above the rate otherwise payable, and all unpaid principal, interest
and fees may be declared due and payable. The agreement also contains
cross default provisions with certain other indebtedness of Peerless.
Under the revolving credit facility, Peerless may borrow up to a
maximum of $23,700, subject to a defined borrowing base that is based
on certain percentages of accounts receivable and inventories.
Continuing advances under the revolving credit facility are dependent
on, among other conditions, compliance with terms and conditions of the
senior debt agreement. As of December 31, 1995, total borrowings
available under the revolving credit facility were limited to $13,000.
At the Company's option, borrowings under the revolving credit facility
may bear interest at 2-3/4% above the LIBOR rate.
Under the CAPEX credit facility, $4,000 is available for the funding of
capital improvements, other than real estate, for up to 75% of the
total cost of the capital improvement. The loans are to be repaid in 60
monthly payments beginning the month after origination of the CAPEX
loan.
(b) Collateralized by the common stock of Peerless, subordinate to the
senior debt collateral interest in the Peerless stock, and guaranteed
by the Company.
Scheduled maturities of long-term debt at December 31, 1995, are as follows:
FISCAL YEAR ENDING
1996 $ 11,300
1997 1,433
1998 3,934
1999 600
2000 600
Thereafter 1,200
--------
$ 19,067
========
6. RETIREMENT PLANS:
Peerless maintains a defined contribution profit sharing plan and a 401(k)
savings plan covering substantially all of its employees. Employer contributions
to the profit sharing plan are made at the discretion of the Board of Directors.
Peerless' contributions to the 401(k) savings plan are based upon matching of
nonunion participant contributions to specified levels. The aggregate amount of
contributions to the defined contribution plans was $11 during 1995.
Peerless also maintains noncontributory defined benefit pension plans for union
and for nonunion employees. The plans provide for monthly benefits based upon a
percentage of the participant's average monthly compensation multiplied by years
of service. The pension expense for the defined benefit pension plans was $25
during 1995.
The Company's general funding policy is to contribute amounts sufficient to
satisfy regulatory funding standards. Assets of the two plans are invested
principally in equity and bond funds.
The funded status of the defined benefit pension plans as of December 31, 1995,
is summarized below:
Vested benefit obligations $ 4,839
Nonvested benefits 426
-------
Accumulated benefit obligation 5,265
Effect of projected salary increases 1,207
-------
Projected benefit obligation 6,472
Less plan assets at fair value (4,785)
-------
Accrued pension benefit liability $ 1,687
=======
Significant actuarial assumptions for the plans are as follows:
Discount rate for service and interest cost 7.50%
Projected salary increases, weighted average 6.00
Expected return on assets 8.00
Discount rate for year-end benefit obligations 6.75
7. POSTRETIREMENT BENEFITS:
Peerless provides certain postretirement healthcare benefits for retired
employees. Substantially all union employees may become eligible for these
benefits if they remain employed until normal retirement (age 55). All other
employees are eligible to receive benefits under the plan only if they had
reached age 60 by April 1, 1993.
The following table reconciles the accumulated postretirement benefit obligation
to the accrued postretirement healthcare benefit liability as of December 31,
1995:
Accumulated postretirement healthcare benefit obligation:
Retirees $ 3,272
Fully eligible active plan participants 668
Other active plan participants 3,116
-------
Accrued postretirement healthcare benefit liability 7,056
Less current portion (670)
-------
Long-term portion $ 6,386
=======
The accumulated postretirement benefit obligation was determined using a
discount rate of 6.75% and healthcare cost trend rates of 8.2% for pre-age 65
retirees and 7.4% for post-age 65 retirees. The healthcare cost trend rates were
assumed to decrease gradually to 5.5% to 2021 and remain level thereafter. An
increase in the healthcare cost trend rate of one percentage point in each year
would increase the accumulated postretirement healthcare benefit obligation by
approximately $970 at December 31, 1995.
8. SHAREHOLDERS' EQUITY:
EMPLOYEE 1984 STOCK OPTION PLAN:
The Company's employee stock option plan, established in 1984 and amended in
1987, provides for the grant of both incentive stock options and nonqualified
stock options for key employees, to purchase up to 250,000 shares of common
stock at prices not less than fair value at date of grant. Options granted are
exercisable for up to a 10-year period, are nonassignable and cannot be
exercised until the optionee has remained an employee of the Company for one
year from the date the option is granted. Pursuant to action taken by the Board
of Directors as a result of the sale of the Company's restaurant operations
(Note 3), all stock options under the Company's employee stock option plan
became immediately vested and exercisable. As a result, the Company recorded
expense of $59, equal to the difference between the exercise price and the fair
value of the Company's common stock on the date of the sale transaction.
As of December 31, 1995, only incentive stock options had been granted under
this plan and options to purchase 62,710 shares remain available for grant.
Stock option activity under this plan was as follows:
NUMBER OF SHARES OPTION PRICE PER SHARE
Balance, December 26, 1993 186,490 $ .14 - $1.03
Granted 16,000 $ .75
Exercised (167,240) $ .14 - $1.03
Cancelled (4,000) $ .62
--------
Options exercisable at
December 25, 1994 and
December 31, 1995 31,250 $ .32
========
NONQUALIFIED NONEMPLOYEE DIRECTORS' STOCK OPTIONS:
On May 27, 1993, the Company granted options to purchase 30,000 shares of its
common stock to each of three current and former nonemployee directors. The
options were to become exercisable at a rate of 10,000 annually for each
director beginning on May 27, 1994. The option price per share is $.29, the
estimated fair value at date of grant. Pursuant to an action taken by the Board
of Directors as a result of the sale of the Company's restaurant operations
(Note 3), the options became immediately exercisable for each director on May
24, 1994. As a result, the Company recorded expense of $41, equal to the
difference between the exercise price and the fair value of the Company's common
stock on the date of the sale transaction. During 1994, options to purchase
30,000 shares were exercised. During 1995, options to purchase 20,000 shares
were exercised, and the options for the remaining 40,000 shares are exercisable
at December 31, 1995.
SPELL GROUP AGREEMENT AND 1994 STOCK OPTION PLAN:
In 1994, the Company created a strategic relationship with the Spell Group to
implement a plan adopted by its Board of Directors to divest the Company of a
majority of its Fuddruckers restaurants (Note 3) and, thereafter, to pursue an
acquisition strategy whereby the Company, using funds realized from the disposal
of its restaurants, together with such other financing as may be available,
would acquire one or more existing business operations. Pursuant to the terms of
the Spell Group Agreement, the Spell Group purchased from the Company 100,000
shares of the common stock of the Company at $.75 per share.
In 1994, the Company adopted the Discus Corporation 1994 Stock Option Plan (the
1994 Plan) pursuant to which 600,000 shares of common stock have been reserved
for grants of incentive or nonqualified options to members of the Board of
Directors and others. The 1994 Plan also permits the grant of options to
employees, consultants and advisors to the Company at the discretion of the
Board. Options are granted at prices not less than fair value at date of grant.
Under the 1994 Plan, the Company granted to members of the Spell Group options
to purchase an aggregate of 100,000 shares of the Company's common stock at $.75
per share and options to purchase an aggregate of 300,000 shares at $1.35 per
share. Of these options, 25% are exercisable on December 1, 1996 and 1997, and
the remaining 50% are exercisable on December 1, 1998. The exercise of options,
however, will automatically accelerate to the date of closing by the Company of
an exchange of securities, sale, merger, consolidation or similar transaction
involving a reorganization of, or acquisition by, the Company.
In December 1995, the Company granted 263,500 options to employees at an
exercise price of $1.10 per share, subject to shareholder approval increasing
the number of shares available for grant under the 1994 Plan from 600,000 to
1,200,000 shares.
In 1994, the Company also granted options to outside consultants to purchase
24,000 and 3,000 shares of the Company's common stock at $.94 and $.875 per
share, respectively. Subsequently, options to purchase 8,000 shares at $.94 have
been forfeited. None of the options are exercisable until one year following the
date of grant, with one third of such options becoming exercisable each of the
two years following the date of grant, and the remainder becoming exercisable on
September 5, 1997. None of the shares granted under the 1994 Plan were exercised
during 1994 or 1995.
The 1994 Plan further provides for the automatic grant to nonemployee directors
of five-year options for 18,000 shares of common stock when a nonemployee
director first becomes an outside director, exercisable as to 6,000 shares on
the first, second and third anniversaries of the date of grant to such director.
Pursuant to the 1994 Plan, options have been granted automatically to purchase
18,000 shares of its common stock to each of four nonemployee directors at an
exercise price of $.875 per share.
EMPLOYEE STOCK PURCHASE PLAN:
In December 1988, the Board of Directors established an employee stock purchase
plan available to substantially all full-time employees of the parent, Discus
Acquisition Corporation. Under the terms of the plan, an aggregate of 200,000
shares of the Company's authorized, nonissued common stock has been made
available for purchase. No shares have been issued under the plan.
SUBSEQUENT EVENTS:
In January and March 1996, 579,000 nonqualified options and warrants at an
exercise price of $1.10 were granted under the 1994 Plan to employees,
consultants, advisers and Board of Directors of the Company, subject to
shareholder approval increasing the number of shares available for grant under
the 1994 Plan from 600,000 to 1,200,000 shares. These options principally vest
20% per year over five years.
In January 1996, the Company issued 1,260,000 shares of common stock at $1.10
per share for $1,386,000.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), a new standard of
accounting and reporting for stock-based compensation plans. The Company is not
required to adopt the new standard until 1996. The Company has not determined
whether it will adopt the expense recognition provisions of SFAS No. 123 for
stock-based compensation or the alternative expanded disclosures including pro
forma disclosures as if the fair value based method of accounting had been
followed.
9. LEASE COMMITMENTS:
The Company leases its office and manufacturing facilities as well as various
equipment and warehouses under noncancellable operating lease agreements.
Peerless' office and manufacturing facilities' lease has a term through June
2011. Annual lease payments are $1,269 and are to be adjusted for inflation
every five years with the next adjustment scheduled for 1996. The lease imposes
various restrictions which, among other things, requires Peerless to maintain
certain financial covenants and prohibits the Company from making significant
acquisitions or disposals of property or businesses without prior approval by
the lessor.
Future minimum lease payments under the lease agreements at December 31, 1995
are:
1996 $ 1,808
1997 1,812
1998 1,744
1999 1,673
2000 1,626
Thereafter 16,475
The Company incurred rent expense of $91 and $611 during 1995 and 1994,
respectively.
10. BUSINESS AND CREDIT CONCENTRATION:
The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, does not require collateral from its customers. The
Company establishes an allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers and other information.
The Company's most significant customer accounted for 18% of net sales in 1995
and 20% of accounts receivable at December 31, 1995.
11. INCOME TAXES:
The tax provision for the year ended December 31, 1995, represents primarily
state minimum taxes. The tax provision for the year ended December 31, 1994,
represents primarily federal alternative minimum taxes and state minimum taxes.
The deferred taxes result from different allocations in the tax bases and
financial reporting amounts for assets and liabilities acquired in the Peerless
acquisition. The components of the deferred tax assets and liabilities at
December 31, 1995, are as follows:
Accounts receivable $ (43)
Inventories (93)
Other (7)
-------
Current deferred tax liabilities $ (143)
=======
Accrued postretirement healthcare benefits $ 2,682
Goodwill (2,439)
Depreciation (90)
-------
Long-term deferred tax assets $ 153
=======
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
A definitive Proxy Statement to the 1996 Annual Meeting of Shareholders
of the Company will be filed no later than 120 days after the end of its fiscal
year with the Securities and Exchange Commission. Information regarding
directors of the Company in response to this Item is incorporated by reference
from the descriptions set forth under the caption "Election of Directors" in its
1996 Proxy Statement. The Company's executive officers are discussed in Part I
of this Form 10-KSB under the caption "Executive Officers of the Company."
ITEM 10. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by
reference to the information set forth under the captions "Election of
Directors" and "Executive Compensation" in the Company's 1996 Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by
reference from the information set forth under the caption "Security Ownership
of Management and Others" in the Company's 1996 Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by
reference from the information set forth under the caption "Certain
Transactions" in the Company's 1996 Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number
3.1 Articles of Incorporation, as amended, including Certificate
of Designation of Rights and Preferences of Class B Common
Stock of the Registrant dated January 4, 1996 (filed
herewith).
3.2 Bylaws, as amended (incorporated by reference to Exhibit No.
3.2 to Registrant's Annual Report on Form 10-K for the year
ended December 28, 1986).
4 See Exhibit 3.1.
10.1 Registrant's Employee Stock Purchase Plan (incorporated by
reference to Exhibit No. 4.1 to Registrant's Registration
Statement on Form S-8 No. 33-31232).
10.2 Lease Agreement dated June 18, 1986, as amended, between
Peerless Chain Company and CPA Peerless Limited Partnership
(incorporated by reference to Exhibit No. 10.13 to
Registrant's Current Report on Form 8-K dated December 27,
1995).
10.3 Stock Option Agreement dated May 27, 1993 between the
Registrant and Michael Platt for the purchase of 31,250 shares
(incorporated by reference to Exhibit No. 10.19 to
Registrant's Annual Report on Form 10-KSB for the year ended
December 25, 1994).
10.4 Stock Purchase Agreement dated March 3, 1994 between the
Registrant and members of the Spell Group (incorporated by
reference to Exhibit No. 10.9 to Registrant's Annual Report on
Form 10-KSB for the year ended December 25, 1994).
10.5 Discus Corporation 1994 Stock Option Plan (incorporated by
reference to Exhibit No. 10.10 to Registrant's Annual Report
on Form 10-KSB for the year ended December 25, 1994).
10.6 Nonqualified Stock Option Agreement dated April 8, 1994
between the Registrant and Richard W. Perkins for the purchase
of 22,000 shares (incorporated by reference to Exhibit
No. 10.11 to Registrant's Annual Report on Form 10-KSB for the
year ended December 25, 1994).
10.7 Nonqualified Stock Option Agreement dated April 8, 1994
between the Registrant and Harry W. Spell for the purchase
of 22,000 shares (incorporated by reference to Exhibit
No. 10.12 to Registrant's Annual Report on Form 10-KSB for the
year ended December 25, 1994).
10.8 Nonqualified Stock Option Agreement dated April 8, 1994
between the Registrant and William H. Spell for the purchase
of 40,000 shares (incorporated by reference to Exhibit
No. 10.13 to Registrant's Annual Report on Form 10-KSB for the
year ended December 25, 1994).
10.9 Nonqualified Stock Option Agreement dated April 8, 1994
between the Registrant and Bruce A. Richard for the purchase
of 16,000 shares (incorporated by reference to Exhibit No.
10.14 to Registrant's Annual Report on Form 10-KSB for the
year ended December 25, 1994).
10.10 Nonqualified Stock Option Agreement dated April 8, 1994
between the Registrant and Richard W. Perkins for the purchase
of 45,000 shares (incorporated by reference to Exhibit No.
10.15 to Registrant's Annual Report on Form 10-KSB for the
year ended December 25, 1994).
10.11 Nonqualified Stock Option Agreement dated April 8, 1994
between the Registrant and Harry W. Spell for the purchase of
45,000 shares (incorporated by reference to Exhibit No. 10.16
to Registrant's Annual Report on Form 10-KSB for the year
ended December 25, 1994).
10.12 Nonqualified Stock Option Agreement dated April 8, 1994
between the Registrant and William H. Spell for the purchase
of 190,000 shares (incorporated by reference to Exhibit No.
10.17 to Registrant's Annual Report on Form 10-KSB for the
year ended December 25, 1994).
10.13 Nonqualified Stock Option Agreement dated April 8, 1994
between the Registrant and Bruce A. Richard for the purchase
of 20,000 shares (incorporated by reference to Exhibit No.
10.18 to Registrant's Annual Report on Form 10-KSB for the
year ended December 25, 1994).
10.14 Asset Purchase Agreement dated April 15, 1994 between the
Registrant and Fuddruckers, Inc. (incorporated by reference to
Exhibit No. 10.8 to Registrant's Annual Report on Form 10-KSB
for the year ended December 25, 1994).
10.15 Incentive Stock Option Agreement dated November 1, 1995 by and
between the Registrant and William H. Spell for the purchase
of 175,000 shares (filed herewith).
10.16 Nonqualified Incentive Stock Option Agreement dated November
1, 1995 by and between the Registrant and Bruce A. Richard for
the purchase of 25,000 shares (filed herewith).
10.17 Stock Purchase Agreement dated November 22, 1995, as amended
December 1, 1995 and December 13, 1995, between the Registrant
and Bridgewater Resources Corp. (incorporated by reference to
Exhibit No. 10.1 to Registrant's Current Report on Form 8- K
dated December 27, 1995).
10.18 Form of Amended Incentive Stock Option Agreement dated
December 12, 1995 by and between the Registrant and certain
Peerless employees (filed herewith).
10.19 Financing Agreement dated December 13, 1995 between The CIT
Group/Business Credit, Inc. and Peerless Chain Company and
Peerless Chain of Iowa, Inc. (incorporated by reference to
Exhibit No. 10.2 to Registrant's Current Report on Form 8-K
dated December 27, 1995).
10.20 $2,500,000 Redemption Note dated December 13, 1995 between
Peerless Chain Company and Bridgewater Resources Corp.
(incorporated by reference to Exhibit No. 10.3 to Registrant's
Current Report on Form 8-K dated December 27, 1995).
10.21 $1,200,000 Stock Purchase Note dated December 13, 1995 between
the Registrant and Bridgewater Resources Corp. (incorporated
by reference to Exhibit No. 10.4 to Registrant's Current
Report on Form 8-K dated December 27, 1995).
10.22 Stock Purchase Note dated December 13, 1995 in the amount of
$100,000 between the Registrant and Harry W. Spell
(incorporated by reference to Exhibit No. 10.5 to Registrant's
Current Report on Form 8-K dated December 27, 1995).
10.23 Stock Purchase Note dated December 13, 1995 in the amount of
$125,000 between the Registrant and Pyramid Investors
(incorporated by reference to Exhibit No. 10.6 to Registrant's
Current Report on Form 8-K dated December 27, 1995).
10.24 Subordination Agreement dated December 13, 1995 between
Bridgewater Resources Corp. and The CIT Group/Business Credit,
Inc. (incorporated by reference to Exhibit No. 10.7 to
Registrant's Current Report on Form 8-K dated December 27,
1995).
10.25 Stock Pledge Agreement dated December 13, 1995 between The CIT
Group/Business Credit, Inc. and the Registrant (incorporated
by reference to Exhibit No. 10.8 to Registrant's Current
Report on Form 8-K dated December 27, 1995).
10.26 Stock Pledge Agreement dated December 13, 1995 between The CIT
Group/Business Credit, Inc. and Peerless Chain Company
(incorporated by reference to Exhibit No. 10.9 to Registrant's
Current Report on Form 8-K dated December 27, 1995).
10.27 Grant of security interest in patents, trademarks and licenses
dated December 13, 1995 between Peerless Chain Company,
Peerless Chain of Iowa, Inc. and The CIT Group/ Business
Credit, Inc. (incorporated by reference to Exhibit No. 10.10
to Registrant's Current Report on Form 8-K dated December 27,
1995).
10.28 Guaranty of Parent Agreement dated December 13, 1995 between
The CIT Group/ Business Credit, Inc. and the Registrant
(incorporated by reference to Exhibit No. 10.11 to
Registrant's Current Report on Form 8-K dated December 27,
1995).
10.29 Guaranty of Borrower dated December 13, 1995 between The CIT
Group Business Credit, Inc. and Peerless Chain Company and
Peerless Chain of Iowa, Inc. (incorporated by reference to
Exhibit No. 10.12 to Registrant's Current Report on Form 8-K
dated December 27, 1995).
10.30 Employment Agreement dated December 13, 1995 by and between
William H. Spell and Peerless Chain Company (filed herewith).
10.31 Employment Agreement dated December 13, 1995 by and between
Jan C. van Osnabrugge and Peerless Chain Company (filed
herewith).
10.32 Employment Agreement dated December 13, 1995 by and between
Robert E. Deter and Peerless Chain Company (filed herewith).
10.33 Employment Agreement dated December 13, 1995 by and between
Gerald Faurote and Peerless Chain Company (filed herewith).
10.34 Employment Agreement dated December 13, 1995 by and between
Dale Schwanke and Peerless Chain Company (filed herewith).
10.35 Employment Agreement dated December 13, 1995 by and between
John McCauley and Peerless Chain Company (filed herewith).
10.36 1994 Stock Option Plan, (incorporated by reference to Exhibit
No. 10.75 to Registrant's Form 8-KSB report dated
April 15, 1994).
10.37 Warrant dated January 9, 1996 between the Registrant and
Northland Business Capital, L.L.P. for the purchase of 50,000
shares (filed herewith).
10.38 Form of Warrant dated March 12, 1996 between the Registrant
and guarantors of indebtedness of Peerless management group
(filed herewith).
21 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule.
(b) Reports on Form 8-K
Form 8-K dated December 27, 1995, Item 2, announcement of
acquisition of Peerless Chain Company
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Minneapolis, State
of Minnesota on March 29, 1996.
DISCUS ACQUISITION CORPORATION
By /s/ William H. Spell
William H. Spell
Chief Executive Officer
(principal executive officer)
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant, and in
the capacities and on the date indicated.
Signature Title Date
/s/ Harry W. Spell
Harry W. Spell Chairman and Director March 29, 1996
/s/ William H. Spell
William H. Spell Chief Executive Officer March 29, 1996
and Director
/s/ Robert E. Deter
Robert E. Deter Chief Financial Officer March 29, 1996
(principal financial and
accounting officer)
/s/ Michael E. Platt
Michael E. Platt Director March 29, 1996
/s/ Reynold M. Anderson
Reynold M. Anderson Director March 29, 1996
/s/ Bruce A. Richard
Bruce A. Richard Director March 29, 1996
/s/ Richard W. Perkins
Richard W. Perkins Director March 29, 1996
/s/ Brian K. Smith
Brian K. Smith Director March 29, 1996
ARTICLES OF INCORPORATION
OF
DISCUS CORPORATION
The undersigned incorporator, being a natural person 18 years of age or
older, in order to form a corporate entity under Minnesota Statutes, Chapter
302A, hereby adopts the following articles of incorporation;
ARTICLE I
NAME: The name of this Corporation shall be DISCUS CORPORATION.
ARTICLE II
REGISTERED OFFICE: The address of the Corporation's registered office
is 2400 IDS Center, Minneapolis, Minnesota 55402.
ARTICLE III
AUTHORIZED SHARES: The aggregate number of shares that this Corporation
has authority to issue is 10,000,000 shares.
3.1 The Board of Directors may, from time to time, establish by
resolution, different classes or series of shares and may fix the rights and
preferences of said shares in any class or series.
3.2 The Board of Directors shall have the authority to issue shares of
a class or series to holders of shares of another class or series to effectuate
share dividends, splits, or conversions of its outstanding shares.
ARTICLE IV
CERTAIN SHAREHOLDER RIGHTS: Shareholders shall have preemptive rights
to purchase, subscribe for or otherwise acquire any new or additional securities
of the Corporation. Each shareholder shall be entitled to any cumulative voting
rights in connection with the election of the Board of Directors. The
shareholders shall take action by the affirmative vote of the holders of a
majority of the voting power of all voting shares, except where a larger
proportion is required by law, or under a shareholder control agreement.
ARTICLE V
WRITTEN ACTION BY BOARD: An action required or permitted to be taken by
the Board of Directors of this Corporation may be taken by written action signed
by the number of directors that would be required to take the same action at a
meeting of the Board at which all directors are present, except as to those
matters requiring shareholder approval, in which case the written action shall
be signed by all members of the Board of Directors then in office.
ARTICLE VI
The name and address of the incorporator is:
Barbara J. Caruthers
2400 IDS Center
Minneapolis, Minnesota 55402
IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of June,
1983.
/s/ Barbara J. Caruthers
--------------------
Barbara J. Caruthers
STATE OF MINNESOTA)
) ss.
COUNTY OF HENNEPIN)
The foregoing instrument was acknowledged before me this 1st day of
June, 1983, by Barbara J. Caruthers.
/s/ Diane D. Hiscock
----------------
Notary Public
THIS INSTRUMENT DRAFTED BY:
Avron L. Gordon, Esq.
Briggs and Morgan
2400 IDS Center
Minneapolis, Minnesota 55402
AMENDMENT OF ARTICLES
OF INCORPORATION OF
DISCUS CORPORATION
Pursuant to the provisions of Minnesota Statutes, Sections 302A.133 and
302A.135, the following amendment and restatement of Articles of Incorporation
regulating Discus Corporation was adopted on March 7, 1984 by the shareholders
of the Corporation to be effective as of the date of the filing of this
Amendment with the Secretary of State of Minnesota.
WHEREAS, it is desirable to restate Articles of
Incorporation of this Corporation, it is
RESOLVED, that this Corporation hereby approves and
adopts the Restated Articles of Incorporation in the
form attached hereto as Exhibit A and incorporated
herein by reference.
The undersigned swears that the foregoing is true and correct and that
the undersigned has the authority to sign this document on behalf of the
Corporation.
Signed: /s/ Michael E. Platt
----------------
Michael E. Platt
Chief Executive Officer
STATE OF MINNESOTA)
) ss.
COUNTY OF HENNEPIN)
The foregoing instrument was acknowledged before me this 7th day of
March, 1984, by Michael E. Platt, Chief Executive Officer of Discus Corporation
on behalf of said Corporation.
/s/ Avron L. Gordon
---------------
Notary Public
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
DISCUS CORPORATION
ARTICLE I
The name of this Corporation is Discus Corporation.
ARTICLE II
The registered office of this Corporation is located at 2400 IDS
Center, Minneapolis, Minnesota 55402.
ARTICLE III
3.01 The aggregate number of shares of stock which this Corporation
shall have authority to issue is 10,000,000 shares, which shares shall be
without par value; provided, however, that such shares shall have a par value of
one cent per share, solely for the purpose of a statute or regulation imposing a
tax or fee based upon the capitalization of a corporation.
3.02 The board of directors may, from time to time, establish by
resolution different classes or series of shares and may fix the rights and
preferences of said shares in any class or series.
3.03 The board of directors shall have the authority to issue shares of
a class or series to holders of shares of another class or series to effectuate
share dividends, splits, or conversion of its outstanding shares.
3.04 No shareholder of the Corporation shall have any preemptive
rights.
3.05 No shareholder shall be entitled to any cumulative voting rights.
3.06 The shareholders shall take action by the affirmative vote of the
holders of a majority of the voting power of all voting shares, except where a
larger proportion may be required by law.
ARTICLE IV
An action required or permitted to be taken by the board of directors
of this Corporation may be taken by written action signed by that number of
directors that would be required to take the same action at a meeting of the
board at which all directors were present, except as to those matters requiring
shareholder approval, in which case the written action must be signed by all
members of the board of directors then in office.
ARTICLE V
The foregoing Restated Articles of Incorporation supersede the Articles
of Incorporation of this Corporation filed with the Minnesota Secretary of State
on June 1, 1983. The foregoing Restated Articles of Incorporation have been
adopted by the shareholders of this Corporation effective March 7, 1984 to be
effective as of the date of filing such Restated Articles of Incorporation with
the Secretary of State of the State of Minnesota.
State of Minnesota * See instructions at bottom
Office of the Secretary of State of page for completing
this form
MODIFICATION OF STATUTORY REQUIREMENTS
OR AMENDMENT OF ARTICLES
- --------------------------------------------------------------------------------
Corporate Name
Discus Corporation
- --------------------------------------------------------------------------------
Date of Adoption of Amendments/Modifications
May 8, 1986
Effective Date, if any, of Amendments/Modifications*
Upon filing with the Secretary of State
- --------------------------------------------------------------------------------
Amendments/Modifications Approved by Corporate:
|X| Shareholders |_| Incorporators |_| Directors
- --------------------------------------------------------------------------------
Pursuant to the provisions of Minnesota Statues, Sections 302A.133 and 302A.135,
the following amendments of articles or modifications to the statutory
requirements, regulating the above corporation were adopted: (Insert full text
of newly amended or modified article(s), indicating which article(s) is (are)
being amended or added. If the full text of the amendment will not fit into the
space provided, please do not use this form. Instead, retype the amendment on a
separate sheet or sheets, using this format.)
ARTICLE III Section 3.06
Article III, Section 3.06 of the Restated Articles of Incorporation of
this Corporation is hereby rescinded and deleted in its entirety.
*Note: Effective date may be any date within 30 days after the filing date. If
no date is specified, the effective date is the filing date.
I swear that the foregoing is true and accurate and that I have the authority to
sign this document on behalf of the corporation.
STATE OF MINNESOTA )
) ss.
County of Hennepin )
(Notarial Seal)
Signed: /s/ Avron L. Gordon
-------------------
Position: Secretary
The foregoing instrument was acknowledged before me on this 28th day of May,
1986.
/s/ Jennifer J. Snider
Notary Public
(Notarial Seal)
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR USE BY SECRETARY OF STATE
1. Type or print with dark black ink.
2. Filing Fee: $15.00
3. Make check for the filing fee payable
to the Secretary of State.
4. Mail or bring completed form to:
Secretary of State
Corporation Division
180 State Office Building
St. Paul, MN 55155
(612) 296-2803
SC-00175-01
State of Minnesota
Office of the Secretary of State
* See instructions at bottom
of page for completing this form
MODIFICATION OF STATUTORY REQUIREMENTS
OR AMENDMENT OF ARTICLES
- --------------------------------------------------------------------------------
Corporate Name
Discus Corporation
- --------------------------------------------------------------------------------
Date of Adoption of Amendments/Modifications
May 7, 1987
Effective Date, if any, of Amendments/Modifications*
- --------------------------------------------------------------------------------
Amendments/Modifications Approved by Corporate:
|X| Shareholders |_| Incorporators |_| Directors
- --------------------------------------------------------------------------------
Pursuant to the provisions of Minnesota Statues, Sections 302A.133 and 302A.135,
the following amendments of articles or modifications to the statutory
requirements, regulating the above corporation were adopted: (Insert full text
of newly amended or modified article(s), indicating which article(s) is (are)
being amended or added. If the full text of the amendment will not fit into the
space provided, please do not use this form. Instead, retype the amendment on a
separate sheet or sheets, using this format.)
ARTICLE IV
Shall be amended in its entirety as attached hereto as Exhibit A.
*Note: Effective date may be any date within 30 days after the filing date. If
no date is specified, the effective date is the filing date.
I swear that the foregoing is true and accurate and that I have the authority to
sign this document on behalf of the corporation.
STATE OF MINNESOTA )
) ss.
County of Hennepin )
(Notarial Seal)
Signed: /s/ Michael E. Platt
--------------------
Michael E. Platt
Position: Chief Executive Officer
The foregoing instrument was acknowledged before me on this 7th day of May,
1987.
/s/ Avron L. Gordon
- -------------------
Notary Public
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR USE BY SECRETARY OF STATE
1. Type or print with dark black ink.
2. Filing Fee: $15.00
3. Make check for the filing fee payable
to the Secretary of State.
4. Mail or bring completed form to:
Secretary of State
Corporation Division
180 State Office Building
St. Paul, MN 55155
(612) 296-2803
Avron L. Gordon
Briggs and Morgan, P.A.
2400 IDS Center, Mpls. MN
SC-00175-01
EXHIBIT A
ARTICLE IV
4.01 An action required or permitted to be taken by the board of
directors of this corporation may be taken by written action signed by that
number of directors that would be required to take the same action at a meeting
of the board at which all directors were present, except as to those matters
requiring shareholder approval, in which case the written action must be signed
by all members of the board of directors then in office.
4.02 To the fullest extent permitted by the Minnesota Business
Corporation Act, a director of the Corporation shall not be personally liable to
the corporation or its shareholders for monetary damages for a breach of
fiduciary duty as a director, except for (i) liability based on a breach of the
duty of loyalty to the Corporation or its shareholders; (ii) liability based on
illegal distributions under Minnesota Statutes, Section 302A.559; (iii)
liability for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iv) liability for actions or
omissions pursuant to which the director derived an improper personal benefit;
(v) liability based on a violation of Minnesota Statutes Section 80A.23, or (vi)
liability for any act or omission, occurring prior to the effective date of this
Section 4.02. If the Minnesota Business Corporation Act is amended after
approval of this section to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the Minnesota Business Corporation Act, as so amended. Any repeal
or modification of this section by the shareholders of the Corporation shall be
prospective only, shall not adversely affect any limitation on the personal
liability of a director of the Corporation existing at the time of such repeal
or modification, and shall be made only upon the affirmative vote of the same
percentage of votes represented by shares of the common stock of the corporation
present and entitled to vote, in person or by proxy, at a meeting of
shareholders duly called for such purpose, as were originally obtained to adopt
this section.
State of Minnesota
Office of the Secretary of State
Notice of Change of
Registered Office - Registered Agent or Both
by
- --------------------------------------------------------------------------------
Name of Corporation Discus Corporation
- --------------------------------------------------------------------------------
Pursuant to Minnesota Statutes, Section 302A.123, 303.10, 317.19, 317A.123 or
308A.025 the undersigned hereby certifies that the Board of Directors of the
above named Corporation has resolved to change the corporation's registered
office and/or agent to:
- --------------------------------------------------------------------------------
Agent's If you do not wish to designate an agent, you must list
"NONE" in this box. DO NOT LIST THE CORPORATE NAME
Name NONE
- --------------------------------------------------------------------------------
Address (You may not list a P.O. Box, but you may list a rural route
and box number)
(No. & Street) 3601 Minnesota Drive, Suite 925
- --------------------------------------------------------------------------------
City County MN Zip
Bloomington Hennepin 55435
- --------------------------------------------------------------------------------
Mailing (If different than address above -- P.O. Box is acceptable)
Address
- --------------------------------------------------------------------------------
City County MN Zip
- --------------------------------------------------------------------------------
The new address may not be a post office box. It must be a street address,
pursuant to Minnesota Statutes, Section 302A.011, Subd. 3., 303.02, Subd. 5,
317.02 Subd. 13, 317A.01 Subd. 2.
This change is effective on the day it is filed with the
Secretary of State, unless you indicate another date, no later
than 30 days after filing with the Secretary of State, in this
box:
---------------------------------
| |
| |
---------------------------------
I certify that I am authorized to execute this certificate and I further certify
that I understand that by signing this certificate I am subject to the penalties
of perjury as set forth in section 609.48 as if I had signed this certificate
under oath.
-------------------------------------------------------------------------------
Name of Officer or Other Authorized Agent of CorSignature
(Please Print) Stephan P. Jones /s/ Stephan P. Jones
-------------------------------------------------------------------------------
Title or Office Date
Chief Financial Officer 11/20/91
-------------------------------------------------------------------------------
Do not write below this line. For Secretary of State's use only.
- --------------------------------------------------------------------------------
Receipt Number File Data D.A.R.
- --------------------------------------------------------------------------------
- -------------------------------------------
Filing Fee: $35.00
Return to: Business Services Division
Office of the Secretary
of State
180 State Office Building
St. Paul, Minnesota 55155
(612) 296-2803
Make checks payable to: Secretary of State
SC-00014-06
STATE OF MINNESOTA
SECRETARY OF STATE
NOTICE OF CHANGE OF REGISTERED OFFICE/
REGISTERED AGENT
Please read the instructions on the back before completing this form.
1. Corporate Name:
Discus Corporation
2. Registered Office Address (No. & Street): List a complete street
address or rural route and rural route box number. A post office box
is not acceptable.
5001 W. 80th Street, Suite 901, Bloomington, MN 55437
Street City State Zip Code
3. Registered Agent (Registered agents are required for foreign
corporations but optional for Minnesota corporations):
None
If you do not wish to designate an agent, you must list "NONE" in this
box. DO NOT LIST THE CORPORATE NAME.
In compliance with Minnesota Statutes, Section 302A.123, 303.10, 308A.025,
317A.123 or 322B.135 I certify that the above listed company has resolved to
change the company's registered office and/or agent as listed above.
I certify that I am authorized to execute this certificate and I further certify
that I understand that by signing this certificate I am subject to the penalties
as set forth in Minnesota Statutes 609.48 as if I had signed this certificate
under oath.
/s/ Stephan P. Jones
----------------
Signature of Authorized Person
Name and Telephone Number of Contact Person: Stephan Jones (612) 831-2326
-----------------------------
please print legibly
- --------------------------------------------------------------------------------
Filing Fee: Minnesota Corporations, Cooperatives and Office Use Only
Limited Liability Companies: $35.00
Non-Minnesota Corporations: $50.00
Make checks payable to Secretary of State
Return to: Minnesota Secretary of State
180 State Office Building
100 Constitution Avenue
St. Paul, Minnesota 55155-1299
(612) 296-2803
03930275 Rev. 5/93
MINNESOTA SECRETARY OF STATE
AMENDMENT OF ARTICLES OF INCORPORATION
BEFORE COMPLETING THIS FORM, PLEASE READ INSTRUCTIONS LISTED BELOW.
CORPORATE NAME: (List the name of the company prior to any desired name change)
Discus Corporation
This amendment is effective on the day it is filed with the Secretary of State,
unless you indicate another date, no later than 30 days after filing with the
Secretary of State.
----------------------------------
The following amendment(s) of articles regulating the above corporation were
adopted: (Insert full text of newly amended article(s) indicating which
article(s) is (are) being amended or added.) If the full text of the amendment
will not fit in the space provided, attach additional numbered pages. (Total
number of pages including this form 1.)
ARTICLE I
The name of this Corporation shall be Discus Acquisition Corporation.
This amendment has been approved pursuant to Minnesota Statutes chapter 302A or
317A. I certify that I am authorized to execute this amendment and I further
certify that I understand that by signing this amendment, I am subject to the
penalties of perjury as set forth in section 609.48 as if I had signed this
amendment under oath.
/s/ Stephan P. Jones Chief Financial Officer
-----------------------------------------
(Signature of Authorized Person)
- --------------------------------------------------------------------------------
INSTRUCTIONS FOR OFFICE USE ONLY
1. Type or print with black ink.
2. A Filing Fee of: $35.00, made payable to the
Secretary of State.
3. Return completed forms to:
Secretary of State
180 State Office Building
100 Constitution Avenue
St. Paul, Minnesota 55155-1299
(612) 296-2803
08921340 Rev. 8/92
STATE OF MINNESOTA
SECRETARY OF STATE
NOTICE OF CHANGE OF REGISTERED OFFICE/
REGISTERED AGENT
Please read the instructions on the back before completing this form.
1. Corporate Name:
Discus Acquisition Corporation
2. Registered Office Address (No. & Street): List a complete street
address or rural route and rural route box number. A post office box
is not acceptable.
2430 Metropolitan Centre, 333 S. Seventh Street, Minneapolis, MN 55402
-----------------------------------------------------------------------
Street City State Zip Code
3. Registered Agent (Registered agents are required for foreign
corporations but optional for Minnesota corporations):
None
If you do not wish to designate an agent, you must list "NONE" in this
box. DO NOT LIST THE CORPORATE NAME.
In compliance with Minnesota Statutes, Section 302A.123, 303.10, 308A.025,
317A.123 or 322B.135 I certify that the above listed company has resolved to
change the company's registered office and/or agent as listed above.
I certify that I am authorized to execute this certificate and I further certify
that I understand that by signing this certificate I am subject to the penalties
as set forth in Minnesota Statutes 609.48 as if I had signed this certificate
under oath.
/s/ William H. Spell
----------------
Signature of Authorized Person
William H. Spell, Chief Executive Officer
Name and Telephone Number of Contact Person: Jennifer Christman, Paralegal
-----------------------------
(612) 334-8662
please print legibly
- --------------------------------------------------------------------------------
Filing Fee: Minnesota Corporations, Cooperatives and Office Use Only
Limited Liability Companies: $35.00
Non-Minnesota Corporations: $50.00
Make checks payable to Secretary of State
Return to: Minnesota Secretary of State
180 State Office Building
100 Constitution Avenue
St. Paul, Minnesota 55155-1299
(612) 296-2803
03930275 Rev. 5/93
DESIGNATION OF RIGHTS AND PREFERENCES OF CLASS B COMMON STOCK
OF
DISCUS ACQUISITION CORPORATION
The undersigned, being the Chief Executive Officer of Discus
Acquisition Corporation, a Minnesota corporation, hereby certifies that the
Board of Directors of said Corporation, by written action dated as of January 4,
1996, did adopt a resolution providing that 1,227,273 shares of the
Corporation's undesignated shares be designated as Class B Common Stock, no par
value per share, having the rights and preferences set forth in Exhibit A
attached hereto and incorporated herein by reference.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designation this 4th day of January, 1996.
/s/ William H. Spell
----------------
William H. Spell
Chief Executive Officer
EXHIBIT I
CLASS B STOCK PROVISIONS
(A) Classification.
The class B common stock of the corporation (the "Class B Common
Stock") shall be equal in all respects to the common stock of the corporation
(the "Common Stock"), except as otherwise provided herein. Such Common Stock and
Class B Common Stock are sometimes hereinafter collectively referred to as the
"capital stock."
(B) Voting, Privileges.
(a) General. Each holder of Class B Common Stock shall have that number
of votes on all matters submitted to the stockholders that is equal to the
number of shares of Common Stock into which such holder's shares of Class B
Common Stock are then convertible as hereinafter provided. Except as otherwise
provided herein, and except as otherwise required by agreement or law, the
shares of capital stock of the corporation shall vote as a single class on all
matters submitted to the stockholders.
(b) Election of Directors. So long as Northland Business Capital,
L.L.P. or its affiliates shall continue to own at least 100,000 shares of Class
B Common Stock, (i) the Board of Directors of the corporation shall consist of
not more than nine (9) members, (ii) the holders of the Class B Common Stock,
exclusively and voting as a single class, shall be entitled, by a vote of a
majority of the outstanding shares of Class B Common Stock held by such holders,
to elect one (1) director of the corporation and to exercise any right of
removal or replacement of such director, and (iii) the holders of the Common
Stock, exclusively and voting as a single class, shall be entitled, by a vote of
a majority of the outstanding shares of Common Stock held by such holders, to
elect not more than eight (8) of the directors of the corporation and to
exercise any right of removal or replacement of such directors.
(c) Additional Class Votes by Class B Common Stock. Without the
affirmative vote or written consent of the holders (acting together as a class)
of a majority of the shares of Class B Common Stock at the time outstanding, the
corporation shall not;
(1) authorize or issue any additional shares of Class B Common
Stock; or
(2) amend the Articles of Incorporation of the corporation so as
to alter any existing provision relating to Class B Common
Stock or the holders thereof or waive any of the rights
granted to the holders of the Class B Common Stock by the
Articles of Incorporation of the corporation.
(C) Dividends.
In the event any dividend or distribution is declared or made with
respect to the Common Stock, each holder of shares of Class B Common Stock shall
be paid such dividend or receive such distribution on the basis of the number of
shares of Common Stock into which such holder's shares of Class B Common Stock
are then convertible, as hereinafter provided. Dividends on shares of Class B
Common Stock shall be payable only out of funds legally available therefor.
(D) Conversion Right.
At the option of the holders thereof, the shares of Class B Common
Stock shall be convertible, at the office of the corporation (or at such other
office or offices, if any, as the Board of Directors may designate), into fully
paid and nonassessable shares (calculated as to each conversion to the nearest
1/100th of a share) of Common Stock of the corporation, at the conversion price,
determined as hereinafter provided, in effect at the time of conversion, each
share of Class B Common Stock being deemed to have a value of $1.10 for the
purpose of such conversion. The price at which shares of Common Stock shall be
delivered upon conversion (herein called the "conversion price") shall be
initially $1.10 per share of Common Stock, provided, however, that such initial
conversion price shall be subject to adjustment from time to time in certain
instances as hereinafter provided. The following provisions shall govern such
right of conversion:
(1) In order to convert shares of Class B Common Stock into shares
of Common Stock of the corporation, the holder thereof shall
surrender at any office herein above mentioned the certificate
or certificates therefor, duly endorsed to the corporation or
in blank, and give written notice to the corporation at such
office that such holder elects to convert such shares. Shares
of Class B Common Stock shall be deemed to have been converted
immediately prior to the close of business on the day of the
surrender of such shares for conversion as herein provided,
and the person entitled to receive the shares of Common Stock
of the corporation issuable upon such conversion shall be
treated for all purposes as the record holder of such shares
of Common Stock at such time. As promptly as practicable on or
after the conversion date, the corporation shall issue and
deliver or cause to be issued and delivered at such office a
certificate or certificates for the number of shares of Common
Stock of the corporation issuable upon such conversion.
(2) The conversion price shall be subject to adjustment from time
to time as hereinafter provided. Upon each adjustment of the
conversion price each holder of shares of Class B Common Stock
shall thereafter be entitled to receive the number of shares
of Common Stock of the corporation obtained by multiplying the
conversion price in effect immediately prior to such
adjustment by the number of shares issuable pursuant to
conversion immediately prior to such adjustment and dividing
the product thereof by the conversion price resulting from
such adjustment.
(3) Except for the issuance of options to purchase Common Stock
referred to in Section 5.11 of that certain Stock Purchase
Agreement dated January 9, 1996 between the corporation and
Northland Business Capital, L.L.P. and except for shares of
Common Stock issued upon the exercise of such options
(provided that the aggregate number of shares thus awarded and
covered by unexercised options and thus issued pursuant to
such options shall not be in excess of 1,231,750
(appropriately adjusted to reflect stock splits, stock
dividends, reorganizations, consolidations and similar
changes)), if and whenever the corporation shall issue or sell
any shares of its Common Stock for a consideration per share
less than the lower of (i) the conversion price in effect
immediately prior to the time of such issue or sale, and (ii)
the market price (as defined below) on the date of such issue
of sale, then, forthwith upon such issue or sale, the
conversion price shall be reduced to the price (calculated to
the nearest cent) determined as follows:
(i) by dividing (A) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by
the then existing conversion price and (2) the
consideration, if any, received by the corporation
upon such issue or sale, by (B) an amount equal to
the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale
and (2) the number of shares of Common Stock thus
issued or sold; or
(ii) by multiplying the conversion price in effect
immediately prior to the time of such issue or sale
by a fraction, the numerator of which shall be the
sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale
multiplied by the market price immediately prior to
such issue or sale, plus (2) the consideration
received by the corporation upon such issue or sale,
and the denominator of which shall be the product of
(1) the total number of shares of Common Stock
outstanding immediately after such issue or sale,
multiplied by (2) the market price immediately prior
to such issue or sale.
Solely for purposes of calculating the number of
shares of Common Stock outstanding in clauses (i) and (ii)
above, the term "Common Stock outstanding" shall include those
shares of Common Stock issuable upon conversion of outstanding
shares of Class B Common Stock.
No adjustment of the conversion price, however, shall
be made in an amount less than 2% of the conversion price in
effect on the date of such adjustment, but any such lesser
adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which,
together with any such adjustment so carried forward, shall be
an amount equal to or greater than 4% of the conversion price
then in effect.
For the purposes of this subparagraph (3), the
following provisions (i) to (v), inclusive, shall also be
applicable:
(i) In case at any time the corporation shall grant
(whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, (a)
Common Stock or (b) any obligations or any shares of
stock of the corporation which are convertible into,
or exchangeable for Common Stock (any of such
obligations or shares of stock being hereinafter
called "Convertible Securities") whether or not such
rights or options or the right to convert or exchange
any such Convertible Securities are immediately
exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such rights or
options or upon conversion or exchange of such
Convertible Securities (determined by dividing (x)
the total amount, if any, received or receivable by
the corporation as consideration for the granting of
such rights or options, plus the minimum aggregate
amount of additional consideration payable to the
corporation upon the exercise of such rights or
options, plus, in the case of such rights or options
which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any,
payable upon the issue of such Convertible Securities
and upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options
or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of
such rights or options) shall be less than the lower
of (i) the conversion price in effect immediately
prior to the time of the granting of such rights or
options and (ii) the market price on the date of the
granting of such rights or options, then the total
maximum number of shares of Common Stock issuable
upon the exercise of such rights or options or upon
conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed
to have been issued for such price per share. Except
as provided in subparagraph (6) below, no further
adjustments of the conversion price shall be made
upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible
Securities.
(ii) In case the corporation shall issue or sell (whether
directly or by assumption in a merger or otherwise)
any Convertible Securities, whether or not the rights
to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange
(determined by dividing (x) the total amount received
or receivable by the corporation as consideration for
the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional
consideration, if any, payable to the corporation
upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the lower
of (i) the conversion price in effect immediately
prior to the time of such issue or sale and (ii) the
market price on the date of such issue or sale, then
the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued for
such price per share, provided that (a) except as
provided in subparagraph (6) below, no further
adjustments of the conversion price shall be made
upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any
rights to subscribe for or to purchase or any option
to purchase any such Convertible Securities for which
adjustments of the conversion price have been or are
to be made pursuant to other provisions of this
subparagraph (3), no further adjustment of the
conversion price shall be made by reason of such
issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any
such Common Stock or Convertible Securities shall be
issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by
the corporation therefor, without deducting therefrom
any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed
by the corporation in connection therewith. In case
any shares of Common Stock or Convertible Securities
or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount
of the consideration other than cash received by the
corporation shall be deemed to be the fair value of
such consideration as determined by the Board of
Directors of the corporation, without deducting
therefrom any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed
by the corporation in connection therewith. In case
any shares of Common Stock or Convertible Securities
or any rights or options to purchase such Common
Stock or Convertible Securities shall be issued in
connection with any merger or consolidation in which
the corporation is the surviving corporation, the
amount of consideration therefor shall be deemed to
be the fair value as determined by the Board of
Directors of the corporation of such portion of the
assets and business of the non-surviving corporation
or corporations as such Board shall determine to be
attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In
the event of any consolidation or merger of the
corporation in which the corporation is not the
surviving corporation or in the event of any sale of
all or substantially all of the assets of the
corporation for stock or other securities of any
other corporation, the corporation shall be deemed to
have issued a number of shares of its Common Stock
for stock or securities of the other corporation
computed on the basis of the actual exchange ratio on
which the transaction was predicated and for a
consideration equal to the fair market value on the
date of such transaction of such stock or securities
of the other corporation, and if any such calculation
results in adjustment of the conversion price, the
determination of the number of shares of Common Stock
issuable upon conversion immediately prior to such
merger, conversion or sale, for purposes of
subparagraph (7) below, shall be made after giving
effect to such adjustment of the conversion price.
(iv) In case the corporation shall take a record of the
holders of its Common Stock for the purpose of
entitling them (a) to receive a dividend or other
distribution payable in Common Stock or in
Convertible Securities, or in any rights or options
to purchase any Common Stock or Convertible
Securities, or (b) to subscribe for or purchase
Common Stock or Convertible Securities, then such
record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such
dividend or the making of such other distribution or
the date of the granting of such rights of
subscription or purchase, as the case may be.
(v) The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held
by or for the account of the corporation, and the
disposition of any such shares shall be considered an
issue or sale of Common Stock for the purpose of this
subparagraph (3).
(4) In case the corporation shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend
declared to effect a subdivision of the outstanding shares of
Common Stock, as described in subparagraph (5) below) or
Convertible Securities, or in any rights or options to
purchase Common Stock or Convertible Securities, or (ii)
declare any other dividend or make any other distribution upon
the Common Stock payable otherwise than out of earnings or
earned surplus, then thereafter each holder of shares of Class
B Common Stock upon the conversion thereof will be entitled to
receive the number of shares of Common Stock into which such
shares of Class B Common Stock have been converted, and, in
addition and without payment therefor, each dividend described
in clause (i) above and each dividend or distribution
described in clause (ii) above which such holder would have
received by way of dividends or distributions if continuously
since such holder became the record holder of such shares of
Class B Common Stock such holder (i) had been the record
holder of the number of shares of Common Stock then received,
and (ii) had retained all dividends or distributions in stock
or securities (including Common Stock or Convertible
Securities, and any rights or options to purchase any Common
Stock or Convertible Securities) payable in respect of such
Common Stock or in respect of any stock or securities paid as
dividends or distributions and originating directly or
indirectly from such Common Stock. For the purposes of the
foregoing a dividend or distribution other than in cash shall
be considered payable out of earnings or earned surplus only
to the extent that such earnings or earned surplus are charged
an amount equal to the fair value of such dividend or
distribution as determined by the Board of Directors of the
corporation.
(5) In case the corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of
shares, the conversion price in effect immediately prior to
such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of
the corporation shall be combined into a smaller number of
shares, the conversion price in effect immediately prior to
such combination shall be proportionately increased.
(6) If (i) the purchase price provided for in any right or option
referred to in clause (i) of subparagraph (3), or (ii) the
additional consideration, if any, payable upon the conversion
or exchange of Convertible Securities referred to in clause
(i) or clause (ii) of subparagraph (3), or (iii) the rate at
which any Convertible Securities referred to in clause (i) or
clause (ii) of subparagraph (3) are convertible into or
exchangeable for Common Stock, shall change at any time (other
than under or by reason of provisions designed to protect
against dilution), the conversion price then in effect
hereunder shall forthwith be increased or decreased to such
conversion price as would have obtained had the adjustments
made upon the issuance of such rights, options or Convertible
Securities been made upon the basis of (a) the issuance of the
number of shares of Common Stock theretofore actually
delivered upon the exercise of such options or rights or upon
the conversion or exchange of such Convertible Securities, and
the total consideration received therefor, and (b) the
issuance at the time of such change of any such options,
rights, or Convertible Securities then still outstanding for
the consideration, if any, received by the corporation
therefor and to be received on the basis of such changed
price, and on the expiration of any such option or right or
the termination of any such right to convert or exchange such
Convertible Securities, the conversion price then in effect
thereunder shall forthwith be increased to such conversion
price as would have obtained had the adjustments made upon the
issuance of such rights or options or Convertible Securities
been made upon the basis of the issuance of the shares of
Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such
rights or options or upon the conversion or exchange of such
Convertible Securities. If the purchase price provided for in
any right or option referred to in clause (i) of subparagraph
(3), or the rate at which any Convertible Securities referred
to in clause (i) or clause (ii) of subparagraph (3) are
convertible into or exchangeable for Common Stock, shall
decrease at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in
case of the delivery of Common Stock upon the exercise of any
such right or option or upon conversion or exchange of any
such Convertible Security, the conversion price then in effect
hereunder shall forthwith be decreased to such conversion
price as would have obtained had the adjustments made upon the
issuance of such right, option or Convertible Security been
made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock
delivered as aforesaid.
(7) If any capital reorganization or reclassification of the
capital stock of the corporation, or consolidation or merger
of the corporation with another corporation, or the sale of
all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification,
consolidation, merger or sale, and subject to subparagraph (a)
above, lawful and adequate provision shall be made whereby the
holders of Class B Common Stock shall thereafter have the
right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of the
Common Stock of the corporation immediately theretofore
receivable upon the conversion of Class B Common Stock, such
shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore receivable upon
the conversion of Class B Common Stock had such
reorganization, reclassification, consolidation, merge or sale
not taken place, plus all dividends unpaid and accumulated or
accrued thereon to the date of such reorganization,
reclassification, consolidation, merger or sale, and in any
such case appropriate provision shall be made with respect to
the rights and interests of the holders of Class B Common
Stock to the end that the provisions hereof (including without
limitation provisions for adjustments of the conversion price
and of the number of shares receivable upon the conversion of
Class B Common Stock) shall thereafter be applicable, as
nearly as may be in relation to any shares of stock,
securities or assets thereafter receivable upon the conversion
of Class B Common Stock. The corporation shall not effect any
such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than
the corporation) resulting from such consolidation or merger
or the corporation purchasing such assets shall assume by
written instrument executed and mailed to the registered
holders of Class B Common Stock, at the last addresses of such
holders appearing on the books of the corporation, the
obligation to deliver to such holders such shares of stock,
securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to receive.
(8) Upon any adjustment of the conversion price, then and in each
case the corporation shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the registered
holders of Class B Common Stock, at the addresses of such
holders as shown on the books of the corporation, which notice
shall state the conversion price resulting from such
adjustment and the increase or decrease, if any, in the number
of shares receivable at such price upon the conversion of
Class B Common Stock, setting forth in reasonable detail the
method of calculation and the facts upon which such
calculation is based.
(9) In case at any time:
(i) the corporation shall declare any cash dividend on
its Common Stock at a rate in excess of the rate of
the last cash dividend theretofore paid;
(ii) the corporation shall pay any dividend payable in
stock upon its Common Stock or make any distribution
(other than regular cash dividends) to the holders of
its Common Stock;
(iii) the corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional
shares of stock of any class or other rights;
(iv) there shall be any capital reorganization, or
reclassification of the capital stock of the
corporation, or consolidation or merger of the
corporation with, or sale of all or substantially all
of its assets to, another corporation; or
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
corporation; then, in any one or more of said cases,
the corporation shall give written notice, by
first-class mail, Postage prepaid, addressed to the
registered holders of Class B Common Stock at the
addresses of such holders as shown on the books of
the corporation, of the date on which (a) the books
of the corporation shall close or a record shall be
taken for such dividend, distribution or subscription
rights, or (b) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation
or winding up shall take place, as the case may be.
Such notice shall also specify the date as of which
the holders of Common Stock of record shall
participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange
their Common Stock for securities or other property
deliverable upon such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding up, as the case
may be. Such written notice shall be given at least
20 days prior to the action in question and not less
than 20 days prior to the record date or the date on
which the corporation's transfer books are closed in
respect thereto.
(10) If any event occurs as to which in the opinion of the Board of
Directors of the corporation the other provisions of this
paragraph (D) are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holders
of Class B Common Stock in accordance with the essential
intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and
principles, so as to protect such rights as aforesaid.
(11) As used in this paragraph (D) the term "Common Stock" shall
mean and include the corporation's presently authorized Common
Stock and shall also include any capital stock of any class of
the corporation hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
provided that the shares receivable pursuant to conversion of
shares of Class B Common Stock shall include shares designated
as Common Stock of the corporation as of the date of issuance
of such shares of Class B Common Stock, or, in case of any
reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph (7) above.
(12) No fractional shares of Common Stock shall be issued upon
conversion, but, instead of any fraction of a share which
would otherwise be issuable, the corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to
the same fraction of the market price per share of Common
Stock as of the close of business on the day of conversion.
"Market price" shall mean if the Common Stock is traded on a
securities exchange or on the NASDAQ National Market System,
the closing sale price of the Common Stock on such exchange or
the NASDAQ National Market System, or, if the Common Stock is
otherwise traded in the over-the-counter market, the average
bid price at the end of the day in the over-the-counter
market, in each case averaged over a period of 20 consecutive
business days prior to the date as of which "market price" is
being determined, provided, however, that in the event of a
private placement of the Common Stock the term "market price"
shall mean the fair value of the Common Stock as determined by
an independent appraiser mutually acceptable to the
corporation and the holders of the Class B Common Stock. If at
any time the Common Stock is not traded on an exchange or the
NASDAQ National Market System, or otherwise traded in the
over-the-counter market, the "market price" shall be deemed to
be the higher of (i) the book value thereof as determined by
any firm of independent public accountants of recognized
standing selected by the Board of Directors of the corporation
as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be
made, or (ii) the fair value thereof determined in good faith
by the Board of Directors of the corporation as of a date
which is within 15 days of the date as of which the
determination is to be made.
DISCUS ACQUISITION CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT, made this 1st day of November, 1995, by and between
Discus Acquisition Corporation, a Minnesota corporation (the "Company"), and
William H. Spell (the "Optionee");
W I T N E S S E T H :
WHEREAS, the Optionee on the date hereof is an employee, officer or
director of the Company; and
WHEREAS, to reward Optionee for valuable services to the Corporation
and to induce the Optionee to further the Optionee's efforts on its behalf, the
Company desires to grant to the Optionee an incentive stock option to purchase
shares of its Common Stock; and
WHEREAS, the Company has adopted a stock option plan providing for the
grant of incentive stock options known as the "Discus Acquisition Corporation
1994 Stock Option Plan" (hereinafter referred to as the "Plan"); and
WHEREAS, on the date hereof, the Company's Compensation Committee has
authorized the grant of this incentive stock option to the Optionee;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Optionee hereby agree as
follows:
1. Grant of Option. The Company hereby grants to the Optionee,
effective as of the date of this Agreement, the option to purchase 175,000
shares of Common Stock of the Company (the "Option Shares"), at a purchase price
of $1.10 per share, subject to the terms and conditions herein contained, and
subject only to adjustments as provided in Section 13 of the Plan. Optionee
acknowledges receipt of a copy of the Plan.
2. Option Price. During the term of this option, the purchase price for
the shares of Option Shares granted herein is $1.10 per share, subject only to
adjustments as provided in Section 13 of the Plan.
3. Contingency of Option. This option shall be contingent upon approval
of an amendment to the Plan by the shareholders of the Company at their 1996
Annual Meeting to increase the number of shares reserved for options under the
Plan.
4. Term of Option/Vesting. Unless terminated earlier under the
provisions of Paragraph 7 below, this option shall terminate seven (7) years
from the date this option is granted. Subject to the contingency provisions of
Paragraph 3 above, this option shall be exercisable to the extent of twenty
percent or 35,000 of the Option Shares effective upon approval of an amendment
to the Plan to increase the number of shares subject to the Plan; forty percent
or 70,000 of the Option Shares on or after November 1, 1996; sixty percent or
105,000 of the Option Shares on or after November 1, 1997; eighty percent or
140,000 of the Option Shares on or after November 1, 1998; and one hundred
percent or 175,000 of the Option Shares on or after November 1, 1999. If the
Optionee does not elect to exercise this option in any year in which it becomes
exercisable, the full number of shares which the Optionee is entitled to
purchase that year, may be purchased in any subsequent option year, in addition
to those the Optionee is otherwise entitled to purchase in that subsequent year.
5. Nontransferability. This option shall not be transferable other than
by will or by the laws of descent and distribution. During the lifetime of
Optionee, this option shall be exercisable only by the Optionee or by the
Optionee's guardian or legal representative (unless such exercise would
disqualify this option as an incentive stock option).
6. Manner of Exercise of Option. This option may be exercised by the
Optionee (or by the Optionee's successor or successors) by giving written notice
to the Company of an election to exercise such option. Such notice shall specify
the number of shares to be purchased hereunder and shall specify a date (not
more than 30 calendar days and not less than 10 calendar days from the date of
delivery of the notice to the Company) on which the Optionee shall deliver
payment of the full purchase price for the shares being purchased and the
Company shall deliver certificates to the Optionee representing the shares so
purchased. Such notice shall be delivered to the Company at its principal place
of business. An option shall be considered exercised at the time the Company
receives such notice. Upon receipt of such notice and subject to the provisions
of Paragraph 13 below, the Company shall, on the date specified in such notice
and against payment by the Optionee of the required purchase price, deliver to
the Optionee certificates for the shares so purchased. Payment for shares of
Option Shares may be made in the form of cash, certified check, or, if
authorized by the Board of Directors or a committee established to administer
the Plan, in the form of Common Stock of the Company, or any combination
thereof. Any stock so tendered as part of such payment shall be valued at its
then "fair market value" as provided in the Plan. All requisite original issue
or transfer documentary stamp taxes shall be paid by the Company.
7. Exercise Upon Death or Termination of Employment.
a. If Optionee shall die while an employee of the Company or a
Subsidiary, his or her option may be exercised, to the extent that the
Optionee shall have been entitled to do so on the date of his or her
death, by the person or persons to whom the Optionee's right under the
option passes by will or applicable law, or if no such person has such
right, by his or her executors or administrators, at any time or from
time to time, but not later than the expiration date specified in
Paragraph 4 or one (1) year after the Optionee's death, whichever date
is earlier.
b. If an Optionee's employment by the Company or a Subsidiary
shall terminate because of his or her total disability, he or she may
exercise his or her option to the extent that he or she shall have been
entitled to do so at the date of the termination of his or her
employment, at any time or from time to time, but not later than the
expiration date specified in Paragraph 4 or one (1) year after
termination of employment, whichever date is earlier.
c. If an Optionee's employment shall terminate by reason of
his or her retirement in accordance with the terms of the Company's
retirement plans or with the consent of the Board of Directors or
involuntarily other than for cause, all rights to exercise his or her
option shall terminate at the expiration date specified in Paragraph 4
or three months after termination of employment, whichever date is
earlier.
d. If an Optionee's employment shall terminate for cause or
voluntarily or involuntarily for any reason other than death, total
disability or retirement, all rights to exercise his or her option
shall terminate thirty (30) days after the date of such termination of
employment, unless such termination is waived by the Board of Directors
in its sole discretion.
e. Upon the occurrence of any of the events described in
Paragraphs 7.a through 7.d above (death, disability, retirement or
other termination), this option shall terminate with respect to the
remaining number of shares which were not purchasable on the date of
such event.
"Termination for cause" shall include termination for
malfeasance or misfeasance in the performance of duties of the Optionee
as an employee of the Company or conviction of illegal activity in
connection therewith or any conduct detrimental to the interests of the
Company or any Subsidiary, violation of the terms of the Optionee's
employment agreement, if any, and in any event, the determination of
the Board of Directors with respect to the matter of whether an
Optionee's employment has been terminated for cause shall be final and
conclusive. "Total disability" shall mean a physical or mental
condition of an employee resulting from bodily injury, disease, or
mental disorder which renders the employee incapable of continuing his
or her usual and customary employment with the Company.
8. No Rights as Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Stock subject to this option prior to
the date of issuance to him or her of a certificate or certificates for such
shares.
9. Stock Option Plan. The option evidenced by this Agreement is
intended to constitute an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986, as amended. The option is granted pursuant to the
Plan, a copy of which is attached hereto and is hereby made a part of this
Agreement. This Agreement is subject to and in all respects is limited and
conditioned as provided in the Plan. The Plan governs this option and the
Optionee, and in the event of any question as to the construction of this
Agreement or of a conflict between the Plan and this Agreement, the Plan shall
govern.
10. No Right to Continued Employment. This option shall not confer upon
the Optionee any right with respect to continuance of employment by the Company
or any Subsidiary, nor shall it interfere in any way with the right of the
Company or any Subsidiary to terminate his or her employment at any time.
11. Compliance with Law and Regulations. This option and the obligation
of the Company to sell and deliver shares hereunder shall be subject to all
applicable Federal and State laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall not
be required to issue or deliver any certificates for shares of Stock prior to
(i) the listing of such shares on any stock exchange on which the Stock may then
be listed and (ii) the completion of any registration or qualification of such
shares under any federal or state law, or any rule or regulation of any
government body which the Company shall, in its sole discretion, determine to be
necessary or advisable. Moreover, this option may not be exercised if its
exercise or the receipt of shares of Stock pursuant thereto would be contrary to
applicable law.
12. Provision for Payment of Withholding Taxes. The certificate
representing Stock acquired by the Optionee upon exercise of this option may
contain a restrictive legend indicating that the Stock may not be sold by the
Optionee or by any transferee of the Optionee within one year following the date
of exercise of the option unless the Optionee provides the Company with funds
sufficient for payment of any withholding and other taxes required by any
governmental authority in respect of the sale of the Stock without compliance
with the Plan. The restrictive legend to be placed upon the certificate or
certificates representing the Stock shall be substantially as follows:
The shares represented by this certificate may not be sold,
transferred, hypothecated, or otherwise disposed of for value at any
time prior to one year following the date of issuance of this
certificate unless the corporation shall have received funds sufficient
for payment of any withholding and other taxes required by any
governmental authority in respect of such sale or other transfer or the
corporation shall have been provided evidence satisfactory to it in its
discretion that any such taxes will be paid.
13. Investment Representation. The Board of Directors may require the
Optionee to furnish to the Company, prior to the issuance of any shares upon the
exercise of all or any part of this Option, an agreement (in such form as the
Board of Directors may specify) in which the Optionee represents that the shares
acquired by him or her upon exercise are being acquired for investment and not
with a view to the sale or distribution thereof.
14. Recapitalization, Sales, Mergers, Exchanges, Consolidations,
Liquidation. In the event of a stock dividend or stock split, the number of
shares of Option Shares and option exercise price shall be adjusted as provided
in Section 13 of the Plan. Similarly, in the event of a sale, merger, exchange,
consolidation or liquidation of the Company, this option shall be adjusted as
provided in Section 13 of the Plan.
15. Scope of Agreement. This Agreement shall bind and inure to the
benefit of the Company and its successors and assigns and the Optionee and any
successor or successors of the Optionee permitted by Paragraph 5 above.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement in the manner appropriate to each, as of the day and year first above
written.
"Company"
DISCUS ACQUISITION CORPORATION
By_____________________________
Its__________________________
"Optionee"
_______________________________
William H. Spell
DISCUS ACQUISITION CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, made this 1st day of November, 1995, by and between
Discus Acquisition Corporation, a Minnesota corporation (the "Company"), and
Bruce A. Richard (the "Optionee");
W I T N E S S E T H :
WHEREAS, the Optionee on the date hereof is a nonemployee director of
the Company or a Subsidiary of the Company;
WHEREAS, to induce the Optionee to further the Optionee's efforts in
its behalf, the Company desires to grant to the Optionee a nonqualified stock
option to purchase shares of its Common Stock;
WHEREAS, the Company has adopted a stock option plan providing for the
grant of nonqualified stock options known as the "Discus Corporation 1994 Stock
Option Plan" (hereinafter referred to as the "Plan"); and
WHEREAS, on the date hereof, the Company's Board of Directors (or, if
so appointed and empowered by the Board, the Board's Compensation Committee)
authorized the grant of this nonqualified stock option to the Optionee;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Optionee hereby agree as
follows:
1. Grant of Option. The Company hereby grants to the Optionee, on the
date of this Agreement, the option to purchase 25,000 shares of Common Stock of
the Company (the "Option Shares") subject to the terms and conditions herein
contained, and subject only to adjustment in such number of shares as provided
in Section 13 of the Plan. Optionee acknowledges receipt of a copy of the Plan.
2. Option Price. During the term of this option, the purchase price for
the shares of Option Shares granted herein is $1.10 per share, subject only to
adjustment of such price as provided in Section 13 of the Plan.
3. Contingency of Option. This option shall be contingent upon approval
of an amendment to the Plan by the shareholders of the Company at their 1996
Annual Meeting to increase the number of shares reserved for options under the
Plan.
4. Term of Option/Vesting. This option shall be exercisable upon
approval of the amendment to the Plan referred to in Paragraph 3, and shall
terminate five (5) years from the date the option was granted, on November 1,
2002.
5. Personal Exercise by Optionee. This option shall, during the
lifetime of the Optionee, be exercisable only by said Optionee and shall not be
transferable by the Optionee in whole or in part, other than by will or by the
laws of descent and distribution.
6. Manner of Exercise of Option. This option is to be exercised by the
Optionee (or by the Optionee's successor or successors) by giving written notice
to the Company of an election to exercise such option. Such notice shall specify
the number of shares to be purchased hereunder and shall specify a date (not
more than 30 calendar days and not less than 10 calendar days from the date of
delivery of the notice to the Company) on which the Optionee shall deliver
payment of the full purchase price for the shares being purchased and the
Company shall deliver certificates to the Optionee representing the shares so
purchased. Such notice shall be delivered to the Company at its principal place
of business. An option shall be considered exercised at the time the Company
receives such notice. Upon receipt of such notice and subject to the provisions
of Paragraph 10 below, the Company shall, on the date specified in such notice
and against payment by the Optionee of the required purchase price, deliver to
the Optionee certificates for the shares so purchased. Payment for shares of
Option Shares may be made in the form of cash, certified check, or, if
authorized by the Board of Directors or a committee established to administer
the Plan, in the form of Common Stock of the Company, or any combination
thereof. Any stock so tendered as part of such payment shall be valued at its
then "fair market value" as provided in the Plan. All requisite original issue
or transfer documentary stamp taxes shall be paid by the Company.
7. Rights as a Shareholder. The Optionee or a transferee of this option
shall have no rights as a shareholder with respect to any shares covered by this
option until the date of the issuance of a stock certificate for such shares. No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
provided in Section 13 of the Plan.
8. Stock Option Plan. The option evidenced by this Agreement is
intended to constitute a nonqualified stock option, and shall not be contained
as an "incentive stock option" under Section 422 of the Internal Revenue Code of
1986, as amended. The option is granted pursuant to the Plan, a copy of which
Plan is attached hereto or has been made available to the Optionee and is hereby
made a part of this Agreement. This Agreement is subject to and in all respects
limited and conditioned as provided in the Plan. The Plan governs this option
and the Optionee, and in the event of any question as to the construction of
this Agreement or of a conflict between the Plan and this Agreement, the Plan
shall govern, except as the Plan otherwise provides.
9. Withholding Taxes. In order to permit the Company to receive a tax
deduction in connection with the exercise of this option, the Optionee agrees
that as a condition to any exercise of this option, the Optionee will also pay
to the Company, or make arrangements satisfactory to the Company regarding
payment of, any federal, state, local or other taxes required by law to be
withheld with respect to the option's exercise.
10. Investment Purpose. The Company requires as a condition to the
grant and exercise of this option that any stock acquired pursuant to this
option be acquired for only investment if, in the opinion of counsel for the
Company, such is required or deemed advisable under securities laws or any other
applicable law, regulation or rule or any government or governmental agency. In
this regard, if requested by the Company, the Optionee, prior to the acquisition
of any shares pursuant to this option, shall execute an investment letter to the
effect that the Optionee is acquiring shares pursuant to the option for
investment purposes only and not with the intention of making any distribution
of such shares and will not dispose of the shares in violation of the applicable
federal and state securities laws.
11. Termination of Directorship. If the Optionee ceases to be a
director of the Company or any Subsidiary for any reason other than because of
death, this option shall continue through its term as defined in Paragraph 4
hereof as to any shares that are exercisable pursuant to Paragraph 4 as of the
termination date of such directorship and any unvested shares shall never become
exercisable.
12. Death of Optionee. If the Optionee dies while a director of the
Company or any Subsidiary, this option shall terminate on the earlier of (i) the
close of business on the twelve-month anniversary date of the Optionee's death,
and (ii) the expiration date under this option. In such period following the
Optionee's death, this option may be exercised by the person or persons to whom
the Optionee's rights under this option shall have passed by the Optionee's will
or by the laws of descent and distribution only to the extent the option was
exercisable on the date of death, but had not previously been exercised.
13. Recapitalization, Sales, Mergers, Exchanges, Consolidations,
Liquidation. In the event of a stock dividend or stock split, the number of
shares of Option Shares and option exercise price shall be adjusted as provided
in Section 13 of the Plan. Similarly, in the event of a sale, merger, exchange,
consolidation or liquidation of the Company, this option shall be adjusted as
provided in Section 13 of the Plan.
14. Scope of Agreement. This Agreement shall bind and inure to the
benefit of the Company and its successors and assigns and the Optionee and any
successor or successors of the Optionee permitted by Paragraph 5 above.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement in the manner appropriate to each, as of the day and year first above
written.
"Company"
DISCUS ACQUISITION CORPORATION
By_____________________________
William H. Spell
Its: Chief Executive Officer
"Optionee"
_______________________________
Bruce A. Richard
DISCUS ACQUISITION CORPORATION
AMENDED INCENTIVE STOCK OPTION AGREEMENT
THIS AMENDED AGREEMENT, made as of the 12th day of December, 1995, by
and between Discus Acquisition Corporation, a Minnesota corporation (the
"Company"), and Jan C. van Osnabrugge (the "Optionee");
W I T N E S S E T H :
WHEREAS, the Optionee on the date hereof is an employee, officer or
director of the Company or a Subsidiary of the Company; and
WHEREAS, to induce the Optionee to further the Optionee's efforts on
its behalf, the Company desires to grant to the Optionee an incentive stock
option to purchase shares of its Common Stock; and
WHEREAS, the Company has adopted a stock option plan providing for the
grant of incentive stock options known as the "Discus Acquisition Corporation
1994 Stock Option Plan" (hereinafter referred to as the "Plan"); and
WHEREAS, on the date hereof, the Company's Board of Directors (or, if
so appointed and empowered by the Board, the Board's Compensation Committee) has
authorized the grant of this incentive stock option to the Optionee;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Optionee hereby agree as
follows:
1. Grant of Option. The Company hereby grants to the Optionee,
effective as of the date of this Agreement, the option to purchase 60,000 shares
of Common Stock of the Company (the "Option Stock"), at a purchase price of
$1.10 per share, subject to the terms and conditions herein contained, and
subject only to adjustments as provided in Section 13 of the Plan. Optionee
acknowledges receipt of a copy of the Plan.
2. Option Price. During the term of this option, the purchase price for
the shares of Option Stock granted herein is $1.10 per share, subject only to
adjustments as provided in Section 13 of the Plan.
3. Contingency of Option; Exercise Date. This option shall be
contingent upon approval of an amendment to the Plan by the shareholders of the
Company at their 1996 Annual Meeting to increase the number of shares reserved
for options under the Plan. Subject to such approval, this Option shall be
exercisable commencing on December 12, 2000.
4. Term of Option. Unless terminated earlier under the provisions of
Paragraph 7 below, this option shall terminate seven (7) years from the date
hereof.
5. Nontransferability. This option shall not be transferable other than
by will or by the laws of descent and distribution. During the lifetime of
Optionee, this option shall be exercisable only by the Optionee or by the
Optionee's guardian or legal representative (unless such exercise would
disqualify this option as an incentive stock option).
6. Manner of Exercise of Option. This option may be exercised by the
Optionee (or by the Optionee's successor or successors) by giving written notice
to the Company of an election to exercise such option. Such notice shall specify
the number of shares to be purchased hereunder and shall specify a date (not
more than 30 calendar days and not less than 10 calendar days from the date of
delivery of the notice to the Company) on which the Optionee shall deliver
payment of the full purchase price for the shares being purchased and the
Company shall deliver certificates to the Optionee representing the shares so
purchased. Such notice shall be delivered to the Company at its principal place
of business. An option shall be considered exercised at the time the Company
receives such notice. Upon receipt of such notice and subject to the provisions
of Paragraph 13 below, the Company shall, on the date specified in such notice
and against payment by the Optionee of the required purchase price, deliver to
the Optionee certificates for the shares so purchased. Payment for shares of
Option Stock may be made in the form of cash, certified check, or, if authorized
by the Board of Directors or a committee established to administer the Plan, in
the form of Common Stock of the Company, or any combination thereof. Any stock
so tendered as part of such payment shall be valued at its then "fair market
value" as provided in the Plan. All requisite original issue or transfer
documentary stamp taxes shall be paid by the Company.
7. Exercise Upon Death or Termination of Employment.
a. If an Optionee shall die while an employee of the Company
or a Subsidiary, his or her option may be exercised, to the extent that
the Optionee shall have been entitled to do so on the date of his or
her death, by the person or persons to whom the Optionee's right under
the option passes by will or applicable law, or if no such person has
such right, by his or her executors or administrators, at any time or
from time to time, but not later than the expiration date specified in
Paragraph 4 or one (1) year after the Optionee's death, whichever date
is earlier.
b. If an Optionee's employment by the Company or a Subsidiary
shall terminate because of his or her total disability, he or she may
exercise his or her option to the extent that he or she shall have been
entitled to do so at the date of the termination of his or her
employment, at any time or from time to time, but not later than the
expiration date specified in Paragraph 4 or one (1) year after
termination of employment, whichever date is earlier.
c. If an Optionee's employment shall terminate by reason of
his or her retirement in accordance with the terms of the Company's
retirement plans or with the consent of the Board of Directors or
involuntarily other than for cause, all rights to exercise his or her
option shall terminate at the expiration date specified in Paragraph 4
or three months after termination of employment, whichever date is
earlier.
d. If an Optionee's employment shall terminate for cause or
voluntarily or involuntarily for any reason other than death, total
disability or retirement, all rights to exercise his or her option
shall terminate thirty (30) days after the date of such termination of
employment, unless such termination is waived by the Board of Directors
in its sole discretion.
e. Upon the occurrence of any of the events described in
Paragraphs 7.a through 7.d above (death, disability, retirement or
other termination), this option shall terminate with respect to the
remaining number of shares which were not purchasable on the date of
such event.
"Termination for cause" shall include termination for
malfeasance or misfeasance in the performance of duties of the Optionee
as an employee of the Company or conviction of illegal activity in
connection therewith or any conduct detrimental to the interests of the
Company or any Subsidiary, violation of the terms of the Optionee's
employment agreement, if any, and in any event, the determination of
the Board of Directors with respect to the matter of whether an
Optionee's employment has been terminated for cause shall be final and
conclusive. "Total disability" shall mean a physical or mental
condition of an employee resulting from bodily injury, disease, or
mental disorder which renders the employee incapable of continuing his
or her usual and customary employment with the Company.
8. No Rights as Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Stock subject to this option prior to
the date of issuance to him or her of a certificate or certificates for such
shares.
9. Stock Option Plan. The option evidenced by this Agreement is
intended to constitute an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986, as amended. The option is granted pursuant to the
Plan, a copy of which is attached hereto and is hereby made a part of this
Agreement. This Agreement is subject to and in all respects is limited and
conditioned as provided in the Plan. The Plan governs this option and the
Optionee, and in the event of any question as to the construction of this
Agreement or of a conflict between the Plan and this Agreement, the Plan shall
govern.
10. No Right to Continued Employment. This option shall not confer upon
the Optionee any right with respect to continuance of employment by the Company
or any Subsidiary, nor shall it interfere in any way with the right of the
Company or any Subsidiary to terminate his or her employment at any time.
11. Compliance with Law and Regulations. This option and the obligation
of the Company to sell and deliver shares hereunder shall be subject to all
applicable Federal and State laws, rules and regulations and to such approvals
by any government or regulatory agency as may be required. The Company shall not
be required to issue or deliver any certificates for shares of Stock prior to
(i) the listing of such shares on any stock exchange on which the Stock may then
be listed and (ii) the completion of any registration or qualification of such
shares under any federal or state law, or any rule or regulation of any
government body which the Company shall, in its sole discretion, determine to be
necessary or advisable. Moreover, this option may not be exercised if its
exercise or the receipt of shares of Stock pursuant thereto would be contrary to
applicable law.
12. Provision for Payment of Withholding Taxes. The certificate
representing Stock acquired by the Optionee upon exercise of this option may
contain a restrictive legend indicating that the Stock may not be sold by the
Optionee or by any transferee of the Optionee within one year following the date
of exercise of the option unless the Optionee provides the Company with funds
sufficient for payment of any withholding and other taxes required by any
governmental authority in respect of the sale of the Stock without compliance
with the Plan. The restrictive legend to be placed upon the certificate or
certificates representing the Stock shall be substantially as follows:
The shares represented by this certificate may not be sold,
transferred, hypothecated, or otherwise disposed of for value at any
time prior to one year following the date of issuance of this
certificate unless the corporation shall have received funds sufficient
for payment of any withholding and other taxes required by any
governmental authority in respect of such sale or other transfer or the
corporation shall have been provided evidence satisfactory to it in its
discretion that any such taxes will be paid.
13. Investment Representation. The Board of Directors may require the
Optionee to furnish to the Company, prior to the issuance of any shares upon the
exercise of all or any part of this Option, an agreement (in such form as the
Board of Directors may specify) in which the Optionee represents that the shares
acquired by him or her upon exercise are being acquired for investment and not
with a view to the sale or distribution thereof.
14. Recapitalization, Sales, Mergers, Exchanges, Consolidations,
Liquidation. In the event of a stock dividend or stock split, the number of
shares of Option Stock and option exercise price shall be adjusted as provided
in Section 13 of the Plan. Similarly, in the event of a sale, merger, exchange,
consolidation or liquidation of the Company, this option shall be adjusted as
provided in Section 13 of the Plan.
15. Scope of Agreement. This Agreement shall bind and inure to the
benefit of the Company and its successors and assigns and the Optionee and any
successor or successors of the Optionee permitted by Paragraph 5 above.
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement in the manner appropriate to each, as of the day and year first above
written.
"Company"
DISCUS ACQUISITION CORPORATION
By: /s/ William H. Spell
----------------
William H. Spell
Its: Chief Executive Officer
"Optionee"
/s/ Jan C. van Osnabrugge
---------------------
Jan C. van Osnabrugge
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of December 13, 1995, by and
between PEERLESS CHAIN COMPANY, a corporation duly organized and existing under
the laws of the State of Minnesota, with a place of business at 1416 East
Sanborn Street, City of Winona, State of Minnesota, hereinafter referred to as
"PEERLESS," and WILLIAM SPELL, hereinafter referred to as "EXECUTIVE".
RECITALS
1. The following recitals shall be considered a part of this Agreement,
and explain the general nature and purposes of PEERLESS' business and
EXECUTIVE's rights and obligations under this Agreement. Any interpretation or
construction of this Agreement shall be considered in light of these recitals.
2. PEERLESS is a Minnesota corporation engaged in the business of
manufacturing, distributing and selling of various forms of chains, including
without limitation, hardware/industrial chains, traction chains, and wire forms,
and is located at 1416 Sanborn Street, City of Winona, State of Minnesota.
3. On or about December 13, 1995, Discus Acquisition Corporation
("DISCUS") anticipates acquiring all of the issued and outstanding shares of
capital stock of PEERLESS. EXECUTIVE understands that this Agreement shall be
effective against PEERLESS and EXECUTIVE only upon completion of such
acquisition.
4. PEERLESS desires to employ EXECUTIVE and EXECUTIVE desires to be
employed by PEERLESS, on the terms, covenants, and conditions set forth in this
Agreement.
5. In connection with the foregoing aspects of its business, PEERLESS
develops, from time to time, confidential business data and trade secrets which
it desires to protect from disclosure to competitors. "Trade secret" means any
information, formulae, patterns, computations, programs, devices, methods,
techniques, or processes relating to PEERLESS' products and/or services or its
research, development, manufacture, design, marketing, merchandising, selling
and servicing.
6. The parties acknowledge that PEERLESS' trade secrets and
confidential business data, have value to PEERLESS only to the extent that they
are not disclosed to PEERLESS' competitors.
7. For the purposes of this Agreement, a "competitor" shall mean any
firm, person, partnership, corporation, or any other entity, whether legal or
natural, engaged in the same or similar business as PEERLESS as defined above,
whether that particular business comprises a part of or all of the competitor's
business.
8. For the reasons set forth above, and in consideration of the mutual
promises and agreements set forth in this Agreement, PEERLESS and EXECUTIVE
agree as follows:
ARTICLE 1
EMPLOYMENT
1.1 PEERLESS hereby employs, engages, and hires EXECUTIVE as Chairman
and EXECUTIVE hereby accepts and agrees to such hiring, engagement, and
employment, subject to the general supervision and pursuant to the advice of
PEERLESS' Board of Directors.
1.2 EXECUTIVE shall perform such duties as may be assigned to him from
time to time by PEERLESS' Board of Directors.
ARTICLE 2
EFFORTS OF EMPLOYEE
2.1 Peerless recognizes that EXECUTIVE will devote only a part of his
business time to his duties hereunder and that EXECUTIVE is engaged in other
significant business ventures. In performing his duties hereunder, EXECUTIVE
will work at such time, during normal business hours, as EXECUTIVE reasonably
determines.
ARTICLE 3
TERM OF EMPLOYMENT AND AGREEMENT
3.1 The terms of EXECUTIVE's employment with PEERLESS pursuant to this
Agreement and the term of this Agreement shall be a period of four (4) years,
commencing on the date that DISCUS acquires substantially all of the issued and
outstanding shares of capital stock of PEERLESS (the "Effective Date") subject,
however, to the provisions set forth in Article 5 of this Agreement.
3.2 This Agreement shall be binding upon EXECUTIVE and PEERLESS as of
the Effective Date.
ARTICLE 4
COMPENSATION AND BENEFITS
4.1 EXECUTIVE will be paid a base salary of Ninety Six Thousand and
no/100 Dollars ($96,000.00) per year for each of the four (4) years of this
contract. EXECUTIVE's compensation shall be payable in equal biweekly
installments. PEERLESS' Board of Directors shall review EXECUTIVE's base salary
compensation annually, and may, within its sole discretion, raise EXECUTIVE's
base salary based upon EXECUTIVE's performance, PEERLESS' performance or any
other criteria it determines is appropriate.
4.2 PEERLESS shall, to the extent permitted by law and the terms of the
applicable plans, provide EXECUTIVE with full participation in PEERLESS's
employee benefit plans under the same terms as provided to other executive
employees of PEERLESS from time to time in the exclusive discretion of PEERLESS'
Board of Directors. Such benefits may include, but are not limited to, a medical
and dental plan, disability plan, life insurance plan, and 401(k) plan and a
profit sharing plan. PEERLESS is not obligated to provide or continue any of
these benefits and may, without any prior notice, discontinue any benefit
already provided or as may be provided in the future, within the exclusive
discretion of PEERLESS' Board of Directors.
4.3 EXECUTIVE shall be reimbursed for authorized traveling and other
out-of-pocket business expenses, provided they have been reasonably incurred in
the performance of EXECUTIVE's duties for PEERLESS. EXECUTIVE shall submit to
PEERLESS an itemized account detailing the expenses and accompanied by receipts.
PEERLESS reserves the right to reject reimbursement of expense submissions not
in compliance with the terms set forth in this Section or which are not in
compliance with Internal Revenue Service statutes, rules, regulations or other
controlling or interpretive authority.
4.4 EXECUTIVE shall be eligible to receive an annual bonus, the
availability and payment of which shall be determined in the sole discretion of
the PEERLESS Board of Directors, after consideration of the recommendations of
PEERLESS' Compensation Committee.
4.5 To the extent that the cost of parking and office expenses at his
business office is not covered by Eagle Pacific Industries, PEERLESS shall pay
such parking and office expenses.
ARTICLE 5
TERMINATION
5.1 EXECUTIVE may resign his position and terminate his employment by
giving PEERLESS three (3) months written notice of his intention to resign. If
requested by PEERLESS, EXECUTIVE agrees to cooperate in training his successor
following his giving notice of his intention to resign until his actual
termination. Any resignation under this Section shall terminate EXECUTIVE's
rights to all further compensation, bonuses or benefits as set forth in this
Agreement effective the last day of EXECUTIVE's employment with PEERLESS.
5.2 PEERLESS may, subject to applicable law, terminate this Agreement
by giving EXECUTIVE two (2) months notice if EXECUTIVE incurs a condition that
prevents him from carrying out his essential job functions for a period of six
(6) months or longer.
5.3 Any other provision of this Agreement notwithstanding, PEERLESS may
terminate EXECUTIVE's employment without notice and without paying severance pay
if the termination is based on a violation of this Agreement, or on fraud,
embezzlement, securities law violation, sexual harassment of fellow employees,
or other gross misconduct involving moral turpitude.
5.4 Should PEERLESS terminate EXECUTIVE's employment for any reason
other than those listed in Section 5.3 above, prior to termination under
Sections 5.5 or 5.6 below, EXECUTIVE shall be paid as severance pay each month
for twelve (12) consecutive months following his termination his monthly base
salary in effect at the time of termination, less customary withholdings,
beginning one (1) month after termination.
5.5 Employment will be deemed terminated upon the death of the
EXECUTIVE.
5.6 Upon the expiration of the term of this Agreement as set forth in
Section 3.1, PEERLESS shall consider renewing the Agreement for an additional
term or negotiating a new agreement with EXECUTIVE. If the Agreement is not
renewed or a new agreement is not entered into, EXECUTIVE's employment will be
deemed terminated upon the expiration of the term of this Agreement.
ARTICLE 6
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
6.1 In the performance of his duties, EXECUTIVE may become aware of,
either directly or indirectly, information of the following types regarding or
belonging to PEERLESS which constitutes trade secrets or confidential business
data:
(a) Patterns, programs, devices, methods, techniques or processes.
(b) Products, components.
(c) Merchandising aids, marketing and strategic planning
information.
(d) Pricing and price structure, customers, potential customers.
(e) Research and development.
6.2 The foregoing list of trade secrets and confidential business data
is not intended to be exclusive. From time to time during the term of his
employment, EXECUTIVE may gain and has gained access to other information
concerning PEERLESS' business of commercial value to PEERLESS, which information
shall be included in the definitions under Section 6.1, above, even though not
specifically listed. PEERLESS believes that such information constitutes trade
secret information because PEERLESS derives economic value from the fact that
such information is not generally known or readily ascertainable by proper means
by PEERLESS' competitors or potential competitors who may obtain economic value
by its disclosure or use. The provisions of this Article 6 apply to any form in
which the subject information, secrets or data may appear, whether written, oral
or any other form of recording or storage.
6.3 EXECUTIVE covenants and agrees that both during and after his
employment with PEERLESS, the foregoing confidential business data and
information and trade secrets will not be communicated or disclosed by him
(directly or indirectly) to any person or entity, including but not limited to,
the press, other professionals, corporations, partnerships or the public.
EXECUTIVE further agrees to never use such information for EXECUTIVE's benefit
or the benefit of any other person, firm, corporation or entity, directly or
indirectly. EXECUTIVE agrees to take reasonable security measures to prevent
accidental disclosure and industrial espionage. EXECUTIVE further covenants and
agrees that he will faithfully abide by all rules and regulations established by
PEERLESS for insuring the confidentiality of the foregoing information and data,
including, but not limited to, rules and regulations:
(a) Limiting access to authorized personnel;
(b) Limiting copying of any writing or recording;
(c) Requiring storage of documents in secure facilities provided
by PEERLESS and limiting safe or vault lock combinations or
keys to authorized personnel; and
(d) Checkout and return or other procedures or regulations
promulgated by PEERLESS from time to time.
The obligations of this Section 6.3 shall survive EXECUTIVE's employment with
PEERLESS and continue until the information at issue is no longer confidential
and becomes generally publicly known, other than as a direct or indirect result
of the breach of this Agreement by EXECUTIVE or a breach of a confidentiality
obligation owed to PEERLESS by any other person or entity.
6.4 Upon termination of his employment with PEERLESS, whether voluntary
or involuntary, EXECUTIVE will return to PEERLESS any and all written or other
recorded form of the foregoing information and data, and will take with him,
upon leaving PEERLESS' place of business, no documents, writings, recordings or
reproduction in any form which may have been entrusted to him during the course
of his employment or to which he had access or possession.
ARTICLE 7
INVENTIONS OR DISCOVERIES
7.1 EXECUTIVE acknowledges that inventions or other discoveries may be
developed, conceived or otherwise made by EXECUTIVE during employment with
PEERLESS. EXECUTIVE agrees that all such inventions or other discoveries shall
be the exclusive property of PEERLESS. With respect to all such inventions or
other discoveries, EXECUTIVE agrees to:
(a) Keep accurate, complete and timely records, which shall be
PEERLESS' property and be retained on PEERLESS' premises; and
(b) Promptly and fully disclose and describe all such
inventions or other discoveries to PEERLESS; and
(c) Assign (and EXECUTIVE does hereby assign) to PEERLESS all
of EXECUTIVE's rights to these inventions or other
discoveries, and to application for letters patent or
copyrights in all countries and to letters patent or
copyrights granted upon these inventions or other discoveries
in all countries; and
(d) To do such other acts as may be necessary in the opinion
of PEERLESS to preserve property rights to these inventions or
other discoveries against forfeiture, abandonment or loss and
to obtain and maintain letters patent or copyrights and to
vest the entire right and title thereto exclusively in
PEERLESS.
7.2 The obligations of this Article 7 shall continue beyond the
termination of EXECUTIVE's employment with PEERLESS with respect to inventions
or other discoveries conceived or otherwise developed during EXECUTIVE's
employment and shall be binding upon assigns, executors, administrators and
other legal representatives.
7.3 PEERLESS hereby notifies EXECUTIVE, and EXECUTIVE understands and
agrees, that the foregoing terms of this Article 7 do not apply to any invention
or other discovery for which no equipment, supplies, facility, or trade secret
information of PEERLESS was used and that were developed entirely on EXECUTIVE's
own time, and (a) that does not relate (1) directly to PEERLESS' business or (2)
to PEERLESS' actual or demonstrably anticipated business research or
development, or (b) that does not result from any work performed by EXECUTIVE
for PEERLESS.
ARTICLE 8
MISCELLANEOUS
8.1 Governing Law. This Agreement shall be governed according to the
laws of the State of Minnesota.
8.2 Successors. This Agreement is personal to EXECUTIVE and EXECUTIVE
may not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder, to any other person or entity. This Agreement
may be assigned by PEERLESS.
8.3 Waiver. The waiver by PEERLESS of the breach or nonperformance of
any provision of this Agreement by EXECUTIVE will not operate or be construed as
a waiver of any future breach or nonperformance under any such provision of this
Agreement or any similar agreement with any other employee.
8.4 Modification. This Agreement supersedes and replaces any and all
prior and written understandings, if any, between the parties relating to the
subject matter of this Agreement, including any previous employment contract
which is hereby revoked. The parties agree that this Agreement (a) is the entire
understanding and agreement between the parties.
IN WITNESS WHEREOF the following parties have executed the above
instrument the day and year first above written.
PEERLESS CHAIN COMPANY,
a Minnesota corporation
By_____________________
Its:_________________
_______________________
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of December 13, 1995, by and
between PEERLESS CHAIN COMPANY, a corporation duly organized and existing under
the laws of the State of Minnesota, with a place of business at 1416 East
Sanborn Street, City of Winona, State of Minnesota, hereinafter referred to as
"PEERLESS", and JAN C. VAN OSNABRUGGE, of ___________________________________,
City of ________, State of Minnesota, hereinafter referred to as "EXECUTIVE".
RECITALS
1. The following recitals shall be considered a part of this Agreement,
and explain the general nature and purposes of PEERLESS' business and
EXECUTIVE's rights and obligations under this Agreement. Any interpretation or
construction of this Agreement shall be considered in light of these recitals.
2. PEERLESS is a Minnesota corporation engaged in the business of
manufacturing, distributing and selling of various forms of chains, including
without limitation, hardware/industrial chains, traction chains, and wire forms,
and is located at 1416 Sanborn Street, City of Winona, State of Minnesota.
3. On or about December 13, 1995, Discus Acquisition Corporation
("DISCUS") anticipates acquiring all of the issued and outstanding shares of
capital stock of PEERLESS. EXECUTIVE understands that this Agreement shall be
effective against PEERLESS and EXECUTIVE only upon completion of such
acquisition.
4. EXECUTIVE has been engaged in and has had a great deal of experience
and expertise in the above-designated business.
5. PEERLESS desires to continue to employ EXECUTIVE and EXECUTIVE
desires to continue to be employed by PEERLESS, on the terms, covenants, and
conditions set forth in this Agreement.
6. In connection with the foregoing aspects of its business, PEERLESS
develops, from time to time, confidential business data and trade secrets which
it desires to protect from disclosure to competitors. "Trade secret" means any
information, formulae, patterns, computations, programs, devices, methods,
techniques, or processes relating to PEERLESS' products and/or services or its
research, development, manufacture, design, marketing, merchandising, selling
and servicing.
7. The parties acknowledge that PEERLESS' trade secrets and
confidential business data, have value to PEERLESS only to the extent that they
are not disclosed to PEERLESS' competitors.
8. For the purposes of this Agreement, a "competitor" shall mean any
firm, person, partnership, corporation, or any other entity, whether legal or
natural, engaged in the same or similar business as PEERLESS as defined above,
whether that particular business comprises a part of or all of the competitor's
business.
9. For the reasons set forth above, and in consideration of the mutual
promises and agreements set forth in this Agreement, PEERLESS and EXECUTIVE
agree as follows:
ARTICLE 1
EMPLOYMENT
1.01. PEERLESS hereby employs, engages, and hires EXECUTIVE as
President and Chief Executive Officer and EXECUTIVE hereby accepts and agrees to
such hiring, engagement, and employment, subject to the general supervision and
pursuant to the orders, advice, and direction of PEERLESS' Board of Directors.
1.02. EXECUTIVE shall perform such other duties as are customarily
performed by one holding such position in other, same, or similar businesses or
enterprises as engaged in by PEERLESS, and shall also additionally render
similar services and duties as may be assigned to him from time to time by
PEERLESS' Board of Directors.
ARTICLE 2
BEST EFFORTS OF EMPLOYEE
2.01. EXECUTIVE agrees that he will at all times faithfully,
industriously, and to the best of his ability, experience, and talents, perform
all of the duties that may be required of and from him pursuant to the express
and implicit terms of this Agreement, to the reasonable satisfaction of
PEERLESS.
ARTICLE 3
TERM OF EMPLOYMENT AND AGREEMENT
3.01. The terms of EXECUTIVE's employment with PEERLESS pursuant to
this Agreement and the term of this Agreement shall be a period of four (4)
years, subject, however, to the provisions set forth in Article 6 of this
Agreement. EXECUTIVE'S employment shall commence on the date that DISCUS
acquires substantially all of the issued and outstanding shares of capital stock
of PEERLESS (the "Effective Date"). This Agreement shall not prevent EXECUTIVE
from being promoted or changed to any other position, and any such promotion or
change shall not affect the enforcement of this Agreement.
3.02. This Agreement shall be binding upon EXECUTIVE and PEERLESS as of
the Effective Date.
ARTICLE 4
COMPENSATION AND BENEFITS
4.01. EXECUTIVE will be paid a base salary of One Hundred Ninety Two
Thousand and no/100 Dollars ($192,000.00) per year(1) for each of the four (4)
years of this contract. EXECUTIVE's compensation shall be payable in equal
biweekly installments. PEERLESS' Board of Directors shall review EXECUTIVE's
base salary compensation annually, and may, within its sole discretion, raise
EXECUTIVE's base salary based upon EXECUTIVE's performance, PEERLESS'
performance or any other criteria it determines is appropriate.
4.02. EXECUTIVE shall be reimbursed for authorized traveling and other
out-of-pocket business expenses, provided they have been reasonably incurred in
the performance of EXECUTIVE's duties for PEERLESS. EXECUTIVE shall submit to
PEERLESS an itemized account detailing the expenses and accompanied by receipts.
PEERLESS reserves the right to reject reimbursement of expense submissions not
in compliance with the terms set forth in this Section or which are not in
compliance with Internal Revenue Service statutes, rules, regulations or other
controlling or interpretive authority.
4.03. EXECUTIVE shall be eligible to participate in PEERLESS' executive
bonus pool for each fiscal year during the term of EXECUTIVE's employment
hereunder. For 1996 and each year thereafter, Executive shall be awarded 22.9%
of the total executive bonus pool. The maximum amount of the executive bonus
pool for 1996 shall be $153,000. The maximum amount of the executive bonus pool
for each year thereafter will be determined in the sole discretion of the
PEERLESS Board of Directors.
The actual amount of the executive bonus pool to be paid out to all
executives is based upon the EBITDA(2) actually achieved by PEERLESS for the
relevant year in relation to the projected EBITDA for that year as set forth in
the following schedule:
- --------
(1) This annual base salary amount will be increased by an amount equal to the
annual interest payments on the loan by American Commercial Bank to EXECUTIVE,
on an after- tax basis, such loan is being used by EXECUTIVE to purchase an
equity interest in DISCUS per the Executive Loan Program. The principal amount
of the loan is $120,000.
(2) Earnings before interest, taxes, depreciation and amortization.
% of Projected EBITDA Achieved Percentage of Eligible Bonus
Pool Available for Distribution
to all Executives
75% or less zero
76-77% 7%
78-79% 14%
80-81% 21%
82-83% 28%
84-85% 35%
86-87% 41%
88-89% 47%
90-91% 53%
92-93% 60%
94-95% 65%
96-97% 83%
98-100% 100%
The projected EBITDA for the following fiscal years is:
Year Projected EBITDA
---- ----------------
1996 $6,900,000
1997 and thereafter To be determined annually based upon
the budget for the relevant year
In addition to the executive bonus pool, EXECUTIVE shall be entitled to
participate in a stock option plan to be implemented by DISCUS.
4.04. To the extent that EXECUTIVE is receiving any payments under a
disability plan, such payments as funded by the Company shall reduce the amount
of any compensation PEERLESS is obligated to pay EXECUTIVE under this Agreement.
4.05 In addition to cash compensation, EXECUTIVE shall receive such
non-cash benefits, on the same terms and conditions, as are made available from
time to time in the exclusive discretion of the PEERLESS Board of Directors to
the non-union/office employees.
4.06 PEERLESS shall reimburse EXECUTIVE and his immediate family for
coach air travel from LaCrosse to Amsterdam following the termination of
EXECUTIVE's employment for any reason other than those listed in Section 6.03.
During the term of this Agreement, PEERLESS also will reimburse EXECUTIVE for
one roundtrip coach airfare (LaCrosse/Amsterdam) for him and his immediate
family during each fiscal year for the purpose of home leave. PEERLESS also will
provide EXECUTIVE with a reasonable car for the term of his employment under
this Agreement.
4.07 If and to the extent EXECUTIVE remains employed by PEERLESS during
the term hereof, EXECUTIVE shall be eligible for additional incentive
compensation as set forth in Schedule 1 attached hereto, and incorporated by
reference herein, payable within ninety (90) days after the end of the
applicable year for which the incentive compensation is awarded. EXECUTIVE must
be employed by PEERLESS as the end of the applicable fiscal year for him to
receive a bonus as a result of the performance of PEERLESS for such year.
ARTICLE 5
VACATION AND LEAVE OF ABSENCE
5.01. EXECUTIVE is entitled to twenty (20) days vacation per year.
Vacation time will be scheduled taking into account the EXECUTIVE's duties and
obligations at PEERLESS. Sick leave, holiday pay and all other leaves of absence
will be in accordance with PEERLESS's stated personnel policies.
ARTICLE 6
TERMINATION
6.01. EXECUTIVE may resign his position and terminate his employment by
giving PEERLESS three (3) months written notice of his intention to resign. If
requested by PEERLESS, EXECUTIVE agrees to cooperate in training his successor
following his giving notice of his intention to resign until his actual
termination. Any resignation under this Section shall terminate EXECUTIVE's
rights to all further compensation, bonuses or benefits as set forth in this
Agreement effective the last day of EXECUTIVE's employment with PEERLESS.
6.02. PEERLESS may, subject to applicable law, terminate this Agreement
by giving EXECUTIVE three (3) months notice if EXECUTIVE is disabled by a
physical or mental condition that prevents him from carrying out his essential
job functions for a period of three (3) months or longer. Nothing contained in
this Section 6.02 shall effect EXECUTIVE'S ability to receive benefits under
PEERLESS' long term disability plan, as it then exists.
6.03. Any other provision of this Agreement notwithstanding, PEERLESS
may terminate EXECUTIVE's employment without notice and without paying severance
pay if the termination is based on a violation of this Agreement, or on fraud,
embezzlement, securities law violation, sexual harassment of fellow employees,
or other gross misconduct involving moral turpitude.
6.04. Should PEERLESS terminate EXECUTIVE's employment for any reason
other than those listed in 6.03 above, prior to termination under Sections 6.05
or 6.06 below, EXECUTIVE shall be paid as severance pay each month for twelve
(12) consecutive months following his termination his monthly base salary in
effect at the time of termination, less customary withholdings, beginning one
(1) month after termination. In addition, PEERLESS shall pay on behalf of the
EXECUTIVE the cost of continuation coverage required to be made available under
the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for the first
twelve months of such continuation coverage for medical coverage and dental
coverage.
6.05. Employment will be deemed terminated upon the death of EXECUTIVE.
6.06. Unless earlier terminated hereunder, upon the expiration of the
term of this Agreement as set forth in Section 3.01, Employee shall be employed
on an at-will basis and none of the terms and conditions of this Agreement shall
be of any force and effect, except for Articles 7 through 10. Such at-will
employment relationship means that PEERLESS may terminate EXECUTIVE's employment
for any reason, with or without cause.
ARTICLE 7
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
7.01. In the performance of his duties, EXECUTIVE may become aware of,
either directly or indirectly, information of the following types regarding or
belonging to PEERLESS which constitute trade secrets or confidential business
data:
(a) Patterns, programs, devices, methods, techniques or processes.
(b) Products, components.
(c) Merchandising aids, marketing and strategic planning
information.
(d) Pricing and price structure, customers, potential customers.
(e) Research and development.
7.02. The foregoing list of trade secrets and confidential business
data is not intended to be exclusive. From time to time during the term of his
employment, EXECUTIVE may gain and has gained access to other information
concerning PEERLESS' business of commercial value to PEERLESS, which information
shall be included in the definitions under Section 7.01, above, even though not
specifically listed. PEERLESS believes that such information constitutes trade
secret information because PEERLESS derives economic value from the fact that
such information is not generally known or readily ascertainable by proper means
by PEERLESS' competitors or potential competitors who may obtain economic value
by its disclosure or use. The provisions of this Article 7 apply to any form in
which the subject information, secrets or data may appear, whether written, oral
or any other form of recording or storage.
7.03. EXECUTIVE covenants and agrees that both during and after his
employment with PEERLESS, the foregoing confidential business data and
information and trade secrets will not be communicated or disclosed by him
(directly or indirectly) to any person or entity, including but not limited to,
the press, other professionals, corporations, partnerships or the public.
EXECUTIVE further agrees to never use such information for EXECUTIVE's benefit
or the benefit of any other person, firm, corporation or entity, directly or
indirectly. EXECUTIVE agrees to take reasonable security measures to prevent
accidental disclosure and industrial espionage. EXECUTIVE further covenants and
agrees that he will faithfully abide by all rules and regulations established by
PEERLESS for insuring the confidentiality of the foregoing information and data,
including, but not limited to, rules and regulations:
(a) Limiting access to authorized personnel;
(b) Limiting copying of any writing or recording;
(c) Requiring storage of documents in secure facilities provided
by PEERLESS and limiting safe or vault lock combinations or
keys to authorized personnel; and
(d) Checkout and return or other procedures or regulations
promulgated by PEERLESS from time to time.
The obligations of this Section 7.03 shall survive EXECUTIVE's employment with
PEERLESS and continue until the information at issue is no longer confidential
and becomes generally publicly known, other than as a direct or indirect result
of the breach of this Agreement by EXECUTIVE or a breach of a confidentiality
obligation owed to PEERLESS by any other person or entity.
7.04. Upon termination of his employment with PEERLESS, whether
voluntary or involuntary, EXECUTIVE will return to PEERLESS any and all written
or other recorded form of the foregoing information and data, and will take with
him, upon leaving PEERLESS' place of business, no documents, writings,
recordings or reproduction in any form which may have been entrusted to him
during the course of his employment or to which he had access or possession.
ARTICLE 8
INVENTIONS OR DISCOVERIES
8.01. EXECUTIVE acknowledges that inventions or other discoveries may
be developed, conceived or otherwise made by EXECUTIVE during employment with
PEERLESS. EXECUTIVE agrees that all such inventions or other discoveries shall
be the exclusive property of PEERLESS. With respect to all such inventions or
other discoveries, EXECUTIVE agrees to:
(a) Keep accurate, complete and timely records, which shall be
PEERLESS' property and be retained on PEERLESS' premises; and
(b) Promptly and fully disclose and describe all such
inventions or other discoveries to PEERLESS; and
(c) Assign (and EXECUTIVE does hereby assign) to
PEERLESS all of EXECUTIVE's rights to these inventions or
other discoveries, and to application for letters patent or
copyrights in all countries and to letters patent or
copyrights granted upon these inventions or other discoveries
in all countries; and
(d) To do such other acts as may be necessary in the opinion
of PEERLESS to preserve property rights to these inventions or
other discoveries against forfeiture, abandonment or loss and
to obtain and maintain letters patent or copyrights and to
vest the entire right and title thereto exclusively in
PEERLESS.
8.02. The obligations of this Article 8 shall continue beyond the
termination of EXECUTIVE's employment with PEERLESS with respect to inventions
or other discoveries conceived or otherwise developed during EXECUTIVE's
employment and shall be binding upon assigns, executors, administrators and
other legal representatives.
8.03. PEERLESS hereby notifies EXECUTIVE, and EXECUTIVE understands and
agrees, that the foregoing terms of this Article 8 do not apply to any invention
or other discovery for which no equipment, supplies, facility, or trade secret
information of PEERLESS was used and that were developed entirely on EXECUTIVE's
own time, and (a) that does not relate (1) directly to PEERLESS' business or (2)
to PEERLESS' actual or demonstrably anticipated business research or
development, or (b) that does not result from any work performed by EXECUTIVE
for PEERLESS.
ARTICLE 9
COVENANT NOT TO COMPETE
9.01. In view of (a) the substantial economic benefit EXECUTIVE is
receiving from DISCUS'S acquisition of PEERLESS CHAIN COMPANY, (b) the
compensation and benefits set forth herein, (c) EXECUTIVE's equity participation
in DISCUS and related loans and salary increases to pay for such equity, and (d)
the right of EXECUTIVE to participate in a stock option plan of DISCUS,
EXECUTIVE agrees that at no time during the term of this Agreement and
EXECUTIVE's employment with PEERLESS and for a period of twenty-four (24) months
following the termination of EXECUTIVE's employment (whether voluntary or
involuntary), will EXECUTIVE, directly or indirectly, without the prior written
consent of the PEERLESS Board of Directors, (a) solicit or do competitive
business with any person or entity that is or was a customer or vendor of
PEERLESS within the twelve (12) months prior to the date of termination, or (b)
engage within the United States or Canada in any similar or related business in
competition with PEERLESS or have any direct or indirect interest, whether as a
proprietor, partner, employee, shareholder, principal, agent, consultant,
director, officer or in any other capacity or manner whatsoever, in any
enterprise that shall so engage. EXECUTIVE recognizes and agrees that the
geographic scope of this restriction is reasonable because PEERLESS' business is
conducted on a national and international scale and is not limited to a
particular geographic area within the United States or Canada.
ARTICLE 10
INJUNCTIVE RELIEF
10.01. The parties acknowledge that PEERLESS will suffer irreparable
harm if EXECUTIVE breaches this Agreement, either during or after its term.
Accordingly, PEERLESS shall be entitled, in addition to any other rights and
remedy it may have, at law or equity, to any injunction, without the posting of
a bond or other security, enjoining or restraining EXECUTIVE from any violation
of this Agreement, and EXECUTIVE hereby consents to PEERLESS' right to the
issuance of such injunction. In any proceeding by PEERLESS to enforce any
provision of Article 7, 8 or 9, PEERLESS shall, in addition to any injunctive
relief to which it may be entitled, be awarded damages to be determined by a
court of competent jurisdiction as well as all court costs, disbursements,
expenses and attorneys' fees incurred by PEERLESS.
10.02. In the event EXECUTIVE violates the terms of Article 9, the
period of the restrictive covenant shall be extended for two (2) years from and
after the later of:
(a) The date which EXECUTIVE ceases any violation; or
(b) The date on which a court issues an order or judgment
enforcing the terms of the covenant.
10.03. In the event a court of competent jurisdiction determines that a
provision of Section 9.01 above is unreasonable, it may limit such provision to
the extent it deems reasonable, without declaring the provision invalid in its
entirety. This provision shall not be construed as an admission by PEERLESS, but
is only included to provide PEERLESS with the maximum possible protection
consistent with the right of EXECUTIVE to earn a livelihood subsequent to the
termination of his employment.
ARTICLE 11
MISCELLANEOUS
11.01. Governing Law. This Agreement shall be governed according to the
laws of the State of Minnesota.
11.02. Successors. This Agreement is personal to EXECUTIVE and
EXECUTIVE may not assign or transfer any part of his rights or duties hereunder,
or any compensation due to him hereunder, to any other person or entity. This
Agreement may be assigned by PEERLESS.
11.03. Waiver. The waiver by PEERLESS of the breach or nonperformance
of any provision of this Agreement by EXECUTIVE will not operate or be construed
as a waiver of any future breach or nonperformance under any such provision of
this Agreement or any similar agreement with any other employee.
11.04. Modification. This Agreement supersedes and replaces any and all
prior and written understandings, if any, between the parties relating to the
subject matter of this Agreement, including any previous employment contract
which is hereby revoked. The parties agree that this Agreement (a) is the entire
understanding and agreement between the parties and (b) is the complete and
exclusive statement of the terms and conditions thereof, and there are no other
written or oral agreements in regard to the subject matter of this Agreement.
This Agreement shall not be changed or modified except by a written document
signed by the parties hereto.
11.05. Bonus. EXECUTIVE will be paid his 1995 annual bonus based on
past practice of receiving 22.9% of the management bonus pool which is estimated
to be $169,000 based on current financial projections.
11.06. Severability. If any provision in this Agreement shall be deemed
to be invalid, illegal or unenforceable, the court making such determination
shall have the right and is directed to make the smallest adjustments possible
so as to make such provision enforceable. The remainder of the Agreement shall
continue to be in full force and effect.
IN WITNESS WHEREOF the following parties have executed the above
instrument the day and year first above written.
PEERLESS CHAIN COMPANY,
a Minnesota corporation
By_____________________
William H. Spell
Its: Chairman
_______________________
EXECUTIVE
SCHEDULE 1
EMPLOYMENT AGREEMENT
PEERLESS/JAN C. VAN OSNABRUGGE
Additional Incentive Compensation
(Ref. Agreement Section 4.07)
An amount of $30,000 (US) may be available as incentive bonus
compensation at the end of each fiscal year closing during the term of this
Employment Agreement.
Payment of this bonus will be at the full discretion of the PEERLESS
Board of Directors and will be based on the Net Profit achieved in relation to
the Net Profit projections for the relevant year as set forth below.
The actual amount to be paid out will be calculated as follows:
% of Projected Net Profit Achieved Percentage Payment
---------------------------------- ------------------
80% or less 0%
81-90% 30%
91-100% 60%
101-110% 90%
111-115% 100%
116% or more 125%
The projected Net Profit for the following fiscal years is:
Year Projected Net Profit
---- --------------------
1996 To be agreed upon by parties prior
to Effective Date
1997 and thereafter To be determined annually based
upon the budget for the relevant
year
For values achieved in between, a linear scale will apply.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of December 13, 1995, by and
between PEERLESS CHAIN COMPANY, a corporation duly organized and existing under
the laws of the State of Minnesota, with a place of business at 1416 East
Sanborn Street, City of Winona, State of Minnesota, hereinafter referred to as
"PEERLESS", and ROBERT DETER, of___________________________________________,
City of ________, State of Minnesota, hereinafter referred to as "EXECUTIVE".
RECITALS
1. The following recitals shall be considered a part of this Agreement,
and explain the general nature and purposes of PEERLESS' business and
EXECUTIVE's rights and obligations under this Agreement. Any interpretation or
construction of this Agreement shall be considered in light of these recitals.
2. PEERLESS is a Minnesota corporation engaged in the business of
manufacturing, distributing and selling of various forms of chains, including
without limitation, hardware/industrial chains, traction chains, and wire forms,
and is located at 1416 Sanborn Street, City of Winona, State of Minnesota.
3. On or about December 13, 1995, Discus Acquisition Corporation
("DISCUS") anticipates acquiring all of the issued and outstanding shares of
capital stock of PEERLESS. EXECUTIVE understands that this Agreement shall be
effective against PEERLESS and EXECUTIVE only upon completion of such
acquisition.
4. EXECUTIVE has been engaged in and has had a great deal of experience
and expertise in the above-designated business.
5. PEERLESS desires to continue to employ EXECUTIVE and EXECUTIVE
desires to continue to be employed by PEERLESS, on the terms, covenants, and
conditions set forth in this Agreement.
6. In connection with the foregoing aspects of its business, PEERLESS
develops, from time to time, confidential business data and trade secrets which
it desires to protect from disclosure to competitors. "Trade secret" means any
information, formulae, patterns, computations, programs, devices, methods,
techniques, or processes relating to PEERLESS' products and/or services or its
research, development, manufacture, design, marketing, merchandising, selling
and servicing.
7. The parties acknowledge that PEERLESS' trade secrets and
confidential business data, have value to PEERLESS only to the extent that they
are not disclosed to PEERLESS' competitors.
8. For the purposes of this Agreement, a "competitor" shall mean any
firm, person, partnership, corporation, or any other entity, whether legal or
natural, engaged in the same or similar business as PEERLESS as defined above,
whether that particular business comprises a part of or all of the competitor's
business.
9. For the reasons set forth above, and in consideration of the mutual
promises and agreements set forth in this Agreement, PEERLESS and EXECUTIVE
agree as follows:
ARTICLE 1
EMPLOYMENT
1.01. PEERLESS hereby employs, engages, and hires EXECUTIVE as Chief
Financial Officer and EXECUTIVE hereby accepts and agrees to such hiring,
engagement, and employment, subject to the general supervision and pursuant to
the orders, advice, and direction of PEERLESS' CEO and Board of Directors.
1.02. EXECUTIVE shall perform such other duties as are customarily
performed by one holding such position in other, same, or similar businesses or
enterprises as engaged in by PEERLESS, and shall also additionally render
similar services and duties as may be assigned to him from time to time by
PEERLESS' CEO and Board of Directors.
ARTICLE 2
BEST EFFORTS OF EMPLOYEE
2.01. EXECUTIVE agrees that he will at all times faithfully,
industriously, and to the best of his ability, experience, and talents, perform
all of the duties that may be required of and from him pursuant to the express
and implicit terms of this Agreement, to the reasonable satisfaction of
PEERLESS.
ARTICLE 3
TERM OF EMPLOYMENT AND AGREEMENT
3.01. The terms of EXECUTIVE's employment with PEERLESS pursuant to
this Agreement and the term of this Agreement shall be a period of four (4)
years, subject, however, to the provisions set forth in Article 6 of this
Agreement. EXECUTIVE's employment shall commence on the date that DISCUS
acquires substantially all of the issued and outstanding shares of capital stock
of PEERLESS (the "Effective Date"). This Agreement shall not prevent EXECUTIVE
from being promoted or changed to any other position, and any such promotion or
change shall not affect the enforcement of this Agreement.
3.02. This Agreement shall be binding upon EXECUTIVE and PEERLESS as of
the Effective Date.
ARTICLE 4
COMPENSATION AND BENEFITS
4.01. EXECUTIVE will be paid a base salary of Seventy-Six Thousand and
no/100 Dollars ($76,000.00) per year(1) for each of the four (4) years of this
contract. EXECUTIVE's compensation shall be payable in equal biweekly
installments. PEERLESS' Board of Directors shall review, after consideration of
the recommendations of PEERLESS' CEO, EXECUTIVE's base salary compensation
annually, and may, within its sole discretion, raise EXECUTIVE's base salary
based upon EXECUTIVE's performance, PEERLESS' performance or any other criteria
it determines is appropriate.
4.02. EXECUTIVE shall be reimbursed for authorized traveling and other
out-of-pocket business expenses, provided they have been reasonably incurred in
the performance of EXECUTIVE's duties for PEERLESS. EXECUTIVE shall submit to
PEERLESS an itemized account detailing the expenses and accompanied by receipts.
PEERLESS reserves the right to reject reimbursement of expense submissions not
in compliance with the terms set forth in this Section or which are not in
compliance with Internal Revenue Service statutes, rules, regulations or other
controlling or interpretive authority.
4.03. EXECUTIVE shall be eligible to participate in PEERLESS' executive
bonus pool for each fiscal year during the term of EXECUTIVE's employment
hereunder. For 1996 and each year thereafter, Executive shall be awarded 11.8%
of the total executive bonus pool. The maximum amount of the executive bonus
pool for 1996 shall be $153,000. The maximum amount of the executive bonus pool
for each year thereafter will be determined in the sole discretion of the
PEERLESS Board of Directors, after consideration of the recommendations of
PEERLESS' CEO.
The actual amount of the executive bonus pool to be paid out to all
executives is based upon the EBITDA(2) actually achieved by PEERLESS for the
relevant year in relation to the projected EBITDA for that year as set forth in
the following schedule:
(1) This annual base salary amount will be increased by an amount equal to the
annual interest payments on the loan by American Commercial Bank to EXECUTIVE,
on an after-tax basis, such loan is being used by EXECUTIVE to purchase an
equity interest in DISCUS per the Executive Loan Program. The principal amount
of the loan is $65,000.
(2) Earnings before interest, taxes, depreciation and amortization.
% of Projected EBITDA Achieved Percentage of Eligible Bonus
Pool Available for Distribution
to all Executives
75% or less zero
76-77% 7%
78-79% 14%
80-81% 21%
82-83% 28%
84-85% 35%
86-87% 41%
88-89% 47%
90-91% 53%
92-93% 60%
94-95% 65%
96-97% 83%
98-100% 100%
The projected EBITDA for the following fiscal years is:
Year Projected EBITDA
---- ----------------
1996 $6,900,000
1997 and thereafter To be determined annually based
upon the budget for the relevant year
In addition to the executive bonus pool, EXECUTIVE shall be entitled to
participate in a stock option plan to be implemented by DISCUS.
4.04. To the extent that EXECUTIVE is receiving any payments under a
disability plan, such payments as funded by the Company shall reduce the amount
of any compensation PEERLESS is obligated to pay EXECUTIVE under this Agreement.
4.05 In addition to cash compensation, EXECUTIVE shall receive such
non-cash benefits, on the same terms and conditions, as are made available from
time to time in the exclusive discretion of the PEERLESS Board of Directors to
the non-union/office employees.
ARTICLE 5
VACATION AND LEAVE OF ABSENCE
5.01. EXECUTIVE is entitled to vacation per the PEERLESS vacation
policy as it exists from time to time. Vacation time will be scheduled taking
into account the EXECUTIVE's duties and obligations at PEERLESS. Sick leave,
holiday pay and all other leaves of absence will be in accordance with
PEERLESS's stated personnel policies.
ARTICLE 6
TERMINATION
6.01. EXECUTIVE may resign his position and terminate his employment by
giving PEERLESS three (3) months written notice of his intention to resign. If
requested by PEERLESS, EXECUTIVE agrees to cooperate in training his successor
following his giving notice of his intention to resign until his actual
termination. Any resignation under this Section shall terminate EXECUTIVE's
rights to all further compensation, bonuses or benefits as set forth in this
Agreement effective the last day of EXECUTIVE's employment with PEERLESS.
6.02. PEERLESS may, subject to applicable law, terminate this Agreement
by giving EXECUTIVE three (3) months notice if EXECUTIVE is disabled by a
physical or mental condition that prevents him from carrying out his essential
job functions for a period of three (3) months or longer. Nothing contained in
this Section 6.02 shall effect EXECUTIVE'S ability to receive benefits under
PEERLESS' long term disability plan, as it then exists.
6.03. Any other provision of this Agreement notwithstanding, PEERLESS
may terminate EXECUTIVE's employment without notice and without paying severance
pay if the termination is based on a violation of this Agreement, or on fraud,
embezzlement, securities law violation, sexual harassment of fellow employees,
or other gross misconduct involving moral turpitude.
6.04. Should PEERLESS terminate EXECUTIVE's employment for any reason
other than those listed in 6.03 above, prior to termination under Sections 6.05
or 6.06 below, EXECUTIVE shall be paid as severance pay each month for twelve
(12) consecutive months following his termination his monthly base salary in
effect at the time of termination, less customary withholdings, beginning one
(1) month after termination. In addition, PEERLESS shall pay on behalf of the
EXECUTIVE the cost of continuation coverage required to be made available under
the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for the first
twelve months of such continuation coverage for medical coverage and dental
coverage.
6.05. Employment will be deemed terminated upon the death of Executive.
6.06. Unless earlier terminated hereunder, upon the expiration of the
term of this Agreement as set forth in Section 3.01, Employee shall be employed
on an at-will basis and none of the terms and conditions of this Agreement shall
be of any force and effect, except for Articles 7 through 10. Such at-will
employment relationship means that PEERLESS may terminate EXECUTIVE's employment
for any reason, with or without cause.
ARTICLE 7
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
7.01. In the performance of his duties, EXECUTIVE may become aware of,
either directly or indirectly, information of the following types regarding or
belonging to PEERLESS which constitute trade secrets or confidential business
data:
(a) Patterns, programs, devices, methods, techniques or processes.
(b) Products, components.
(c) Merchandising aids, marketing and strategic planning
information.
(d) Pricing and price structure, customers, potential customers.
(e) Research and development.
7.02. The foregoing list of trade secrets and confidential business
data is not intended to be exclusive. From time to time during the term of his
employment, EXECUTIVE may gain and has gained access to other information
concerning PEERLESS' business of commercial value to PEERLESS, which information
shall be included in the definitions under Section 7.01, above, even though not
specifically listed. PEERLESS believes that such information constitutes trade
secret information because PEERLESS derives economic value from the fact that
such information is not generally known or readily ascertainable by proper means
by PEERLESS' competitors or potential competitors who may obtain economic value
by its disclosure or use. The provisions of this Article 7 apply to any form in
which the subject information, secrets or data may appear, whether written, oral
or any other form of recording or storage.
7.03. EXECUTIVE covenants and agrees that both during and after his
employment with PEERLESS, the foregoing confidential business data and
information and trade secrets will not be communicated or disclosed by him
(directly or indirectly) to any person or entity, including but not limited to,
the press, other professionals, corporations, partnerships or the public.
EXECUTIVE further agrees to never use such information for EXECUTIVE's benefit
or the benefit of any other person, firm, corporation or entity, directly or
indirectly. EXECUTIVE agrees to take reasonable security measures to prevent
accidental disclosure and industrial espionage. EXECUTIVE further covenants and
agrees that he will faithfully abide by all rules and regulations established by
PEERLESS for insuring the confidentiality of the foregoing information and data,
including, but not limited to, rules and regulations:
(a) Limiting access to authorized personnel;
(b) Limiting copying of any writing or recording;
(c) Requiring storage of documents in secure facilities provided
by PEERLESS and limiting safe or vault lock combinations or
keys to authorized personnel; and
(d) Checkout and return or other procedures or regulations
promulgated by PEERLESS from time to time.
The obligations of this Section 7.03 shall survive EXECUTIVE's employment with
PEERLESS and continue until the information at issue is no longer confidential
and becomes generally publicly known, other than as a direct or indirect result
of the breach of this Agreement by EXECUTIVE or a breach of a confidentiality
obligation owed to PEERLESS by any other person or entity.
7.04. Upon termination of his employment with PEERLESS, whether
voluntary or involuntary, EXECUTIVE will return to PEERLESS any and all written
or other recorded form of the foregoing information and data, and will take with
him, upon leaving PEERLESS' place of business, no documents, writings,
recordings or reproduction in any form which may have been entrusted to him
during the course of his employment or to which he had access or possession.
ARTICLE 8
INVENTIONS OR DISCOVERIES
8.01. EXECUTIVE acknowledges that inventions or other discoveries may
be developed, conceived or otherwise made by EXECUTIVE during employment with
PEERLESS. EXECUTIVE agrees that all such inventions or other discoveries shall
be the exclusive property of PEERLESS. With respect to all such inventions or
other discoveries, EXECUTIVE agrees to:
(a) Keep accurate, complete and timely records, which shall be
PEERLESS' property and be retained on PEERLESS' premises; and
(b) Promptly and fully disclose and describe all such
inventions or other discoveries to PEERLESS; and
(c) Assign (and EXECUTIVE does hereby assign) to PEERLESS all
of EXECUTIVE's rights to these inventions or other
discoveries, and to application for letters patent or
copyrights in all countries and to letters patent or
copyrights granted upon these inventions or other discoveries
in all countries; and
(d) To do such other acts as may be necessary in the opinion
of PEERLESS to preserve property rights to these inventions
or other discoveries against forfeiture, abandonment or loss
and to obtain and maintain letters patent or copyrights and to
vest the entire right and title thereto exclusively in
PEERLESS.
8.02. The obligations of this Article 8 shall continue beyond the
termination of EXECUTIVE's employment with PEERLESS with respect to inventions
or other discoveries conceived or otherwise developed during EXECUTIVE's
employment and shall be binding upon assigns, executors, administrators and
other legal representatives.
8.03. PEERLESS hereby notifies EXECUTIVE, and EXECUTIVE understands and
agrees, that the foregoing terms of this Article 8 do not apply to any invention
or other discovery for which no equipment, supplies, facility, or trade secret
information of PEERLESS was used and that were developed entirely on EXECUTIVE's
own time, and (a) that does not relate (1) directly to PEERLESS' business or (2)
to PEERLESS' actual or demonstrably anticipated business research or
development, or (b) that does not result from any work performed by EXECUTIVE
for PEERLESS.
ARTICLE 9
COVENANT NOT TO COMPETE
9.01. In view of (a) the substantial economic benefit EXECUTIVE is
receiving from DISCUS'S acquisition of PEERLESS CHAIN COMPANY, (b) the
compensation and benefits set forth herein, (c) EXECUTIVE's equity participation
in DISCUS and related loans and salary increases to pay for such equity, and (d)
the right of EXECUTIVE to participate in a stock option plan of DISCUS,
EXECUTIVE agrees that at no time during the term of this Agreement and
EXECUTIVE's employment with PEERLESS and for a period of twenty-four (24) months
following the termination of EXECUTIVE's employment (whether voluntary or
involuntary), will EXECUTIVE, directly or indirectly, without the prior written
consent of the PEERLESS Board of Directors, (a) solicit or do competitive
business with any person or entity that is or was a customer or vendor of
PEERLESS within the twelve (12) months prior to the date of termination, or (b)
engage within the United States or Canada in any similar or related business in
competition with PEERLESS or have any direct or indirect interest, whether as a
proprietor, partner, employee, shareholder, principal, agent, consultant,
director, officer or in any other capacity or manner whatsoever, in any
enterprise that shall so engage. EXECUTIVE recognizes and agrees that the
geographic scope of this restriction is reasonable because PEERLESS' business is
conducted on a national and international scale and is not limited to a
particular geographic area within the United States or Canada.
ARTICLE 10
INJUNCTIVE RELIEF
10.01. The parties acknowledge that PEERLESS will suffer irreparable
harm if EXECUTIVE breaches this Agreement, either during or after its term.
Accordingly, PEERLESS shall be entitled, in addition to any other rights and
remedy it may have, at law or equity, to any injunction, without the posting of
a bond or other security, enjoining or restraining EXECUTIVE from any violation
of this Agreement, and EXECUTIVE hereby consents to PEERLESS' right to the
issuance of such injunction. In any proceeding by PEERLESS to enforce any
provision of Article 7, 8 or 9, PEERLESS shall, in addition to any injunctive
relief to which it may be entitled, be awarded damages to be determined by a
court of competent jurisdiction as well as all court costs, disbursements,
expenses and attorneys' fees incurred by PEERLESS.
10.02. In the event EXECUTIVE violates the terms of Article 9, the
period of the restrictive covenant shall be extended for two (2) years from and
after the later of:
(a) The date which EXECUTIVE ceases any violation; or
(b) The date on which a court issues an order or judgment
enforcing the terms of the covenant.
10.03. In the event a court of competent jurisdiction determines that a
provision of Section 9.01 above is unreasonable, it may limit such provision to
the extent it deems reasonable, without declaring the provision invalid in its
entirety. This provision shall not be construed as an admission by PEERLESS, but
is only included to provide PEERLESS with the maximum possible protection
consistent with the right of EXECUTIVE to earn a livelihood subsequent to the
termination of his employment.
ARTICLE 11
MISCELLANEOUS
11.01. Governing Law. This Agreement shall be governed according to the
laws of the State of Minnesota.
11.02. Successors. This Agreement is personal to EXECUTIVE and
EXECUTIVE may not assign or transfer any part of his rights or duties hereunder,
or any compensation due to him hereunder, to any other person or entity. This
Agreement may be assigned by PEERLESS.
11.03. Waiver. The waiver by PEERLESS of the breach or nonperformance
of any provision of this Agreement by EXECUTIVE will not operate or be construed
as a waiver of any future breach or nonperformance under any such provision of
this Agreement or any similar agreement with any other employee.
11.04. Modification. This Agreement supersedes and replaces any and all
prior and written understandings, if any, between the parties relating to the
subject matter of this Agreement, including any previous employment contract
which is hereby revoked. The parties agree that this Agreement (a) is the entire
understanding and agreement between the parties and (b) is the complete and
exclusive statement of the terms and conditions thereof, and there are no other
written or oral agreements in regard to the subject matter of this Agreement.
This Agreement shall not be changed or modified except by a written document
signed by the parties hereto.
11.05. Bonus. EXECUTIVE will be paid his 1995 annual bonus based on
past practice of receiving 11.8% of the management bonus pool which is estimated
to be $169,000 based on current financial projections.
11.06. Severability. If any provision in this Agreement shall be deemed
to be invalid, illegal or unenforceable, the court making such determination
shall have the right and is directed to make the smallest adjustments possible
so as to make such provision enforceable. The remainder of the Agreement shall
continue to be in full force and effect.
IN WITNESS WHEREOF the following parties have executed the above
instrument the day and year first above written.
PEERLESS CHAIN COMPANY,
a Minnesota corporation
By_____________________
William H. Spell
Its: Chairman
________________________
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of December 13, 1995, by and
between PEERLESS CHAIN COMPANY, a corporation duly organized and existing under
the laws of the State of Minnesota, with a place of business at 1416 East
Sanborn Street, City of Winona, State of Minnesota, hereinafter referred to as
"PEERLESS", and GERALD FAUROTE, of ___________________________________________,
City of ________, State of Minnesota, hereinafter referred to as "EXECUTIVE".
RECITALS
1. The following recitals shall be considered a part of this Agreement,
and explain the general nature and purposes of PEERLESS' business and
EXECUTIVE's rights and obligations under this Agreement. Any interpretation or
construction of this Agreement shall be considered in light of these recitals.
2. PEERLESS is a Minnesota corporation engaged in the business of
manufacturing, distributing and selling of various forms of chains, including
without limitation, hardware/industrial chains, traction chains, and wire forms,
and is located at 1416 Sanborn Street, City of Winona, State of Minnesota.
3. On or about December 13, 1995, Discus Acquisition Corporation
("DISCUS") anticipates acquiring all of the issued and outstanding shares of
capital stock of PEERLESS. EXECUTIVE understands that this Agreement shall be
effective against PEERLESS and EXECUTIVE only upon completion of such
acquisition.
4. EXECUTIVE has been engaged in and has had a great deal of experience
and expertise in the above-designated business.
5. PEERLESS desires to continue to employ EXECUTIVE and EXECUTIVE
desires to continue to be employed by PEERLESS, on the terms, covenants, and
conditions set forth in this Agreement.
6. In connection with the foregoing aspects of its business, PEERLESS
develops, from time to time, confidential business data and trade secrets which
it desires to protect from disclosure to competitors. "Trade secret" means any
information, formulae, patterns, computations, programs, devices, methods,
techniques, or processes relating to PEERLESS' products and/or services or its
research, development, manufacture, design, marketing, merchandising, selling
and servicing.
7. The parties acknowledge that PEERLESS' trade secrets and
confidential business data, have value to PEERLESS only to the extent that they
are not disclosed to PEERLESS' competitors.
8. For the purposes of this Agreement, a "competitor" shall mean any
firm, person, partnership, corporation, or any other entity, whether legal or
natural, engaged in the same or similar business as PEERLESS as defined above,
whether that particular business comprises a part of or all of the competitor's
business.
9. For the reasons set forth above, and in consideration of the mutual
promises and agreements set forth in this Agreement, PEERLESS and EXECUTIVE
agree as follows:
ARTICLE 1
EMPLOYMENT
1.01. PEERLESS hereby employs, engages, and hires EXECUTIVE as Vice
President - Sales and Marketing and EXECUTIVE hereby accepts and agrees to such
hiring, engagement, and employment, subject to the general supervision and
pursuant to the orders, advice, and direction of PEERLESS' CEO and Board of
Directors.
1.02. EXECUTIVE shall perform such other duties as are customarily
performed by one holding such position in other, same, or similar businesses or
enterprises as engaged in by PEERLESS, and shall also additionally render
similar services and duties as may be assigned to him from time to time by
PEERLESS' CEO and Board of Directors.
ARTICLE 2
BEST EFFORTS OF EMPLOYEE
2.01. EXECUTIVE agrees that he will at all times faithfully,
industriously, and to the best of his ability, experience, and talents, perform
all of the duties that may be required of and from him pursuant to the express
and implicit terms of this Agreement, to the reasonable satisfaction of
PEERLESS.
ARTICLE 3
TERM OF EMPLOYMENT AND AGREEMENT
3.01. The terms of EXECUTIVE's employment with PEERLESS pursuant to
this Agreement and the term of this Agreement shall be a period of four (4)
years, subject, however, to the provisions set forth in Article 6 of this
Agreement. EXECUTIVE's employment shall commence on the date that DISCUS
acquires substantially all of the issued and outstanding shares of capital stock
of PEERLESS (the "Effective Date"). This Agreement shall not prevent EXECUTIVE
from being promoted or changed to any other position, and any such promotion or
change shall not affect the enforcement of this Agreement.
3.02. This Agreement shall be binding upon EXECUTIVE and PEERLESS as of
the Effective Date.
ARTICLE 4
COMPENSATION AND BENEFITS
4.01. EXECUTIVE will be paid a base salary of Ninety-Six Thousand and
no/100 Dollars ($96,000.00) per year(1) for each of the four (4) years of this
contract. EXECUTIVE's compensation shall be payable in equal biweekly
installments. PEERLESS' Board of Directors shall review, after consideration of
the recommendations of PEERLESS' CEO, EXECUTIVE's base salary compensation
annually, and may, within its sole discretion, raise EXECUTIVE's base salary
based upon EXECUTIVE's performance, PEERLESS' performance or any other criteria
it determines is appropriate.
4.02. EXECUTIVE shall be reimbursed for authorized traveling and other
out-of-pocket business expenses, provided they have been reasonably incurred in
the performance of EXECUTIVE's duties for PEERLESS. EXECUTIVE shall submit to
PEERLESS an itemized account detailing the expenses and accompanied by receipts.
PEERLESS reserves the right to reject reimbursement of expense submissions not
in compliance with the terms set forth in this Section or which are not in
compliance with Internal Revenue Service statutes, rules, regulations or other
controlling or interpretive authority.
4.03. EXECUTIVE shall be eligible to participate in PEERLESS' executive
bonus pool for each fiscal year during the term of EXECUTIVE's employment
hereunder. For 1996 and each year thereafter, Executive shall be awarded 16.3%
of the total executive bonus pool. The maximum amount of the executive bonus
pool for 1996 shall be $153,000. The maximum amount of the executive bonus pool
for each year thereafter will be determined in the sole discretion of the
PEERLESS Board of Directors, after consideration of the recommendations of
PEERLESS' CEO.
The actual amount of the executive bonus pool to be paid out to all
executives is based upon the EBITDA(2) actually achieved by PEERLESS for the
relevant year in relation to the projected EBITDA for that year as set forth in
the following schedule:
- --------
(1) This annual base salary amount will be increased by an amount equal to the
annual interest payments on the loan by American Commercial Bank to EXECUTIVE,
on an after-tax basis, such loan is being used by EXECUTIVE to purchase an
equity interest in DISCUS per the Executive Loan Program. The principal amount
of the loan is $60,000.
(2) Earnings before interest, taxes, depreciation and amortization.
% of Projected EBITDA Achieved Percentage of Eligible Bonus
Pool Available for Distribution
to all Executives
75% or less zero
76-77% 7%
78-79% 14%
80-81% 21%
82-83% 28%
84-85% 35%
86-87% 41%
88-89% 47%
90-91% 53%
92-93% 60%
94-95% 65%
96-97% 83%
98-100% 100%
The projected EBITDA for the following fiscal years is:
Year Projected EBITDA
---- ----------------
1996 $6,900,000
1997 and thereafter To be determined annually based
upon the budget for the relevant
year
In addition to the executive bonus pool, EXECUTIVE shall be entitled to
participate in a stock option plan to be implemented by DISCUS.
4.04. To the extent that EXECUTIVE is receiving any payments under a
disability plan, such payments as funded by the Company shall reduce the amount
of any compensation PEERLESS is obligated to pay EXECUTIVE under this Agreement.
4.05 In addition to cash compensation, EXECUTIVE shall receive such
non-cash benefits, on the same terms and conditions, as are made available from
time to time in the exclusive discretion of the PEERLESS Board of Directors to
the non-union/office employees.
ARTICLE 5
VACATION AND LEAVE OF ABSENCE
5.01. EXECUTIVE is entitled to vacation per the PEERLESS vacation
policy as it exists from time to time. Vacation time will be scheduled taking
into account the EXECUTIVE's duties and obligations at PEERLESS. Sick leave,
holiday pay and all other leaves of absence will be in accordance with
PEERLESS's stated personnel policies.
ARTICLE 6
TERMINATION
6.01. EXECUTIVE may resign his position and terminate his employment by
giving PEERLESS three (3) months written notice of his intention to resign. If
requested by PEERLESS, EXECUTIVE agrees to cooperate in training his successor
following his giving notice of his intention to resign until his actual
termination. Any resignation under this Section shall terminate EXECUTIVE's
rights to all further compensation, bonuses or benefits as set forth in this
Agreement effective the last day of EXECUTIVE's employment with PEERLESS.
6.02. PEERLESS may, subject to applicable law, terminate this Agreement
by giving EXECUTIVE three (3) months notice if EXECUTIVE is disabled by a
physical or mental condition that prevents him from carrying out his essential
job functions for a period of three (3) months or longer. Nothing contained in
this Section 6.02 shall effect EXECUTIVE'S ability to receive benefits under
PEERLESS' long term disability plan, as it then exists.
6.03. Any other provision of this Agreement notwithstanding, PEERLESS
may terminate EXECUTIVE's employment without notice and without paying severance
pay if the termination is based on a violation of this Agreement, or on fraud,
embezzlement, securities law violation, sexual harassment of fellow employees,
or other gross misconduct involving moral turpitude.
6.04. Should PEERLESS terminate EXECUTIVE's employment for any reason
other than those listed in 6.03 above, prior to termination under Sections 6.05
or 6.06 below, EXECUTIVE shall be paid as severance pay each month for twelve
(12) consecutive months following his termination his monthly base salary in
effect at the time of termination, less customary withholdings, beginning one
(1) month after termination. In addition, PEERLESS shall pay on behalf of the
EXECUTIVE the cost of continuation coverage required to be made available under
the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for the first
twelve months of such continuation coverage for medical coverage and dental
coverage.
6.05. Employment will be deemed terminated upon the death of Executive.
6.06. Unless earlier terminated hereunder, upon the expiration of the
term of this Agreement as set forth in Section 3.01, Employee shall be employed
on an at-will basis and none of the terms and conditions of this Agreement shall
be of any force and effect, except for Articles 7 through 10. Such at-will
employment relationship means that PEERLESS may terminate EXECUTIVE's employment
for any reason, with or without cause.
ARTICLE 7
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
7.01. In the performance of his duties, EXECUTIVE may become aware of,
either directly or indirectly, information of the following types regarding or
belonging to PEERLESS which constitute trade secrets or confidential business
data:
(a) Patterns, programs, devices, methods, techniques or processes.
(b) Products, components.
(c) Merchandising aids, marketing and strategic planning
information.
(d) Pricing and price structure, customers, potential customers.
(e) Research and development.
7.02. The foregoing list of trade secrets and confidential business
data is not intended to be exclusive. From time to time during the term of his
employment, EXECUTIVE may gain and has gained access to other information
concerning PEERLESS' business of commercial value to PEERLESS, which information
shall be included in the definitions under Section 7.01, above, even though not
specifically listed. PEERLESS believes that such information constitutes trade
secret information because PEERLESS derives economic value from the fact that
such information is not generally known or readily ascertainable by proper means
by PEERLESS' competitors or potential competitors who may obtain economic value
by its disclosure or use. The provisions of this Article 7 apply to any form in
which the subject information, secrets or data may appear, whether written, oral
or any other form of recording or storage.
7.03. EXECUTIVE covenants and agrees that both during and after his
employment with PEERLESS, the foregoing confidential business data and
information and trade secrets will not be communicated or disclosed by him
(directly or indirectly) to any person or entity, including but not limited to,
the press, other professionals, corporations, partnerships or the public.
EXECUTIVE further agrees to never use such information for EXECUTIVE's benefit
or the benefit of any other person, firm, corporation or entity, directly or
indirectly. EXECUTIVE agrees to take reasonable security measures to prevent
accidental disclosure and industrial espionage. EXECUTIVE further covenants and
agrees that he will faithfully abide by all rules and regulations established by
PEERLESS for insuring the confidentiality of the foregoing information and data,
including, but not limited to, rules and regulations:
(a) Limiting access to authorized personnel;
(b) Limiting copying of any writing or recording;
(c) Requiring storage of documents in secure facilities provided
by PEERLESS and limiting safe or vault lock combinations or
keys to authorized personnel; and
(d) Checkout and return or other procedures or regulations
promulgated by PEERLESS from time to time.
The obligations of this Section 7.03 shall survive EXECUTIVE's employment with
PEERLESS and continue until the information at issue is no longer confidential
and becomes generally publicly known, other than as a direct or indirect result
of the breach of this Agreement by EXECUTIVE or a breach of a confidentiality
obligation owed to PEERLESS by any other person or entity.
7.04. Upon termination of his employment with PEERLESS, whether
voluntary or involuntary, EXECUTIVE will return to PEERLESS any and all written
or other recorded form of the foregoing information and data, and will take with
him, upon leaving PEERLESS' place of business, no documents, writings,
recordings or reproduction in any form which may have been entrusted to him
during the course of his employment or to which he had access or possession.
ARTICLE 8
INVENTIONS OR DISCOVERIES
8.01. EXECUTIVE acknowledges that inventions or other discoveries may
be developed, conceived or otherwise made by EXECUTIVE during employment with
PEERLESS. EXECUTIVE agrees that all such inventions or other discoveries shall
be the exclusive property of PEERLESS. With respect to all such inventions or
other discoveries, EXECUTIVE agrees to:
(a) Keep accurate, complete and timely records, which shall be
PEERLESS' property and be retained on PEERLESS' premises; and
(b) Promptly and fully disclose and describe all such inventions or
other discoveries to PEERLESS; and
(c) Assign (and EXECUTIVE does hereby assign) to PEERLESS all of
EXECUTIVE's rights to these inventions or other discoveries, and to
application for letters patent or copyrights in all countries and to
letters patent or copyrights granted upon these inventions or other
discoveries in all countries; and
(d) To do such other acts as may be necessary in the opinion of
PEERLESS to preserve property rights to these inventions or other
discoveries against forfeiture, abandonment or loss and to obtain and
maintain letters patent or copyrights and to vest the entire right and
title thereto exclusively in PEERLESS.
8.02. The obligations of this Article 8 shall continue beyond the
termination of EXECUTIVE's employment with PEERLESS with respect to inventions
or other discoveries conceived or otherwise developed during EXECUTIVE's
employment and shall be binding upon assigns, executors, administrators and
other legal representatives.
8.03. PEERLESS hereby notifies EXECUTIVE, and EXECUTIVE understands and
agrees, that the foregoing terms of this Article 8 do not apply to any invention
or other discovery for which no equipment, supplies, facility, or trade secret
information of PEERLESS was used and that were developed entirely on EXECUTIVE's
own time, and (a) that does not relate (1) directly to PEERLESS' business or (2)
to PEERLESS' actual or demonstrably anticipated business research or
development, or (b) that does not result from any work performed by EXECUTIVE
for PEERLESS.
ARTICLE 9
COVENANT NOT TO COMPETE
9.01. In view of (a) the substantial economic benefit EXECUTIVE is
receiving from DISCUS'S acquisition of PEERLESS CHAIN COMPANY, (b) the
compensation and benefits set forth herein, (c) EXECUTIVE's equity participation
in DISCUS and related loans and salary increases to pay for such equity, and (d)
the right of EXECUTIVE to participate in a stock option plan of DISCUS,
EXECUTIVE agrees that at no time during the term of this Agreement and
EXECUTIVE's employment with PEERLESS and for a period of twenty-four (24) months
following the termination of EXECUTIVE's employment (whether voluntary or
involuntary), will EXECUTIVE, directly or indirectly, without the prior written
consent of the PEERLESS Board of Directors, (a) solicit or do competitive
business with any person or entity that is or was a customer or vendor of
PEERLESS within the twelve (12) months prior to the date of termination, or (b)
engage within the United States or Canada in any similar or related business in
competition with PEERLESS or have any direct or indirect interest, whether as a
proprietor, partner, employee, shareholder, principal, agent, consultant,
director, officer or in any other capacity or manner whatsoever, in any
enterprise that shall so engage. EXECUTIVE recognizes and agrees that the
geographic scope of this restriction is reasonable because PEERLESS' business is
conducted on a national and international scale and is not limited to a
particular geographic area within the United States or Canada.
ARTICLE 10
INJUNCTIVE RELIEF
10.01. The parties acknowledge that PEERLESS will suffer irreparable
harm if EXECUTIVE breaches this Agreement, either during or after its term.
Accordingly, PEERLESS shall be entitled, in addition to any other rights and
remedy it may have, at law or equity, to any injunction, without the posting of
a bond or other security, enjoining or restraining EXECUTIVE from any violation
of this Agreement, and EXECUTIVE hereby consents to PEERLESS' right to the
issuance of such injunction. In any proceeding by PEERLESS to enforce any
provision of Article 7, 8 or 9, PEERLESS shall, in addition to any injunctive
relief to which it may be entitled, be awarded damages to be determined by a
court of competent jurisdiction as well as all court costs, disbursements,
expenses and attorneys' fees incurred by PEERLESS.
10.02. In the event EXECUTIVE violates the terms of Article 9, the
period of the restrictive covenant shall be extended for two (2) years from and
after the later of:
(a) The date which EXECUTIVE ceases any violation; or
(b) The date on which a court issues an order or judgment
enforcing the terms of the covenant.
10.03. In the event a court of competent jurisdiction determines that a
provision of Section 9.01 above is unreasonable, it may limit such provision to
the extent it deems reasonable, without declaring the provision invalid in its
entirety. This provision shall not be construed as an admission by PEERLESS, but
is only included to provide PEERLESS with the maximum possible protection
consistent with the right of EXECUTIVE to earn a livelihood subsequent to the
termination of his employment.
ARTICLE 11
MISCELLANEOUS
11.01. Governing Law. This Agreement shall be governed according to the
laws of the State of Minnesota.
11.02. Successors. This Agreement is personal to EXECUTIVE and
EXECUTIVE may not assign or transfer any part of his rights or duties hereunder,
or any compensation due to him hereunder, to any other person or entity. This
Agreement may be assigned by PEERLESS.
11.03. Waiver. The waiver by PEERLESS of the breach or nonperformance
of any provision of this Agreement by EXECUTIVE will not operate or be construed
as a waiver of any future breach or nonperformance under any such provision of
this Agreement or any similar agreement with any other employee.
11.04. Modification. This Agreement supersedes and replaces any and all
prior and written understandings, if any, between the parties relating to the
subject matter of this Agreement, including any previous employment contract
which is hereby revoked. The parties agree that this Agreement (a) is the entire
understanding and agreement between the parties and (b) is the complete and
exclusive statement of the terms and conditions thereof, and there are no other
written or oral agreements in regard to the subject matter of this Agreement.
This Agreement shall not be changed or modified except by a written document
signed by the parties hereto.
11.05. Bonus. EXECUTIVE will be paid his 1995 annual bonus based on
past practice of receiving 16.3% of the management bonus pool which is estimated
to be $169,000 based on current financial projections.
11.06. Severability. If any provision in this Agreement shall be deemed
to be invalid, illegal or unenforceable, the court making such determination
shall have the right and is directed to make the smallest adjustments possible
so as to make such provision enforceable. The remainder of the Agreement shall
continue to be in full force and effect.
IN WITNESS WHEREOF the following parties have executed the above
instrument the day and year first above written.
PEERLESS CHAIN COMPANY,
a Minnesota corporation
By_____________________
William H. Spell
Its: Chairman
_______________________
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of December 13, 1995, by and
between PEERLESS CHAIN COMPANY, a corporation duly organized and existing under
the laws of the State of Minnesota, with a place of business at 1416 East
Sanborn Street, City of Winona, State of Minnesota, hereinafter referred to as
"PEERLESS", and DALE SCHWANKE, of ___________________________________________,
City of ________, State of Minnesota, hereinafter referred to as "EXECUTIVE".
RECITALS
1. The following recitals shall be considered a part of this Agreement,
and explain the general nature and purposes of PEERLESS' business and
EXECUTIVE's rights and obligations under this Agreement. Any interpretation or
construction of this Agreement shall be considered in light of these recitals.
2. PEERLESS is a Minnesota corporation engaged in the business of
manufacturing, distributing and selling of various forms of chains, including
without limitation, hardware/industrial chains, traction chains, and wire forms,
and is located at 1416 Sanborn Street, City of Winona, State of Minnesota.
3. On or about December 13, 1995, Discus Acquisition Corporation
("DISCUS") anticipates acquiring all of the issued and outstanding shares of
capital stock of PEERLESS. EXECUTIVE understands that this Agreement shall be
effective against PEERLESS and EXECUTIVE only upon completion of such
acquisition.
4. EXECUTIVE has been engaged in and has had a great deal of experience
and expertise in the above-designated business.
5. PEERLESS desires to continue to employ EXECUTIVE and EXECUTIVE
desires to continue to be employed by PEERLESS, on the terms, covenants, and
conditions set forth in this Agreement.
6. In connection with the foregoing aspects of its business, PEERLESS
develops, from time to time, confidential business data and trade secrets which
it desires to protect from disclosure to competitors. "Trade secret" means any
information, formulae, patterns, computations, programs, devices, methods,
techniques, or processes relating to PEERLESS' products and/or services or its
research, development, manufacture, design, marketing, merchandising, selling
and servicing.
7. The parties acknowledge that PEERLESS' trade secrets and
confidential business data, have value to PEERLESS only to the extent that they
are not disclosed to PEERLESS' competitors.
8. For the purposes of this Agreement, a "competitor" shall mean any
firm, person, partnership, corporation, or any other entity, whether legal or
natural, engaged in the same or similar business as PEERLESS as defined above,
whether that particular business comprises a part of or all of the competitor's
business.
9. For the reasons set forth above, and in consideration of the mutual
promises and agreements set forth in this Agreement, PEERLESS and EXECUTIVE
agree as follows:
ARTICLE 1
EMPLOYMENT
1.01. PEERLESS hereby employs, engages, and hires EXECUTIVE as Vice
President - Operations and EXECUTIVE hereby accepts and agrees to such hiring,
engagement, and employment, subject to the general supervision and pursuant to
the orders, advice, and direction of PEERLESS' CEO and Board of Directors.
1.02. EXECUTIVE shall perform such other duties as are customarily
performed by one holding such position in other, same, or similar businesses or
enterprises as engaged in by PEERLESS, and shall also additionally render
similar services and duties as may be assigned to him from time to time by
PEERLESS' CEO and Board of Directors.
ARTICLE 2
BEST EFFORTS OF EMPLOYEE
2.01. EXECUTIVE agrees that he will at all times faithfully,
industriously, and to the best of his ability, experience, and talents, perform
all of the duties that may be required of and from him pursuant to the express
and implicit terms of this Agreement, to the reasonable satisfaction of
PEERLESS.
ARTICLE 3
TERM OF EMPLOYMENT AND AGREEMENT
3.01. The terms of EXECUTIVE's employment with PEERLESS pursuant to
this Agreement and the term of this Agreement shall be a period of four (4)
years, subject, however, to the provisions set forth in Article 6 of this
Agreement. EXECUTIVE's employment shall commence on the date that DISCUS
acquires substantially all of the issued and outstanding shares of capital stock
of PEERLESS (the "Effective Date"). This Agreement shall not prevent EXECUTIVE
from being promoted or changed to any other position, and any such promotion or
change shall not affect the enforcement of this Agreement.
3.02. This Agreement shall be binding upon EXECUTIVE and PEERLESS as of
the Effective Date.
ARTICLE 4
COMPENSATION AND BENEFITS
4.01. EXECUTIVE will be paid a base salary of Eighty-Seven Thousand
Three Hundred Sixty and no/100 Dollars ($87,360.00) per year(1) for each of the
four (4) years of this contract. EXECUTIVE's compensation shall be payable in
equal biweekly installments. PEERLESS' Board of Directors shall review, after
consideration of the recommendations of PEERLESS' CEO, EXECUTIVE's base salary
compensation annually, and may, within its sole discretion, raise EXECUTIVE's
base salary based upon EXECUTIVE's performance, PEERLESS' performance or any
other criteria it determines is appropriate.
4.02. EXECUTIVE shall be reimbursed for authorized traveling and other
out-of-pocket business expenses, provided they have been reasonably incurred in
the performance of EXECUTIVE's duties for PEERLESS. EXECUTIVE shall submit to
PEERLESS an itemized account detailing the expenses and accompanied by receipts.
PEERLESS reserves the right to reject reimbursement of expense submissions not
in compliance with the terms set forth in this Section or which are not in
compliance with Internal Revenue Service statutes, rules, regulations or other
controlling or interpretive authority.
4.03. EXECUTIVE shall be eligible to participate in PEERLESS' executive
bonus pool for each fiscal year during the term of EXECUTIVE's employment
hereunder. For 1996 and each year thereafter, Executive shall be awarded 13.7%
of the total executive bonus pool. The maximum amount of the executive bonus
pool for 1996 shall be $153,000. The maximum amount of the executive bonus pool
for each year thereafter will be determined in the sole discretion of the
PEERLESS Board of Directors, after consideration of the recommendations of
PEERLESS' CEO.
The actual amount of the executive bonus pool to be paid out to all
executives is based upon the EBITDA(2) actually achieved by PEERLESS for the
relevant year in relation to the projected EBITDA for that year as set forth in
the following schedule:
- --------
(1) This annual base salary amount will be increased by an amount equal to the
annual interest payments on the loan by American Commercial Bank to EXECUTIVE,
on an after-tax basis, such loan is being used by EXECUTIVE to purchase an
equity interest in DISCUS per the Executive Loan Program. The principal amount
of the loan is $60,000.
(2) Earnings before interest, taxes, depreciation and amortization.
% of Projected EBITDA Achieved Percentage of Eligible Bonus
Pool Available for Distribution
to all Executives
75% or less zero
76-77% 7%
78-79% 14%
80-81% 21%
82-83% 28%
84-85% 35%
86-87% 41%
88-89% 47%
90-91% 53%
92-93% 60%
94-95% 65%
96-97% 83%
98-100% 100%
The projected EBITDA for the following fiscal years is:
Year Projected EBITDA
---- ----------------
1996 $6,900,000
1997 and thereafter To be determined annually based
upon the budget for the relevant year
In addition to the executive bonus pool, EXECUTIVE shall be entitled to
participate in a stock option plan to be implemented by DISCUS.
4.04. To the extent that EXECUTIVE is receiving any payments under a
disability plan, such payments as funded by the Company shall reduce the amount
of any compensation PEERLESS is obligated to pay EXECUTIVE under this Agreement.
4.05 In addition to cash compensation, EXECUTIVE shall receive such
non-cash benefits, on the same terms and conditions, as are made available from
time to time in the exclusive discretion of the PEERLESS Board of Directors to
the non-union/office employees.
ARTICLE 5
VACATION AND LEAVE OF ABSENCE
5.01. EXECUTIVE is entitled to vacation per the PEERLESS vacation
policy as it exists from time to time. Vacation time will be scheduled taking
into account the EXECUTIVE's duties and obligations at PEERLESS. Sick leave,
holiday pay and all other leaves of absence will be in accordance with
PEERLESS's stated personnel policies.
ARTICLE 6
TERMINATION
6.01. EXECUTIVE may resign his position and terminate his employment by
giving PEERLESS three (3) months written notice of his intention to resign. If
requested by PEERLESS, EXECUTIVE agrees to cooperate in training his successor
following his giving notice of his intention to resign until his actual
termination. Any resignation under this Section shall terminate EXECUTIVE's
rights to all further compensation, bonuses or benefits as set forth in this
Agreement effective the last day of EXECUTIVE's employment with PEERLESS.
6.02. PEERLESS may, subject to applicable law, terminate this Agreement
by giving EXECUTIVE three (3) months notice if EXECUTIVE is disabled by a
physical or mental condition that prevents him from carrying out his essential
job functions for a period of three (3) months or longer. Nothing contained in
this Section 6.02 shall effect EXECUTIVE'S ability to receive benefits under
PEERLESS' long term disability plan, as it then exists.
6.03. Any other provision of this Agreement notwithstanding, PEERLESS
may terminate EXECUTIVE's employment without notice and without paying severance
pay if the termination is based on a violation of this Agreement, or on fraud,
embezzlement, securities law violation, sexual harassment of fellow employees,
or other gross misconduct involving moral turpitude.
6.04. Should PEERLESS terminate EXECUTIVE's employment for any reason
other than those listed in 6.03 above, prior to termination under Sections 6.05
or 6.06 below, EXECUTIVE shall be paid as severance pay each month for twelve
(12) consecutive months following his termination his monthly base salary in
effect at the time of termination, less customary withholdings, beginning one
(1) month after termination. In addition, PEERLESS shall pay on behalf of the
EXECUTIVE the cost of continuation coverage required to be made available under
the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for the first
twelve months of such continuation coverage for medical coverage and dental
coverage.
6.05. Employment will be deemed terminated upon the death of Executive.
6.06. Unless earlier terminated hereunder, upon the expiration of the
term of this Agreement as set forth in Section 3.01, Employee shall be employed
on an at-will basis and none of the terms and conditions of this Agreement shall
be of any force and effect, except for Articles 7 through 10. Such at-will
employment relationship means that PEERLESS may terminate EXECUTIVE's employment
for any reason, with or without cause.
ARTICLE 7
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
7.01. In the performance of his duties, EXECUTIVE may become aware of,
either directly or indirectly, information of the following types regarding or
belonging to PEERLESS which constitute trade secrets or confidential business
data:
(a) Patterns, programs, devices, methods, techniques or processes.
(b) Products, components.
(c) Merchandising aids, marketing and strategic planning
information.
(d) Pricing and price structure, customers, potential customers.
(e) Research and development.
7.02. The foregoing list of trade secrets and confidential business
data is not intended to be exclusive. From time to time during the term of his
employment, EXECUTIVE may gain and has gained access to other information
concerning PEERLESS' business of commercial value to PEERLESS, which information
shall be included in the definitions under Section 7.01, above, even though not
specifically listed. PEERLESS believes that such information constitutes trade
secret information because PEERLESS derives economic value from the fact that
such information is not generally known or readily ascertainable by proper means
by PEERLESS' competitors or potential competitors who may obtain economic value
by its disclosure or use. The provisions of this Article 7 apply to any form in
which the subject information, secrets or data may appear, whether written, oral
or any other form of recording or storage.
7.03. EXECUTIVE covenants and agrees that both during and after his
employment with PEERLESS, the foregoing confidential business data and
information and trade secrets will not be communicated or disclosed by him
(directly or indirectly) to any person or entity, including but not limited to,
the press, other professionals, corporations, partnerships or the public.
EXECUTIVE further agrees to never use such information for EXECUTIVE's benefit
or the benefit of any other person, firm, corporation or entity, directly or
indirectly. EXECUTIVE agrees to take reasonable security measures to prevent
accidental disclosure and industrial espionage. EXECUTIVE further covenants and
agrees that he will faithfully abide by all rules and regulations established by
PEERLESS for insuring the confidentiality of the foregoing information and data,
including, but not limited to, rules and regulations:
(a) Limiting access to authorized personnel;
(b) Limiting copying of any writing or recording;
(c) Requiring storage of documents in secure facilities provided
by PEERLESS and limiting safe or vault lock combinations or
keys to authorized personnel; and
(d) Checkout and return or other procedures or regulations
promulgated by PEERLESS from time to time.
The obligations of this Section 7.03 shall survive EXECUTIVE's employment with
PEERLESS and continue until the information at issue is no longer confidential
and becomes generally publicly known, other than as a direct or indirect result
of the breach of this Agreement by EXECUTIVE or a breach of a confidentiality
obligation owed to PEERLESS by any other person or entity.
7.04. Upon termination of his employment with PEERLESS, whether
voluntary or involuntary, EXECUTIVE will return to PEERLESS any and all written
or other recorded form of the foregoing information and data, and will take with
him, upon leaving PEERLESS' place of business, no documents, writings,
recordings or reproduction in any form which may have been entrusted to him
during the course of his employment or to which he had access or possession.
ARTICLE 8
INVENTIONS OR DISCOVERIES
8.01. EXECUTIVE acknowledges that inventions or other discoveries may
be developed, conceived or otherwise made by EXECUTIVE during employment with
PEERLESS. EXECUTIVE agrees that all such inventions or other discoveries shall
be the exclusive property of PEERLESS. With respect to all such inventions or
other discoveries, EXECUTIVE agrees to:
(a) Keep accurate, complete and timely records, which shall be
PEERLESS' property and be retained on PEERLESS' premises; and
(b) Promptly and fully disclose and describe all such inventions
or other discoveries to PEERLESS; and
(c) Assign (and EXECUTIVE does hereby assign) to PEERLESS all of
EXECUTIVE's rights to these inventions or other discoveries,
and to application for letters patent or copyrights in all
countries and to letters patent or copyrights granted upon
these inventions or other discoveries in all countries; and
(d) To do such other acts as may be necessary in the opinion of
PEERLESS to preserve property rights to these inventions
or other discoveries against forfeiture, abandonment or loss
and to obtain and maintain letters patent or copyrights and to
vest the entire right and title thereto exclusively in
PEERLESS.
8.02. The obligations of this Article 8 shall continue beyond the
termination of EXECUTIVE's employment with PEERLESS with respect to inventions
or other discoveries conceived or otherwise developed during EXECUTIVE's
employment and shall be binding upon assigns, executors, administrators and
other legal representatives.
8.03. PEERLESS hereby notifies EXECUTIVE, and EXECUTIVE understands and
agrees, that the foregoing terms of this Article 8 do not apply to any invention
or other discovery for which no equipment, supplies, facility, or trade secret
information of PEERLESS was used and that were developed entirely on EXECUTIVE's
own time, and (a) that does not relate (1) directly to PEERLESS' business or (2)
to PEERLESS' actual or demonstrably anticipated business research or
development, or (b) that does not result from any work performed by EXECUTIVE
for PEERLESS.
ARTICLE 9
COVENANT NOT TO COMPETE
9.01. In view of (a) the substantial economic benefit EXECUTIVE is
receiving from DISCUS'S acquisition of PEERLESS CHAIN COMPANY, (b) the
compensation and benefits set forth herein, (c) EXECUTIVE's equity participation
in DISCUS and related loans and salary increases to pay for such equity, and (d)
the right of EXECUTIVE to participate in a stock option plan of DISCUS,
EXECUTIVE agrees that at no time during the term of this Agreement and
EXECUTIVE's employment with PEERLESS and for a period of twenty-four (24) months
following the termination of EXECUTIVE's employment (whether voluntary or
involuntary), will EXECUTIVE, directly or indirectly, without the prior written
consent of the PEERLESS Board of Directors, (a) solicit or do competitive
business with any person or entity that is or was a customer or vendor of
PEERLESS within the twelve (12) months prior to the date of termination, or (b)
engage within the United States or Canada in any similar or related business in
competition with PEERLESS or have any direct or indirect interest, whether as a
proprietor, partner, employee, shareholder, principal, agent, consultant,
director, officer or in any other capacity or manner whatsoever, in any
enterprise that shall so engage. EXECUTIVE recognizes and agrees that the
geographic scope of this restriction is reasonable because PEERLESS' business is
conducted on a national and international scale and is not limited to a
particular geographic area within the United States or Canada.
ARTICLE 10
INJUNCTIVE RELIEF
10.01. The parties acknowledge that PEERLESS will suffer irreparable
harm if EXECUTIVE breaches this Agreement, either during or after its term.
Accordingly, PEERLESS shall be entitled, in addition to any other rights and
remedy it may have, at law or equity, to any injunction, without the posting of
a bond or other security, enjoining or restraining EXECUTIVE from any violation
of this Agreement, and EXECUTIVE hereby consents to PEERLESS' right to the
issuance of such injunction. In any proceeding by PEERLESS to enforce any
provision of Article 7, 8 or 9, PEERLESS shall, in addition to any injunctive
relief to which it may be entitled, be awarded damages to be determined by a
court of competent jurisdiction as well as all court costs, disbursements,
expenses and attorneys' fees incurred by PEERLESS.
10.02. In the event EXECUTIVE violates the terms of Article 9, the
period of the restrictive covenant shall be extended for two (2) years from and
after the later of:
(a) The date which EXECUTIVE ceases any violation; or
(b) The date on which a court issues an order or judgment
enforcing the terms of the covenant.
10.03. In the event a court of competent jurisdiction determines that a
provision of Section 9.01 above is unreasonable, it may limit such provision to
the extent it deems reasonable, without declaring the provision invalid in its
entirety. This provision shall not be construed as an admission by PEERLESS, but
is only included to provide PEERLESS with the maximum possible protection
consistent with the right of EXECUTIVE to earn a livelihood subsequent to the
termination of his employment.
ARTICLE 11
MISCELLANEOUS
11.01. Governing Law. This Agreement shall be governed according to the
laws of the State of Minnesota.
11.02. Successors. This Agreement is personal to EXECUTIVE and
EXECUTIVE may not assign or transfer any part of his rights or duties hereunder,
or any compensation due to him hereunder, to any other person or entity. This
Agreement may be assigned by PEERLESS.
11.03. Waiver. The waiver by PEERLESS of the breach or nonperformance
of any provision of this Agreement by EXECUTIVE will not operate or be construed
as a waiver of any future breach or nonperformance under any such provision of
this Agreement or any similar agreement with any other employee.
11.04. Modification. This Agreement supersedes and replaces any and all
prior and written understandings, if any, between the parties relating to the
subject matter of this Agreement, including any previous employment contract
which is hereby revoked. The parties agree that this Agreement (a) is the entire
understanding and agreement between the parties and (b) is the complete and
exclusive statement of the terms and conditions thereof, and there are no other
written or oral agreements in regard to the subject matter of this Agreement.
This Agreement shall not be changed or modified except by a written document
signed by the parties hereto.
11.05. Bonus. EXECUTIVE will be paid his 1995 annual bonus based on
past practice of receiving 13.7% of the management bonus pool which is estimated
to be $169,000 based on current financial projections.
11.06. Severability. If any provision in this Agreement shall be deemed
to be invalid, illegal or unenforceable, the court making such determination
shall have the right and is directed to make the smallest adjustments possible
so as to make such provision enforceable. The remainder of the Agreement shall
continue to be in full force and effect.
IN WITNESS WHEREOF the following parties have executed the above
instrument the day and year first above written.
PEERLESS CHAIN COMPANY,
a Minnesota corporation
By_____________________
William H. Spell
Its: Chairman
_______________________
EXECUTIVE
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of December 13, 1995, by and
between PEERLESS CHAIN COMPANY, a corporation duly organized and existing under
the laws of the State of Minnesota, with a place of business at 1416 East
Sanborn Street, City of Winona, State of Minnesota, hereinafter referred to as
"PEERLESS", and JOHN MCCAULEY, of _______________________________________, City
of ________, State of Minnesota, hereinafter referred to as "EXECUTIVE".
RECITALS
1. The following recitals shall be considered a part of this Agreement,
and explain the general nature and purposes of PEERLESS' business and
EXECUTIVE's rights and obligations under this Agreement. Any interpretation or
construction of this Agreement shall be considered in light of these recitals.
2. PEERLESS is a Minnesota corporation engaged in the business of
manufacturing, distributing and selling of various forms of chains, including
without limitation, hardware/industrial chains, traction chains, and wire forms,
and is located at 1416 Sanborn Street, City of Winona, State of Minnesota.
3. On or about December 13, 1995, Discus Acquisition Corporation
("DISCUS") anticipates acquiring all of the issued and outstanding shares of
capital stock of PEERLESS. EXECUTIVE understands that this Agreement shall be
effective against PEERLESS and EXECUTIVE only upon completion of such
acquisition.
4. EXECUTIVE has been engaged in and has had a great deal of experience
and expertise in the above-designated business.
5. PEERLESS desires to continue to employ EXECUTIVE and EXECUTIVE
desires to continue to be employed by PEERLESS, on the terms, covenants, and
conditions set forth in this Agreement.
6. In connection with the foregoing aspects of its business, PEERLESS
develops, from time to time, confidential business data and trade secrets which
it desires to protect from disclosure to competitors. "Trade secret" means any
information, formulae, patterns, computations, programs, devices, methods,
techniques, or processes relating to PEERLESS' products and/or services or its
research, development, manufacture, design, marketing, merchandising, selling
and servicing.
7. The parties acknowledge that PEERLESS' trade secrets and
confidential business data, have value to PEERLESS only to the extent that they
are not disclosed to PEERLESS' competitors.
8. For the purposes of this Agreement, a "competitor" shall mean any
firm, person, partnership, corporation, or any other entity, whether legal or
natural, engaged in the same or similar business as PEERLESS as defined above,
whether that particular business comprises a part of or all of the competitor's
business.
9. For the reasons set forth above, and in consideration of the mutual
promises and agreements set forth in this Agreement, PEERLESS and EXECUTIVE
agree as follows:
ARTICLE 1
EMPLOYMENT
1.01. PEERLESS hereby employs, engages, and hires EXECUTIVE as Director
- - Quality Assurance and EXECUTIVE hereby accepts and agrees to such hiring,
engagement, and employment, subject to the general supervision and pursuant to
the orders, advice, and direction of PEERLESS' CEO and Board of Directors.
1.02. EXECUTIVE shall perform such other duties as are customarily
performed by one holding such position in other, same, or similar businesses or
enterprises as engaged in by PEERLESS, and shall also additionally render
similar services and duties as may be assigned to him from time to time by
PEERLESS' CEO and Board of Directors.
ARTICLE 2
BEST EFFORTS OF EMPLOYEE
2.01. EXECUTIVE agrees that he will at all times faithfully,
industriously, and to the best of his ability, experience, and talents, perform
all of the duties that may be required of and from him pursuant to the express
and implicit terms of this Agreement, to the reasonable satisfaction of
PEERLESS.
ARTICLE 3
TERM OF EMPLOYMENT AND AGREEMENT
3.01. The terms of EXECUTIVE's employment with PEERLESS pursuant to
this Agreement and the term of this Agreement shall be a period of four (4)
years, subject, however, to the provisions set forth in Article 6 of this
Agreement. EXECUTIVE's employment shall commence on the date that DISCUS
acquires substantially all of the issued and outstanding shares of capital stock
of PEERLESS (the "Effective Date"). This Agreement shall not prevent EXECUTIVE
from being promoted or changed to any other position, and any such promotion or
change shall not affect the enforcement of this Agreement.
3.02. This Agreement shall be binding upon EXECUTIVE and PEERLESS as of
the Effective Date.
ARTICLE 4
COMPENSATION AND BENEFITS
4.01. EXECUTIVE will be paid a base salary of Sixty-Five Thousand and
no/100 Dollars ($65,000.00) per year(1) for each of the four (4) years of this
contract. EXECUTIVE's compensation shall be payable in equal biweekly
installments. PEERLESS' Board of Directors shall review, after consideration of
the recommendations of PEERLESS' CEO, EXECUTIVE's base salary compensation
annually, and may, within its sole discretion, raise EXECUTIVE's base salary
based upon EXECUTIVE's performance, PEERLESS' performance or any other criteria
it determines is appropriate.
4.02. EXECUTIVE shall be reimbursed for authorized traveling and other
out-of-pocket business expenses, provided they have been reasonably incurred in
the performance of EXECUTIVE's duties for PEERLESS. EXECUTIVE shall submit to
PEERLESS an itemized account detailing the expenses and accompanied by receipts.
PEERLESS reserves the right to reject reimbursement of expense submissions not
in compliance with the terms set forth in this Section or which are not in
compliance with Internal Revenue Service statutes, rules, regulations or other
controlling or interpretive authority.
4.03. EXECUTIVE shall be eligible to participate in PEERLESS' executive
bonus pool for each fiscal year during the term of EXECUTIVE's employment
hereunder. For 1996 and each year thereafter, Executive shall be awarded 10.5%
of the total executive bonus pool. The maximum amount of the executive bonus
pool for 1996 shall be $153,000. The maximum amount of the executive bonus pool
for each year thereafter will be determined in the sole discretion of the
PEERLESS Board of Directors, after consideration of the recommendations of
PEERLESS' CEO.
The actual amount of the executive bonus pool to be paid out to all
executives is based upon the EBITDA(2) actually achieved by PEERLESS for the
relevant year in relation to the projected EBITDA for that year as set forth in
the following schedule:
- --------
(1) This annual base salary amount will be increased by an amount equal to the
annual interest payments on the loan by American Commercial Bank to EXECUTIVE,
on an after-tax basis, such loan is being used by EXECUTIVE to purchase an
equity interest in DISCUS per the Executive Loan Program. The principal amount
of the loan is $40,000.
(2) Earnings before interest, taxes, depreciation and amortization.
% of Projected EBITDA Achieved Percentage of Eligible Bonus
Pool Available for Distribution
to all Executives
75% or less zero
76-77% 7%
78-79% 14%
80-81% 21%
82-83% 28%
84-85% 35%
86-87% 41%
88-89% 47%
90-91% 53%
92-93% 60%
94-95% 65%
96-97% 83%
98-100% 100%
The projected EBITDA for the following fiscal years is:
Year Projected EBITDA
---- ----------------
1996 $6,900,000
1997 and thereafter To be determined annually based
upon the budget for the relevant
year
In addition to the executive bonus pool, EXECUTIVE shall be entitled to
participate in a stock option plan to be implemented by DISCUS.
4.04. To the extent that EXECUTIVE is receiving any payments under a
disability plan, such payments as funded by the Company shall reduce the amount
of any compensation PEERLESS is obligated to pay EXECUTIVE under this Agreement.
4.05 In addition to cash compensation, EXECUTIVE shall receive such
non-cash benefits, on the same terms and conditions, as are made available from
time to time in the exclusive discretion of the PEERLESS Board of Directors to
the non-union/office employees.
ARTICLE 5
VACATION AND LEAVE OF ABSENCE
5.01. EXECUTIVE is entitled to vacation per the PEERLESS vacation
policy as it exists from time to time. Vacation time will be scheduled taking
into account the EXECUTIVE's duties and obligations at PEERLESS. Sick leave,
holiday pay and all other leaves of absence will be in accordance with
PEERLESS's stated personnel policies.
ARTICLE 6
TERMINATION
6.01. EXECUTIVE may resign his position and terminate his employment by
giving PEERLESS three (3) months written notice of his intention to resign. If
requested by PEERLESS, EXECUTIVE agrees to cooperate in training his successor
following his giving notice of his intention to resign until his actual
termination. Any resignation under this Section shall terminate EXECUTIVE's
rights to all further compensation, bonuses or benefits as set forth in this
Agreement effective the last day of EXECUTIVE's employment with PEERLESS.
6.02. PEERLESS may, subject to applicable law, terminate this Agreement
by giving EXECUTIVE three (3) months notice if EXECUTIVE is disabled by a
physical or mental condition that prevents him from carrying out his essential
job functions for a period of three (3) months or longer. Nothing contained in
this Section 6.02 shall effect EXECUTIVE'S ability to receive benefits under
PEERLESS' long term disability plan, as it then exists.
6.03. Any other provision of this Agreement notwithstanding, PEERLESS
may terminate EXECUTIVE's employment without notice and without paying severance
pay if the termination is based on a violation of this Agreement, or on fraud,
embezzlement, securities law violation, sexual harassment of fellow employees,
or other gross misconduct involving moral turpitude.
6.04. Should PEERLESS terminate EXECUTIVE's employment for any reason
other than those listed in 6.03 above, prior to termination under Sections 6.05
or 6.06 below, EXECUTIVE shall be paid as severance pay each month for twelve
(12) consecutive months following his termination his monthly base salary in
effect at the time of termination, less customary withholdings, beginning one
(1) month after termination. In addition, PEERLESS shall pay on behalf of the
EXECUTIVE the cost of continuation coverage required to be made available under
the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) for the first
twelve months of such continuation coverage for medical coverage and dental
coverage.
6.05. Employment will be deemed terminated upon the death of Executive.
6.06. Unless earlier terminated hereunder, upon the expiration of the
term of this Agreement as set forth in Section 3.01, Employee shall be employed
on an at-will basis and none of the terms and conditions of this Agreement shall
be of any force and effect, except for Articles 7 through 10. Such at-will
employment relationship means that PEERLESS may terminate EXECUTIVE's employment
for any reason, with or without cause.
ARTICLE 7
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
7.01. In the performance of his duties, EXECUTIVE may become aware of,
either directly or indirectly, information of the following types regarding or
belonging to PEERLESS which constitute trade secrets or confidential business
data:
(a) Patterns, programs, devices, methods, techniques or processes.
(b) Products, components.
(c) Merchandising aids, marketing and strategic planning
information.
(d) Pricing and price structure, customers, potential customers.
(e) Research and development.
7.02. The foregoing list of trade secrets and confidential business
data is not intended to be exclusive. From time to time during the term of his
employment, EXECUTIVE may gain and has gained access to other information
concerning PEERLESS' business of commercial value to PEERLESS, which information
shall be included in the definitions under Section 7.01, above, even though not
specifically listed. PEERLESS believes that such information constitutes trade
secret information because PEERLESS derives economic value from the fact that
such information is not generally known or readily ascertainable by proper means
by PEERLESS' competitors or potential competitors who may obtain economic value
by its disclosure or use. The provisions of this Article 7 apply to any form in
which the subject information, secrets or data may appear, whether written, oral
or any other form of recording or storage.
7.03. EXECUTIVE covenants and agrees that both during and after his
employment with PEERLESS, the foregoing confidential business data and
information and trade secrets will not be communicated or disclosed by him
(directly or indirectly) to any person or entity, including but not limited to,
the press, other professionals, corporations, partnerships or the public.
EXECUTIVE further agrees to never use such information for EXECUTIVE's benefit
or the benefit of any other person, firm, corporation or entity, directly or
indirectly. EXECUTIVE agrees to take reasonable security measures to prevent
accidental disclosure and industrial espionage. EXECUTIVE further covenants and
agrees that he will faithfully abide by all rules and regulations established by
PEERLESS for insuring the confidentiality of the foregoing information and data,
including, but not limited to, rules and regulations:
(a) Limiting access to authorized personnel;
(b) Limiting copying of any writing or recording;
(c) Requiring storage of documents in secure facilities provided
by PEERLESS and limiting safe or vault lock combinations or
keys to authorized personnel; and
(d) Checkout and return or other procedures or regulations
promulgated by PEERLESS from time to time.
The obligations of this Section 7.03 shall survive EXECUTIVE's employment with
PEERLESS and continue until the information at issue is no longer confidential
and becomes generally publicly known, other than as a direct or indirect result
of the breach of this Agreement by EXECUTIVE or a breach of a confidentiality
obligation owed to PEERLESS by any other person or entity.
7.04. Upon termination of his employment with PEERLESS, whether
voluntary or involuntary, EXECUTIVE will return to PEERLESS any and all written
or other recorded form of the foregoing information and data, and will take with
him, upon leaving PEERLESS' place of business, no documents, writings,
recordings or reproduction in any form which may have been entrusted to him
during the course of his employment or to which he had access or possession.
ARTICLE 8
INVENTIONS OR DISCOVERIES
8.01. EXECUTIVE acknowledges that inventions or other discoveries may
be developed, conceived or otherwise made by EXECUTIVE during employment with
PEERLESS. EXECUTIVE agrees that all such inventions or other discoveries shall
be the exclusive property of PEERLESS. With respect to all such inventions or
other discoveries, EXECUTIVE agrees to:
(a) Keep accurate, complete and timely records, which shall be
PEERLESS' property and be retained on PEERLESS' premises; and
(b) Promptly and fully disclose and describe all such inventions or
other discoveries to PEERLESS; and
(c) Assign (and EXECUTIVE does hereby assign) to PEERLESS all of
EXECUTIVE's rights to these inventions or other discoveries, and to
application for letters patent or copyrights in all countries and to
letters patent or copyrights granted upon these inventions or other
discoveries in all countries; and
(d) To do such other acts as may be necessary in the opinion of
PEERLESS to preserve property rights to these inventions or other
discoveries against forfeiture, abandonment or loss and to obtain and
maintain letters patent or copyrights and to vest the entire right and
title thereto exclusively in PEERLESS.
8.02. The obligations of this Article 8 shall continue beyond the
termination of EXECUTIVE's employment with PEERLESS with respect to inventions
or other discoveries conceived or otherwise developed during EXECUTIVE's
employment and shall be binding upon assigns, executors, administrators and
other legal representatives.
8.03. PEERLESS hereby notifies EXECUTIVE, and EXECUTIVE understands and
agrees, that the foregoing terms of this Article 8 do not apply to any invention
or other discovery for which no equipment, supplies, facility, or trade secret
information of PEERLESS was used and that were developed entirely on EXECUTIVE's
own time, and (a) that does not relate (1) directly to PEERLESS' business or (2)
to PEERLESS' actual or demonstrably anticipated business research or
development, or (b) that does not result from any work performed by EXECUTIVE
for PEERLESS.
ARTICLE 9
COVENANT NOT TO COMPETE
9.01. In view of (a) the substantial economic benefit EXECUTIVE is
receiving from DISCUS'S acquisition of PEERLESS CHAIN COMPANY, (b) the
compensation and benefits set forth herein, (c) EXECUTIVE's equity participation
in DISCUS and related loans and salary increases to pay for such equity, and (d)
the right of EXECUTIVE to participate in a stock option plan of DISCUS,
EXECUTIVE agrees that at no time during the term of this Agreement and
EXECUTIVE's employment with PEERLESS and for a period of twenty-four (24) months
following the termination of EXECUTIVE's employment (whether voluntary or
involuntary), will EXECUTIVE, directly or indirectly, without the prior written
consent of the PEERLESS Board of Directors, (a) solicit or do competitive
business with any person or entity that is or was a customer or vendor of
PEERLESS within the twelve (12) months prior to the date of termination, or (b)
engage within the United States or Canada in any similar or related business in
competition with PEERLESS or have any direct or indirect interest, whether as a
proprietor, partner, employee, shareholder, principal, agent, consultant,
director, officer or in any other capacity or manner whatsoever, in any
enterprise that shall so engage. EXECUTIVE recognizes and agrees that the
geographic scope of this restriction is reasonable because PEERLESS' business is
conducted on a national and international scale and is not limited to a
particular geographic area within the United States or Canada.
ARTICLE 10
INJUNCTIVE RELIEF
10.01. The parties acknowledge that PEERLESS will suffer irreparable
harm if EXECUTIVE breaches this Agreement, either during or after its term.
Accordingly, PEERLESS shall be entitled, in addition to any other rights and
remedy it may have, at law or equity, to any injunction, without the posting of
a bond or other security, enjoining or restraining EXECUTIVE from any violation
of this Agreement, and EXECUTIVE hereby consents to PEERLESS' right to the
issuance of such injunction. In any proceeding by PEERLESS to enforce any
provision of Article 7, 8 or 9, PEERLESS shall, in addition to any injunctive
relief to which it may be entitled, be awarded damages to be determined by a
court of competent jurisdiction as well as all court costs, disbursements,
expenses and attorneys' fees incurred by PEERLESS.
10.02. In the event EXECUTIVE violates the terms of Article 9, the
period of the restrictive covenant shall be extended for two (2) years from and
after the later of:
(a) The date which EXECUTIVE ceases any violation; or
(b) The date on which a court issues an order or judgment
enforcing the terms of the covenant.
10.03. In the event a court of competent jurisdiction determines that a
provision of Section 9.01 above is unreasonable, it may limit such provision to
the extent it deems reasonable, without declaring the provision invalid in its
entirety. This provision shall not be construed as an admission by PEERLESS, but
is only included to provide PEERLESS with the maximum possible protection
consistent with the right of EXECUTIVE to earn a livelihood subsequent to the
termination of his employment.
ARTICLE 11
MISCELLANEOUS
11.01. Governing Law. This Agreement shall be governed according to the
laws of the State of Minnesota.
11.02. Successors. This Agreement is personal to EXECUTIVE and
EXECUTIVE may not assign or transfer any part of his rights or duties hereunder,
or any compensation due to him hereunder, to any other person or entity. This
Agreement may be assigned by PEERLESS.
11.03. Waiver. The waiver by PEERLESS of the breach or nonperformance
of any provision of this Agreement by EXECUTIVE will not operate or be construed
as a waiver of any future breach or nonperformance under any such provision of
this Agreement or any similar agreement with any other employee.
11.04. Modification. This Agreement supersedes and replaces any and all
prior and written understandings, if any, between the parties relating to the
subject matter of this Agreement, including any previous employment contract
which is hereby revoked. The parties agree that this Agreement (a) is the entire
understanding and agreement between the parties and (b) is the complete and
exclusive statement of the terms and conditions thereof, and there are no other
written or oral agreements in regard to the subject matter of this Agreement.
This Agreement shall not be changed or modified except by a written document
signed by the parties hereto.
11.05. Bonus. EXECUTIVE will be paid his 1995 annual bonus based on
past practice of receiving 10.5% of the management bonus pool which is estimated
to be $169,000 based on current financial projections.
11.06. Severability. If any provision in this Agreement shall be deemed
to be invalid, illegal or unenforceable, the court making such determination
shall have the right and is directed to make the smallest adjustments possible
so as to make such provision enforceable. The remainder of the Agreement shall
continue to be in full force and effect.
IN WITNESS WHEREOF the following parties have executed the above
instrument the day and year first above written.
PEERLESS CHAIN COMPANY,
a Minnesota corporation
By_____________________
William H. Spell
Its: Chairman
_______________________
EXECUTIVE
WARRANT
To Subscribe for and Purchase Common Stock of
DISCUS ACQUISITION CORPORATION
THIS CERTIFIES THAT, for value received, NORTHLAND BUSINESS CAPITAL,
L.L.P. (herein called "Purchaser") or registered assigns is entitled to
subscribe for and purchase from DISCUS ACQUISITION CORPORATION (herein called
the "Company"), a corporation organized and existing under the laws of the State
of Minnesota at the price specified below (subject to adjustment as noted below)
and subject to the terms and conditions specified below, fifty thousand (50,000)
fully paid and nonassessable shares of the Company's Common Stock (subject to
adjustment as noted below).
The warrant purchase price (subject to adjustment as noted below) shall
be $1.10 per share.
This Warrant is subject to the following provisions, terms and
conditions:
1. The right to purchase shares of Common Stock subject to this Warrant
shall vest at the rate of 10,000 shares per year, commencing with the first
anniversary of the date of this Warrant and at the end of each 12-month period
thereafter, so that the rights represented by this Warrant shall become fully
vested on the fifth anniversary of the date of this Warrant. The rights
represented by this Warrant may be exercised by the holder hereof, in whole or
in part, by written notice of exercise delivered to the Company 20 days prior to
the intended date of exercise and by the surrender of this Warrant (properly
endorsed if required) at the principal office of the Company and upon payment to
it by check of the purchase price for such shares. The Company agrees that the
shares so purchased shall be and are deemed to be issued to the holder hereof as
the record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares as
aforesaid. Subject to the provisions of the next succeeding paragraph,
certificates for the shares of stock so purchased shall be delivered to the
holder hereof within a reasonable time, not exceeding 10 days, after the rights
represented by this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the number of shares, if any,
with respect to which this Warrant shall not then have been exercised shall also
be delivered to the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 8 hereof and the restrictive legend under the heading
"Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance,
be duly authorized and issued, fully paid and nonassessable. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
its Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the warrant purchase price, the
holder of this Warrant shall thereafter be entitled to purchase, at the warrant
purchase price resulting from such adjustment, the number of shares obtained by
multiplying the warrant purchase price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately prior
to such adjustment and dividing the product thereof by the warrant purchase
price resulting from such adjustment.
(b) Except for the issuance of options or other rights to purchase
Common Stock referred to in Section 5.11 of that certain Stock Purchase
Agreement dated January 9, 1996 between the Company and the Purchaser (the"Stock
Purchase Agreement") and except for shares of Common Stock issued upon the
exercise of such options or other rights (provided that the aggregate number of
shares thus awarded and covered by unexercised options and thus issued pursuant
to such options shall not be in excess of 1,231,750 (appropriately adjusted
toreflect stock splits, stock dividends, reorganizations, consolidations and
similar changes)), if and whenever the Company shall issue or sell any sh ares
of its Common Stock for a consideration per share less than the lower of (i) the
warrant purchase price in effect immediately prior to the time of such issue or
sale, and (ii) the market price (as defined below) on the date of such issue or
sale, then, forthwith upon such issue or sale, the warrant purchase price shall
be reduced to the price (calculated to the nearest cent) determined as follows:
(i) by dividing (A) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing warrant purchase price
and (2) the consideration, if any, received by the Company upon such
issue or sale, by (B) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or
sale and (2) the number of shares of Common Stock thus issued or sold;
or
(ii) by multiplying the warrant purchase price in effect
immediately prior to the time of such issue or sale by a fraction, the
numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue or sale
multiplied by the market price immediately prior to such issue or sale,
plus (2) the consideration received by the Company upon such issue or
sale, and the denominator of which shall be the product of (1) the
total number of shares of Common Stock outstanding immediately after
such issue or sale, multiplied by (2) the market price immediately
prior to such issue or sale.
Solely for purposes of calculating the number of shares of Common Stock
outstanding in clauses (i) and (ii) above, the term "Common Stock outstanding"
shall include those shares of Common Stock issuable upon conversion of
outstanding shares of Class B Common Stock issued pursuant to the terms of the
Stock Purchase Agreement.
No adjustment of the warrant purchase price, however, shall be made in
an amount less than 2% of the warrant purchase price in effect on the date of
such adjustment, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment
which, together with any such adjustment so carried forward, shall be an amount
equal to or greater than 4% of the warrant purchase price then in effect.
For the purposes of this paragraph (b), the following provisions (i) to
(v), inclusive, shall also be applicable:
(i) In case at any time the Company shall grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, (aa)
Common Stock or (bb) any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock
(any of such obligations or shares of stock being hereinafter called
"Convertible Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (aa) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options,
plus the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of such rights or options, plus, in
the case of such rights or options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (bb) the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the lower of (i) the warrant purchase price
in effect immediately prior to the time of the granting of such rights
or options and (ii) the market price on the date of the granting of
such rights or options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or options or
upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such rights or
options shall (as of the date of granting of such rights or options) be
deemed to have been issued for such price per share. Except as provided
in paragraph (e) below, no further adjustments of the warrant purchase
price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such rights or options or
upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities.
(ii) In case the Company shall issue or sell (whether directly
or by assumption in a merger or otherwise) any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock
is issuable upon such conversion or exchange (determined by dividing
(aa) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (bb)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be
less than the lower of (i) the warrant purchase price in effect
immediately prior to the time of such issue or sale and (ii) the market
price on the date of such issue or sale, then the total maximum number
of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall (as of the date of the issue or sale
of such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (x) except as
provided in paragraph (e) below, no further adjustments of the warrant
purchase price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and (y) if
any such issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments of the
warrant purchase price have been or are to be made pursuant to other
provisions of this paragraph (b), no further adjustment of the warrant
purchase price shall be made by reason of such issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock
or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase any such Common Stock or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by the
Board of Directors of the Company, without deducting therefrom any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase such Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value as determined by the
Board of Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as such Board
shall determine to be attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is not the
surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any other corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and
if any such calculation results in adjustment of the warrant purchase
price, the determination of the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such
merger, conversion or sale, for purposes of paragraph (f) below, shall
be made after giving effect to such adjustment of the warrant purchase
price.
(iv) In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (aa) to receive a
dividend or other distribution payable in Common Stock or in
Convertible Securities, or in any rights or options to purchase any
Common Stock or Convertible Securities, or (bb) to subscribe for or
purchase Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such rights of subscription or purchase, as the case
may be.
(v) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this
paragraph (b).
(c) In case the Company shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect a
subdivision of the outstanding shares of Common Stock, as described in paragraph
(d) below) or Convertible Securities, or in any rights or options to purchase
Common Stock or Convertible Securities, or (ii) declare any other dividend or
make any other distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the holder of this Warrant upon the
exercise hereof will be entitled to receive the number of shares of Common Stock
to which such holder shall be entitled upon such exercise, and, in addition and
without further payment therefor, each dividend described in clause (i) above
and each dividend or distribution described in clause (ii) above which such
holder would have received by way of dividends or distributions if continuously
since such holder became the record holder of this Warrant such holder (i) had
been the record holder of the number of shares of Common Stock then received,
and (ii) had retained all dividends or distributions in stock or securities
(including Common Stock or Convertible Securities, and any rights or options to
purchase any Common Stock or Convertible Securities) payable in respect of such
Common Stock or in respect of any stock or securities paid as dividends or
distributions and originating directly or indirectly from such Common Stock. For
the purposes of the foregoing, a dividend or distribution other than in cash
shall be considered payable out of earnings or earned surplus only to the extent
that such earnings or earned surplus are charged an amount equal to the fair
value of such dividend or distribution as determined by the Board of Directors
of the Company.
(d) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the warrant purchase
price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the warrant purchase
price in effect immediately prior to such combination shall be proportionately
increased.
(e) If (i) the purchase price provided for in any right or option
referred to in clause (i) of paragraph (b), or (ii) the additional
consideration, if any, payable upon the conversion or exchange of Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (b), or (iii)
the rate at which any Convertible Securities referred to in clause (i) or clause
(ii) of paragraph (b) are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution), the warrant purchase price then in effect shall
forthwith be increased or decreased to such warrant purchase price which would
have obtained had the adjustments made upon the issuance of such rights, options
or Convertible Securities been made upon the basis of (i) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such options or rights or upon the conversion or exchange of such
Convertible Securities, and the total consideration received therefor, and (ii)
the issuance at the time of such change of any such options, rights or
Convertible Securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis of such changed
price; and on the expiration of any such option or right or the termination of
any such right to convert or exchange such Convertible Securities, the warrant
purchase price then in effect hereunder shall forthwith be increased to such
warrant purchase price which would have obtained had the adjustments made upon
the issuance of such rights or options or Convertible Securities been made upon
the basis of the issuance of the shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon the exercise of
such rights or options or upon the conversion or exchange of such Convertible
Securities. If the purchase price provided for in any such right or option
referred to in clause (i) of paragraph (b) or the rate at which any Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (b) are
convertible into or exchangeable for Common Stock, shall decrease at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such right or option or upon conversion or exchange of any such
Convertible Security, the warrant purchase price then in effect hereunder shall
forthwith be decreased to such warrant purchase price as would have obtained had
the adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as aforesaid.
(f) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, plus all dividends unpaid and
accumulated or accrued thereon to the date of such reorganization,
reclassification, consolidation, merger or sale, and m any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including without
limitation provisions for adjustments of the warrant purchase price and of the
number of shares purchasable upon the exercise of this Warrant) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(g) Upon any adjustment of the warrant purchase price, then and in each
such case the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(h) In case at any time:
(1) the Company shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first-class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company, of
the date on which (aa) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights, or (bb) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be. Such
written notice shall be given at least 20 days prior to the action in question
and not less than 20 days prior to the record date or the date on which the
Company's transfer books are closed in respect thereto.
(i) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of Common Stock in accordance
with the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
purchase rights as aforesaid.
(j) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of the amount to be paid by the holder hereof upon such
exercise) in respect of such fraction in an amount equal to the same fraction of
the market price per share of Common Stock as of the close of business on the
date of the notice required by paragraph 1 above. "Market price" shall mean, if
the Common Stock is traded on a securities exchange or on the NASDAQ National
Market System, the closing price of the Common Stock on such exchange or the
NASDAQ National Market System, or, if the Common Stock is otherwise traded in
the over-the-counter market, the average bid price at the end of the day in the
over-the-counter market, in each case averaged over a period of 20 consecutive
business days prior to the date as of which "market price" is being determined;
provided, however, that in the event of a private placement of the Common Stock
the term "market price" shall mean the fair value of the Common Stock as
determined by an independent appraiser mutually acceptable to the Company and
the holder of this Warrant. If at any time the Common Stock is not traded on an
exchange or the NASDAQ National Market System, or otherwise traded in the
over-the-counter market, the "market price" shall be deemed to be the higher of
(i) the book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company as of the last day of any month ending within 60 days preceding the date
as of which the determination is to be made, or (ii) the fair value thereof
determined in good faith by the Board of Directors of the Company as of a date
which is within 15 days of the date as of which the determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include the
Company's presently authorized Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company;
provided that the shares purchasable pursuant to this Warrant shall include
shares designated as Common Stock of the Company on the date of original issue
of this Warrant or, in the case of any reclassification of the outstanding
shares thereof, the stock, securities or assets provided for in paragraph 4(f)
above.
6. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company.
7. The holder of this Warrant, by acceptance hereof, agrees to give
written notice to the Company before transferring this Warrant or transferring
any Common Stock issuable or issued upon the exercise hereof of such holder's
intention to do so, describing briefly the manner of any proposed transfer of
this Warrant or such holder's intention as to the disposition to be made of
shares of Common Stock issuable or issued upon the exercise hereof. Such holder
shall also provide the Company with an opinion of counsel satisfactory to the
Company to the effect that the proposed transfer of this Warrant or disposition
of shares may be effected without registration or qualification (under any
Federal or State law) of this Warrant or the shares of Common Stock issuable or
issued upon the exercise hereof. Upon receipt of such written notice and opinion
by the Company, such holder shall be entitled to transfer this Warrant, or to
exercise this Warrant in accordance with its terms and dispose of the shares
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of this Warrant, all in accordance with the terms of
the notice delivered by such holder to the Company, provided that an appropriate
legend respecting the aforesaid restrictions on transfer and disposition may be
endorsed on this Warrant or the certificates for such shares.
8. Subject to the provisions of paragraph 7 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, at the principal
office of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant properly endorsed. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees that
the bearer of this Warrant, when endorsed, may be treated by the Company and all
other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding; but until such transfer on such books, the Company
may treat the registered holder hereof as the owner for all purposes.
9. This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the principal office of the Company, for new Warrants of like
tenor representing in the aggregate the right to subscribe for and purchase the
number of shares which may be subscribed for and purchased hereunder, each of
such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.
10. The holder of this Warrant and of the Common Stock issuable or
issued upon the exercise hereof shall be entitled to the registration rights set
forth in Section 11 of the Stock Purchase Agreement.
11. The right to purchase shares of Common Stock subject to this
Warrant shall expire on the seventh anniversary of the date of this Warrant.
12. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer and this Warrant to be dated as of January 9, 1996.
DISCUS ACQUISITION CORPORATION
By /S/ WILLIAM SPELL
------------------
Chief Executive Officer
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i) the
opinion of counsel satisfactory to the Company that such transfer may be
lawfully made without registration under the Federal Securities Act of 1933 and
all applicable state securities laws or (ii) registration under the Federal
Securities Act of 1933 and all applicable state securities laws.
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
this Warrant, and appoints
to transfer this Warrant on the books of the Company with the full power of
substitution in the premises.
Dated:
In the presence of:
__________________________________________
(Signature must conform in all respects to
the name of the holder as specified on the
face of this Warrant without alteration,
enlargement or any change whatsoever, and
the signature must be guaranteed in the
usual manner)
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: [NAME OF ISSUER] (the "Company")
The undersigned _________________________________
Please insert Social Security or other
identifying number of Subscriber:
_____________________________________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, _______________shares of the Common
Stock provided for therein and tenders payment herewith to the order of the
Company in the amount of $______ , such payment being made as provided on the
face of this Warrant.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name: __________________________________________________________________
Address: __________________________________________________________________
Deliver to: __________________________________________________________________
Address: __________________________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated:
Signature _________________________________________
Note: The signature on this Subscription
Form must correspond with the name as
written upon the face of this Warrant in
every particular, without alteration or
enlargement or any change whatever.
THE SECURITIES EVIDENCED HEREBY MAY NOT BE TRANSFERRED WITHOUT (I) THE OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY BE MADE WITHOUT
REGISTRATION UNDER THE FEDERAL SECURITIES ACT OF 1933 AND ALL APPLICABLE STATE
SECURITIES LAWS, OR (II) REGISTRATION UNDER THE FEDERAL SECURITIES ACT OF 1933
AND ALL APPLICABLE STATE SECURITIES LAWS.
WARRANT
To Subscribe for and Purchase Common Stock of
DISCUS ACQUISITION CORPORATION
THIS CERTIFIES THAT, for value received, Richard W. Perkins, Sr.
(herein called "Purchaser") or registered assigns is entitled to subscribe for
and purchase from DISCUS ACQUISITION CORPORATION (herein called the "Company"),
a corporation organized and existing under the laws of the State of Minnesota at
the price specified below (subject to adjustment as noted below) and subject to
the terms and conditions specified below, ten thousand (10,000) fully paid and
nonassessable shares of the Company's Common Stock (subject to adjustment as
noted below). This Warrant is one of a series of Warrants exercisable for the
purchase of an aggregate of 50,000 shares (the "Warrant Stock") of the Company's
Common Stock. This Warrant shall be exercisable from and after the date hereof
and until March 12, 2001.
The warrant purchase price (subject to adjustment as noted below) shall
be $1.10 per share.
This Warrant is subject to the following provisions, terms and
conditions:
1. The right to purchase shares of Common Stock subject to this Warrant
shall vest immediately upon the issuance and delivery of this Warrant. The
rights represented by this Warrant may be exercised by the holder hereof, in
whole or in part, by written notice of exercise delivered to the Company at
least 20 days prior to the intended date of exercise and by the surrender of
this Warrant (properly endorsed if required) at the principal office of the
Company and upon payment to it by check of the purchase price for such shares.
The Company agrees that the shares so purchased shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the close
of business on the date on which this Warrant shall have been surrendered and
payment made for such shares as aforesaid. Subject to the provisions of the next
succeeding paragraph, certificates for the shares of stock so purchased shall be
delivered to the holder hereof within a reasonable time, not exceeding 10 days,
after the rights represented by this Warrant shall have been so exercised, and,
unless this Warrant has expired, a new Warrant representing the number of
shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be delivered to the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof and the restrictive legend above.
3. The Company covenants and agrees that all shares which may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance,
be duly authorized and issued, fully paid and nonassessable. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
its Common Stock to provide for the exercise of the rights represented by this
Warrant.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the warrant purchase price, the
holder of this Warrant shall thereafter be entitled to purchase, at the warrant
purchase price resulting from such adjustment, the number of shares obtained by
multiplying the warrant purchase price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately prior
to such adjustment and dividing the product thereof by the warrant purchase
price resulting from such adjustment.
(b) If and whenever the Company shall issue or sell any shares of its
Common Stock for a consideration per share less than the lower of (i) the
warrant purchase price in effect immediately prior to the time of such issue or
sale, and (ii) the market price (as defined below) on the date of such issue or
sale, then, forthwith upon such issue or sale, the warrant purchase price shall
be reduced to the price (calculated to the nearest cent) determined as follows:
(i) by dividing (A) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such
issue or sale multiplied by the then existing warrant purchase price
and (2) the consideration, if any, received by the Company upon such
issue or sale, by (B) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or
sale and (2) the number of shares of Common Stock thus issued or sold;
or
(ii) by multiplying the warrant purchase price in effect
immediately prior to the time of such issue or sale by a fraction, the
numerator of which shall be the sum of (1) the number of shares of
Common Stock outstanding immediately prior to such issue or sale
multiplied by the market price immediately prior to such issue or sale,
plus (2) the consideration received by the Company upon such issue or
sale, and the denominator of which shall be the product of (1) the
total number of shares of Common Stock outstanding immediately after
such issue or sale, multiplied by (2) the market price immediately
prior to such issue or sale.
Solely for purposes of calculating the number of shares of Common Stock
outstanding in clauses (i) and (ii) above, the term "Common Stock outstanding"
shall include those shares of Common Stock issuable upon conversion of
outstanding shares of Class B Common Stock issued by the Company.
No adjustment of the warrant purchase price, however, shall be made in
an amount less than 2% of the warrant purchase price in effect on the date of
such adjustment, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment
which, together with any such adjustment so carried forward, shall be an amount
equal to or greater than 4% of the warrant purchase price then in effect.
For the purposes of this paragraph (b), the following provisions (i) to
(v), inclusive, shall also be applicable:
(i) In case at any time the Company shall grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, (aa)
Common Stock or (bb) any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock
(any of such obligations or shares of stock being hereinafter called
"Convertible Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (aa) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or
options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of such rights or options,
plus, in the case of such rights or options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (bb) the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the lower of (i) the warrant purchase price
in effect immediately prior to the time of the granting of such rights
or options and (ii) the market price on the date of the granting of
such rights or options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or options or
upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such rights or
options shall (as of the date of granting of such rights or options) be
deemed to have been issued for such price per share. Except as provided
in paragraph (e) below, no further adjustments of the warrant purchase
price shall be made upon the actual issue of such Common Stock or of
such Convertible Securities upon exercise of such rights or options or
upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities.
(ii) In case the Company shall issue or sell (whether directly
or by assumption in a merger or otherwise) any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock
is issuable upon such conversion or exchange (determined by dividing
(aa) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (bb)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be
less than the lower of (i) the warrant purchase price in effect
immediately prior to the time of such issue or sale and (ii) the market
price on the date of such issue or sale, then the total maximum number
of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall (as of the date of the issue or sale
of such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (x) except as
provided in paragraph (e) below, no further adjustments of the warrant
purchase price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and (y) if
any such issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments of the
warrant purchase price have been or are to be made pursuant to other
provisions of this paragraph (b), no further adjustment of the warrant
purchase price shall be made by reason of such issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock
or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase any such Common Stock or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by the
Board of Directors of the Company, without deducting therefrom any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase such Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value as determined by the
Board of Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as such Board
shall determine to be attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is not the
surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any other corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and
if any such calculation results in adjustment of the warrant purchase
price, the determination of the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such
merger, conversion or sale, for purposes of paragraph (f) below, shall
be made after giving effect to such adjustment of the warrant purchase
price.
(iv) In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (aa) to receive a
dividend or other distribution payable in Common Stock or in
Convertible Securities, or in any rights or options to purchase any
Common Stock or Convertible Securities, or (bb) to subscribe for or
purchase Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such rights of subscription or purchase, as the case
may be.
(v) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this
paragraph (b).
(c) In case the Company shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect a
subdivision of the outstanding shares of Common Stock, as described in paragraph
(d) below) or Convertible Securities, or in any rights or options to purchase
Common Stock or Convertible Securities, or (ii) declare any other dividend or
make any other distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the holder of this Warrant upon the
exercise hereof will be entitled to receive the number of shares of Common Stock
to which such holder shall be entitled upon such exercise, and, in addition and
without further payment therefor, each dividend described in clause (i) above
and each dividend or distribution described in clause (ii) above which such
holder would have received by way of dividends or distributions if continuously
since such holder became the record holder of this Warrant such holder (i) had
been the record holder of the number of shares of Common Stock then received,
and (ii) had retained all dividends or distributions in stock or securities
(including Common Stock or Convertible Securities, and any rights or options to
purchase any Common Stock or Convertible Securities) payable in respect of such
Common Stock or in respect of any stock or securities paid as dividends or
distributions and originating directly or indirectly from such Common Stock. For
the purposes of the foregoing, a dividend or distribution other than in cash
shall be considered payable out of earnings or earned surplus only to the extent
that such earnings or earned surplus are charged an amount equal to the fair
value of such dividend or distribution as determined by the Board of Directors
of the Company.
(d) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the warrant purchase
price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the warrant purchase
price in effect immediately prior to such combination shall be proportionately
increased.
(e) If (i) the purchase price provided for in any right or option
referred to in clause (i) of paragraph (b), or (ii) the additional
consideration, if any, payable upon the conversion or exchange of
Convertible Securities referred to in clause (i) or clause (ii) of paragraph
(b), or (iii) the rate at which any Convertible Securities referred to in clause
(i) or clause (ii) of paragraph (b) are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the warrant purchase price
then in effect shall forthwith be increased or decreased to such warrant
purchase price which would have obtained had the adjustments made upon the
issuance of such rights, options or Convertible Securities been made upon the
basis of (i) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exercise of such options or rights or upon the
conversion or exchange of such Convertible Securities, and the total
consideration received therefor, and (ii) the issuance at the time of such
change of any such options, rights or Convertible Securities then still
outstanding for the consideration, if any, received by the Company therefor and
to be received on the basis of such changed price; and on the expiration of any
such option or right or the termination of any such right to convert or exchange
such Convertible Securities, the warrant purchase price then in effect hereunder
shall forthwith be increased to such warrant purchase price which would have
obtained had the adjustments made upon the issuance of such rights or options or
Convertible Securities been made upon the basis of the issuance of the shares of
Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights or options or upon the
conversion or exchange of such Convertible Securities. If the purchase price
provided for in any such right or option referred to in clause (i) of paragraph
(b) or the rate at which any Convertible Securities referred to in clause (i) or
clause (ii) of paragraph (b) are convertible into or exchangeable for Common
Stock, shall decrease at any time under or by reason of provisions with respect
thereto designed to protect against dilution, then in case of the delivery of
Common Stock upon the exercise of any such right or option or upon conversion or
exchange of any such Convertible Security, the warrant purchase price then in
effect hereunder shall forthwith be decreased to such warrant purchase price as
would have obtained had the adjustments made upon the issuance of such right,
option or Convertible Securities been made upon the basis of the issuance of
(and the total consideration received for) the shares of Common Stock delivered
as aforesaid.
(f) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, plus all dividends unpaid and
accumulated or accrued thereon to the date of such reorganization,
reclassification, consolidation, merger or sale, and in any such case
appropriate provision shall be made with respect to the rights and interests of
the holder of this Warrant to the end that the provisions hereof (including
without limitation provisions for adjustments of the warrant purchase price and
of the number of shares purchasable upon the exercise of this Warrant) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(g) Upon any adjustment of the warrant purchase price, then and in each
such case the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(h) In case at any time:
(1) the Company shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first-class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company, of
the date on which (aa) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights, or (bb) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be. Such
written notice shall be given at least 20 days prior to the action in question
and not less than 20 days prior to the record date or the date on which the
Company's transfer books are closed in respect thereto.
(i) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of Common Stock in accordance
with the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
purchase rights as aforesaid.
(j) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of the amount to be paid by the holder hereof upon such
exercise) in respect of such fraction in an amount equal to the same fraction of
the market price per share of Common Stock as of the close of business on the
date of the notice required by paragraph 1 above. "Market price" shall mean, if
the Common Stock is traded on a securities exchange or on the NASDAQ National
Market System, the closing price of the Common Stock on such exchange or the
NASDAQ National Market System, or, if the Common Stock is otherwise traded in
the over-the-counter market, the average bid price at the end of the day in the
over-the-counter market, in each case averaged over a period of 20 consecutive
business days prior to the date as of which "market price" is being determined;
provided, however, that in the event of a private placement of the Common Stock
the term "market price" shall mean the fair value of the Common Stock as
determined by an independent appraiser mutually acceptable to the Company and
the holder of this Warrant. If at any time the Common Stock is not traded on an
exchange or the NASDAQ National Market System, or otherwise traded in the
over-the-counter market, the "market price" shall be deemed to be the higher of
(i) the book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company as of the last day of any month ending within 60 days preceding the date
as of which the determination is to be made, or (ii) the fair value thereof
determined in good faith by the Board of Directors of the Company as of a date
which is within 15 days of the date as of which the determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include the
Company's presently authorized Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company;
provided that the shares purchasable pursuant to this Warrant shall include
shares designated as Common Stock of the Company on the date of original issue
of this Warrant or, in the case of any reclassification of the outstanding
shares thereof, the stock, securities or assets provided for in paragraph 4(f)
above.
6. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company.
7. The holder of this Warrant, by acceptance hereof, agrees to give
written notice to the Company before transferring this Warrant or transferring
any Common Stock issuable or issued upon the exercise hereof of such holder's
intention to do so, describing briefly the manner of any proposed transfer of
this Warrant or such holder's intention as to the disposition to be made of
shares of Common Stock issuable or issued upon the exercise hereof. Such holder
shall also provide the Company with an opinion of counsel satisfactory to the
Company to the effect that the proposed transfer of this Warrant or disposition
of shares may be effected without registration or qualification (under any
Federal or State law) of this Warrant or the shares of Common Stock issuable or
issued upon the exercise hereof. Upon receipt of such written notice and opinion
by the Company, such holder shall be entitled to transfer this Warrant, or to
exercise this Warrant in accordance with its terms and dispose of the shares
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of this Warrant, all in accordance with the terms of
the notice delivered by such holder to the Company, provided that an appropriate
legend respecting the aforesaid restrictions on transfer and disposition may be
endorsed on this Warrant or the certificates for such shares.
8. Subject to the provisions of paragraph 7 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, at the principal
office of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant properly endorsed. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees that
the bearer of this Warrant, when endorsed, may be treated by the Company and all
other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding; but until such transfer on such books, the Company
may treat the registered holder hereof as the owner for all purposes.
9. This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the principal office of the Company, for new Warrants of like
tenor representing in the aggregate the right to subscribe for and purchase the
number of shares which may be subscribed for and purchased hereunder, each of
such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.
10. The holder of this Warrant and of the Common Stock issuable or
issued upon the exercise hereof shall be entitled to the following registration
rights.
(a) If the Company shall receive a written request therefor from the
record holder or holders of an aggregate of at least a majority of the shares of
Warrant Stock not theretofore registered under the Securities Act and sold, the
Company shall prepare and file a registration statement under the Securities Act
covering the shares of Warrant Stock which are the subject of such request and
shall use its best efforts to cause such registration statement to become
effective. In addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of shares of Warrant
Stock not theretofore registered under the Securities Act and sold that such
registration is to be effected. The Company shall include in such registration
statement such shares of Warrant Stock for which it has received written
requests to register by such other record holders within 20 days after the
delivery of the Company's written notice to such other record holders. The
Company shall be obligated to prepare, file and cause to become effective only
two registration statements (other than on Form S-3 or any successor form
promulgated by the Commission ("Form S-3")) pursuant to this Section 10(a), and
to pay the expenses associated with such registration statements;
notwithstanding the foregoing, the record holder or holders of an aggregate of
at least a majority of the shares of Warrant Stock not theretofore registered
under the Securities Act and sold may require, pursuant to this Section 10(a),
the Company to file, and to pay the expenses associated with, any number of
registration statements on Form S-3, if such form is then available for use by
the Company and such record holder or holders and at least 100,000 shares are to
be included on any such registration statement. In the event that the holders of
a majority of the Warrant Stock for which registration has been requested
pursuant to this Section 10(a) determine for any reason not to proceed with a
registration at any time before a registration statement has been declared
effective by the Commission, and such registration statement, if theretofore
filed with the Commission, is withdrawn with respect to the Warrant Stock
covered thereby, and the holders of such Warrant Stock agree to bear their own
expenses incurred in connection therewith and to reimburse the Company for the
expenses incurred by it attributable to the registration of such Warrant Stock,
then the holders of such Warrant Stock shall not be deemed to have exercised
their right to require the Company to register Warrant Stock pursuant to this
Section 10(a).
If, at the time any written request for registration is received by the
Company pursuant to this Section 10(a), the Company shall have previously
determined to proceed with the actual preparation and filing of a registration
statement under the Securities Act in connection with the proposed offer and
sale for cash of any of its securities by it or any of its security holders,
such written request shall be deemed to have been given pursuant to Section
10(b) hereof rather than this Section 10(a), and the rights of the holders of
Warrant Stock covered by such written request shall be governed by Section 10(b)
hereof.
Without the written consent of the holders of a majority of the Warrant
Stock for which registration has been requested pursuant to this Section 10(a)
neither the Company nor any other holder of securities of the Company may
include securities in such registration if in the good faith Judgment of the
managing underwriter of such public offering the inclusion of such securities
would interfere with the successful marketing of the Warrant Stock or require
the exclusion of any portion of the Warrant Stock to be registered.
If the Company delivers written notice to all record holders of Warrant
Stock of its determination to file a registration statement under the Securities
Act in connection with the proposed offer and sale for cash of any of its
securities, such holders of Warrant Stock agree not to exercise their right to
demand registration of any shares of Warrant Stock pursuant to this Section
10(a) for a period not to exceed 120 days from the date of such registration.
(b) Each time the Company shall determine to proceed with the actual
preparation and filing of a registration statement under the Securities Act in
connection with the proposed offer and sale for cash of any of its securities by
it or any of its security holders (other than a registration statement on a form
that does not permit the inclusion of shares by its security holders), the
Company will give written notice of its determination to all record holders of
Warrant Stock not theretofore registered under the Securities Act and sold. Upon
the written request of a record holder of any shares of Warrant Stock given
within 10 business days after receipt of any such notice from the Company, the
Company will, except as herein provided, cause all such shares of Warrant Stock,
the record holders of which have so requested registration thereof, to be
included in such registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or sellers of the
Warrant Stock to be so registered; provided, however, that nothing herein shall
prevent the Company from, at any time, abandoning or delaying any such
registration initiated by it; provided further, however, that if the Company
determines not to proceed with a registration after the registration statement
has been filed with the Commission and the Company's decision not to proceed is
primarily based upon the anticipated public offering price of the securities to
be sold by the Company, the Company shall promptly complete the registration for
the benefit of those selling security holders who wish to proceed with a public
offering of their securities and who bear all expenses in excess of $25,000
incurred by the Company as the result of such registration after the Company has
decided not to proceed. If any registration pursuant to this Section 10(b) shall
be underwritten in whole or in part, the Company may require that the Warrant
Stock requested for inclusion pursuant to this Section 10(b) be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the good faith judgment of the managing
underwriter of such public offering the inclusion of all of the Warrant Stock
originally covered by a request for registration would reduce the number of
shares to be offered by the Company or interfere with the successful marketing
of the shares of stock offered by the Company, the number of shares of Warrant
Stock otherwise to be included in the underwritten public offering may be
reduced pro rata (by number of shares) among the holders thereof requesting such
registration. Those shares of Warrant Stock which are thus excluded from the
underwritten public offering shall be withheld from the market by the holders
thereof for a period, not to exceed 120 days, which the managing underwriter
reasonably determines is necessary in order to effect the underwritten public
offering.
(c) If and whenever the Company is required by the provisions of
Section 10(a) or 10(b) hereof to effect the registration of shares of Warrant
Stock under the Securities Act, the Company will:
(i) prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts to
cause such registration statement to become and remain effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed nine months;
(ii) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus contained
therein as may be necessary to keep such registration statement
effective for such period as may be reasonably necessary to effect the
sale of such securities, not to exceed nine months;
(iii) furnish to the security holders participating in such
registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the
public offering of such securities;
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such participating
holders may reasonably request in writing within 20 days following the
original filing of such registration statement, except that the Company
shall not for any purpose be required to execute a general consent to
service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(v) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the
time when such registration statement has become effective or a
supplement to any prospectus forming a part of such registration
statement has been filed;
(vi) notify such holders promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(vii) prepare and file with the Commission, promptly upon the
request of any such holders, any amendments or supplements to such
registration statement or prospectus which, in the opinion of counsel
for such holders (and concurred in by counsel for the Company), is
required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Warrant Stock by
such holder;
(viii) prepare and promptly file with the Commission and
promptly notify such holders of the filing of such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be delivered
under the Securities Act, any event shall have occurred as the result
of which any such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the
light of the circumstances in which they were made, not misleading;
(ix) advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be
issued;
(x) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such holders
shall have reasonably objected on the grounds that such amendment or
supplement does not comply in all material respects with the
requirements of the Securities Act or the rules and regulations
thereunder, after having been furnished with a copy thereof at least
five business days prior to the filing thereof, unless in the opinion
of counsel for the Company the filing of such amendment or supplement
is reasonably necessary to protect the Company from any liabilities
under any applicable federal or state law and such filing will not
violate applicable law; and
(xi) at the request of any such holder, furnish: (1) an
opinion, dated as of the closing date, of the counsel representing the
Company for the purposes of such registration, addressed to the
underwriters, if any, and to the holder or holders making such request,
covering such matters as such underwriters and holder or holders may
reasonably request; and (ii) letters dated as of the effective date of
the registration statement and as of the closing date, from the
independent certified public accountants of the Company, addressed to
the underwriters, if any, and to the holder or holders making such
request, covering such matters as such underwriters and holder or
holders may reasonably request.
(d) With respect to each registration, including registrations pursuant
to Form S-3, requested pursuant to Section 10(a) hereof (except as otherwise
provided in such Section with respect to registrations voluntarily terminated at
the request of the requesting security holders) and with respect to each
inclusion of shares of Warrant Stock in a registration statement pursuant to
Section 10(b) hereof (except as otherwise provided in Section 10(b) with respect
to registrations initiated by the Company but with respect to which the Company
has determined not to proceed), the Company shall bear the following fees, costs
and expenses: all registration, filing and NASD fees, printing expenses, fees
and disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company and/or selling security holders are required to bear such fees
and disbursements), all internal Company expenses, all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified, and the premiums and other costs of policies of
insurance against liability (if any) arising out of such public offering. Fees
and disbursements of counsel and accountants for the selling security holders,
underwriting discounts and commissions and transfer taxes relating to the shares
included in the offering by the selling security holders, and any other expenses
incurred by the selling security holders not expressly included above, shall be
borne by the selling security holders.
(e) In the event that any Warrant Stock is included in a registration
statement under Section 10(a) or 10(b) hereof:
(i) The Company will indemnify and hold harmless each holder
of shares of Warrant Stock which are included in a registration
statement pursuant to the provisions of this Section 10(a), its
directors and officers, and any underwriter (as defined in the
Securities Act) for such holder and each person, if any, who controls
such holder or such underwriter within the meaning of the Securities
Act, from and against, and will reimburse such holder and each such
underwriter and controlling person with respect to, any and all loss,
damage, liability, cost and expense to which such holder or any such
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
provided, however, that the Company will not be liable in any such case
to the extent that any such loss, damage, liability, cost or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished by such holder, such underwriter or such
controlling person in writing specifically for use in the preparation
thereof.
(ii) Each holder of shares of Warrant Stock which are included
in a registration pursuant to the provisions of this Section 11 will
indemnify and hold harmless the Company, its directors and officers,
any controlling person and any underwriter from and against, and will
reimburse the Company, its directors and officers, any controlling
person and any underwriter with respect to, any and all loss, damage,
liability, cost or expense to which the Company or any controlling
person and/or any underwriter may become subject under the Securities
Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue or alleged untrue statement of any
material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which
they were made, not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in strict
conformity with written information furnished by such holder
specifically for use in the preparation thereof.
(iii) Promptly after receipt by an indemnified party pursuant
to the provisions of paragraph (a) or (b) of this Section 10(e) of
notice of the commencement of any action involving the subject matter
of the foregoing indemnity provisions such indemnified party will, if a
claim thereof is to be made against the indemnifying party pursuant to
the provisions of said paragraph (a) or (b), promptly notify the
indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability
which it may have to any indemnified party otherwise than hereunder. In
case such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, provided, however, if the
defendants in any action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, or if there is a conflict of
interest which would prevent counsel for the indemnifying party from
also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate
in the defense of such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party
pursuant to the provisions of said paragraph (a) or (b) for any legal
or other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the proviso of the preceding sentence, (ii)
the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action, or
(iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party.
11. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer and this Warrant to be dated as of March 12, 1996.
DISCUS ACQUISITION CORPORATION
By____________________________
Chief Executive Officer
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________ this Warrant, and appoints
__________________________________________________ to transfer this Warrant on
the books of the Company with the full power of substitution in the premises.
Dated:___________________________________
In the presence of:______________________
Signature________________________________
Note: The signature on this Form of Assignment must conform in all respects to
the name of the holder as specified on the face of this Warrant in every
particular, without alteration, enlargement or any change whatsoever, and the
signature must be guaranteed in the usual manner.
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: Discus Acquisition Corporation (the "Company")
The undersigned _____________________________________
Please insert Social Security or other
identifying number of Subscriber:
_____________________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, ___________ shares of the Common Stock
provided for therein and tenders payment herewith to the order of the Company in
the amount of $__________, such payment being made as provided on the face of
this Warrant.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name:
___________________________________________________________
Address:
___________________________________________________________
Deliver to:
___________________________________________________________
Address:
___________________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated:______________________________
Signature___________________________
Note: The signature on this Subscription Form must conform in all respects to
the name of the holder as specified on the face of this Warrant in every
particular, without alteration, enlargement or any change whatsoever, and the
signature must be guaranteed in the usual manner.
EXHIBIT 21
SUBSIDIARIES
NAME STATE OF INCORPORATION
---- ----------------------
Discus of Cottage Grove, Inc. Minnesota
Beaneries of the Midwest, Inc. Minnesota
Peerless Chain Company Minnesota
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this annual report on Form 10-K
of our report dated March 27, 1996, on our audit of the consolidated financial
statements of Discus Acquisition Corporation as of December 31, 1995, and
December 25, 1994, and for the years then ended, appearing in the registration
statement on Form S-8 (SEC File No. 33-83034) of Discus Acquisition Corporation
filed with the Securities and Exchange Commission pursuant to the Securities Act
of 1933.
COOPERS & LYBRAND L.L.P.
Minneapolis, Minnesota
March 29, 1996
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 108
<SECURITIES> 0
<RECEIVABLES> 6,091
<ALLOWANCES> 0
<INVENTORY> 13,646
<CURRENT-ASSETS> 20,355
<PP&E> 12,691
<DEPRECIATION> (105)
<TOTAL-ASSETS> 39,497
<CURRENT-LIABILITIES> 18,563
<BONDS> 0
0
0
<COMMON> 6,629
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,497
<SALES> 1,419
<TOTAL-REVENUES> 1,419
<CGS> 1,162
<TOTAL-COSTS> 513
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32
<INCOME-PRETAX> (172)
<INCOME-TAX> 30
<INCOME-CONTINUING> (202)
<DISCONTINUED> 0
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<NET-INCOME> (202)
<EPS-PRIMARY> (.08)
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