<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1997
Commission file number: 0-25620
A.S.V., INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1459569
------------------------------ -----------------------------------
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation of organization
840 LILY LANE
P.O. BOX 5160
GRAND RAPIDS, MN 55744 (218) 327-3434
------------------------------ ----------------------------------
Address of principal executive offices Registrant's telephone number
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. [x] Yes [ ] No
At June 30, 1997, 4,909,698 shares of registrant's $.01 par value Common Stock
were outstanding.
Transitional Small Business Issuer Format [x] Yes [ ] No
Page 1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, December 31,
1997 1996
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................... $ 630,380 $ 3,042,494
Short-term investments.............................. 3,766,840 2,269,753
Accounts receivable, net............................ 1,142,256 1,261,228
Inventories......................................... 7,480,497 5,160,353
Prepaid expenses and other.......................... 266,685 201,943
----------- -----------
Total current assets 13,286,658 11,935,771
Property and equipment, net.......................... 2,125,287 1,474,641
----------- -----------
Total Assets.................................. $15,411,945 $13,410,412
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable.................................... $ 1,830,287 $ 779,609
Accrued liabilities
Compensation....................................... 91,466 87,695
Interest payable................................... 81,250 78,785
Warranties......................................... 75,000 100,000
Other.............................................. 122,173 181,168
Income taxes payable................................ 53,454 198,954
----------- -----------
Total current liabilities.......................... 2,253,630 1,426,211
----------- -----------
LONG-TERM LIABILITIES................................ 5,716,938 5,697,068
----------- -----------
COMMITMENTS AND CONTINGENCIES........................ - -
SHAREHOLDERS' EQUITY
Capital stock, $.01 par value:
Preferred stock, 7,500,000 shares authorized;
no shares outstanding............................. - -
Common stock, 22,500,000 shares authorized;
4,909,698 shares issued and outstanding in 1997;
4,810,659 shares issued and outstanding in 1996... 49,097 48,107
Additional paid-in capital.......................... 5,573,857 5,201,038
Retained earnings................................... 1,818,423 1,037,988
---------- -----------
7,441,377 6,287,133
---------- -----------
Total Liabilities and Shareholders' Equity....... $15,411,945 $13,410,412
=========== ===========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------- ----------- ------------ -----------
1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales.............................. $5,407,815 $2,862,298 $10,059,000 $5,343,971
Cost of goods sold..................... 4,115,440 2,230,025 7,697,483 4,148,661
---------- ---------- ----------- ----------
Gross profit......................... 1,292,375 632,273 2,361,517 1,195,310
---------- ---------- ----------- ----------
Operating expenses:
Selling, general and administrative... 531,348 309,253 1,019,405 591,280
Research and development.............. 62,717 43,233 107,655 73,713
---------- ---------- ----------- ----------
594,065 352,486 1,127,060 664,993
---------- ---------- ----------- -----------
Operating income..................... 698,310 297,787 1,234,457 530,317
---------- ---------- ----------- ----------
Other income (expense)
Interest expense...................... (92,988) (11,710) (185,940) (23,749)
Other, net............................ 145,571 14,284 210,918 22,589
---------- ---------- ----------- ----------
52,583 2,574 24,978 (1,160)
---------- ---------- ----------- ----------
Income before income taxes........... 750,893 282,361 1,259,435 529,157
Provision for income taxes............. 286,000 107,300 479,000 201,100
---------- ---------- ----------- ----------
NET INCOME............................ $ 464,893 $ 175,061 $ 780,435 $ 328,057
========== ========== =========== ==========
Net income per common share............ $ .09 $ .03 $ .15 $ .06
========== ========== =========== ==========
Weighted average number of common and
common equivalent shares outstanding.. 5,934,233 5,217,219 5,948,921 5,154,270
========== ========== =========== ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 780,435 $ 328,057
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation....................................... 78,000 55,800
Interest accrued on capital lease obligation....... 23,028 22,800
Deferred income taxes.............................. (48,000) -
Effect of warrant earned........................... 75,600 -
Changes in assets and liabilities:
Accounts receivable.............................. 118,972 (153,744)
Inventories...................................... (2,320,144) 285,512
Prepaid expenses and other....................... (16,742) (61,569)
Accounts payable................................. 1,050,678 357,283
Accrued expenses................................. (77,759) 9,608
Income taxes payable............................. 95,500 (152,830)
----------- ----------
Net cash provided by (used in) operating activities... (240,432) 690,917
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment................... (728,646) (98,932)
Purchase of marketable security...................... (1,497,087) -
----------- ----------
Net cash used in investing activities................. (2,225,733) (98,932)
----------- ----------
Cash flows from financing activities:
Exercise of stock options............................ 57,209 57,750
Principal payments on long-term liabilities.......... (3,158) (15,685)
----------- ----------
Net cash provided by financing activities............. 54,051 42,065
----------- ----------
Net increase (decrease) in cash and cash equivalents.. (2,412,114) 634,050
Cash and cash equivalents at beginning of period...... 3,042,494 437,727
----------- ----------
Cash and cash equivalents at end of period............ $ 630,380 $1,071,777
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 160,447 $ 949
Cash paid for income taxes........................... 431,500 353,930
Supplemental disclosure of non-cash operating activity:
Tax benefit related to exercise of stock options..... $ 241,000 $ -
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
A.S.V., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The accompanying unaudited, consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal, recurring adjustments) considered necessary for a fair presentation have
been included. Results for the interim periods are not necessarily indicative of
the results for an entire year.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which is effective for
financial statements issued after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully
diluted earnings per share and requires presentation of basic and diluted
earnings per share together with disclosure of how the per share amounts were
computed. Basic earnings per share excludes dilution and is computed by
dividing net income available to common shareholders by the weighted average
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised and converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the Company.
The pro forma effect of adopting the new standard would result in basic earnings
per share of $.10 and $.04 and diluted earnings per share of $.09 and $.03 for
the three months ended June 30, 1997 and 1996, respectively. For the six months
ended June 30, 1997 and 1996, the pro forma effect of adopting the new standard
would result in basic earnings per share of $.16 and $.07 and diluted earnings
per share of $.15 and $.06, respectively.
5
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain Statement of Earnings data as a
percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1997 1996 1997 1996
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................... 76.1 77.9 76.5 77.6
Gross profit......................... 23.9 22.1 23.5 22.4
Selling, general and administrative.. 9.8 10.8 10.1 11.1
Operating income..................... 12.9 10.4 12.3 9.9
Interest expense..................... (1.7) (0.4) (1.8) (0.4)
Net income........................... 8.6 6.1 7.8 6.1
</TABLE>
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996.
Net Sales. Net sales increased 89%, or approximately $2,546,000, to
approximately $5,408,000 for the three months ended June 30, 1997 compared with
the three month period ended June 30, 1996. The increase was due primarily to
sales of the Company's Posi-Track vehicle and related accessories increasing 93%
over 1996. This increase is due to increased demand for the Posi-Track and
additional sales to dealers added in the last twelve months. Sales of the
Company's Track Truck vehicle decreased slightly in the second quarter of 1997
compared with second quarter 1996 due to one less Track Truck being shipped in
second quarter 1997. Sales of parts, used equipment and other items increased
87% for the three month period ended June 30, 1997 compared with the same period
in 1996. This increase is primarily due to parts sales more than doubling as
the number of vehicles in the field continues to increase.
Gross Profit. Gross profit for the three months ended June 30, 1997
increased to approximately $1,292,000, or 23.9% of net sales, compared with
$632,000, or 22.1% of net sales, in 1996. The increased gross profit is
attributable to increased sales volume in 1997. The increased gross profit
percentage is attributable to greater efficiencies in the production process
from the Company's increased production levels.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from 10.8% of net sales in second quarter
1996, to 9.8% of net sales in second quarter 1997. Of the increased dollar
amount of approximately $222,000, approximately one-half was due to increased
marketing costs including costs to introduce the Company's new model Posi-Track,
the HD 4500. The remainder of the increase is primarily due to higher
compensation costs as sales and administrative personnel have been added to
support expanded sales and customer service roles. The decreased percentage of
selling, general and administrative expenses is due to the Company closely
managing its costs as sales increase.
Research and Development. Research and development expenses increased from
approximately $43,000 in second quarter 1996 to approximately $63,000 in 1997.
The increase is due mainly to the introduction of the Company's new model Posi-
Track, the HD 4500, improvements to the Company's existing models and
exploration of additional models.
Interest Expense. Interest expense increased from approximately $12,000
for the second quarter of 1996 to approximately $93,000 for the second quarter
of 1997. This increase is due to the Company's $5,000,000 private placement of
6.5% convertible debentures which was completed in October 1996.
Other Income. Other income increased from approximately $14,000 in second
quarter 1996 to approximately $146,000 in 1997. This increase is primarily due
to the Company receiving $75,000 which represents the second distribution of
grant monies under its agreement with the State of Minnesota as a result of
attaining certain increased employment levels. In 1996, grant monies of $50,000
were not received until third quarter. The remainder of the increase is due to
interest income earned on the Company's short-term investments from proceeds
from its convertible debenture offering in October 1996.
6
<PAGE>
Net Income. Net income for the second quarter of 1997 was approximately
$465,000, compared with approximately $175,000 for the second quarter of 1996.
The increase in 1997 resulted primarily from additional gross profit on
increased sales, offset in part by increased operating costs and interest
expense.
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
Net Sales. Net sales for the six months ended June 30, 1997 increased 88%,
or approximately $4,715,000, to $10,059,000. The increase is due primarily to
the increased sales of the Company's Posi-Track vehicle, along with increases in
parts sales, offset by a slight decrease in Track Truck sales. Posi-Track
related sales increased 98% due to the increased demand and new dealers added in
the past twelve months. Track Truck related sales decreased slightly due to
fewer Track Trucks being sold in 1997. Sales of parts, used equipment and other
items increased approximately 94% due primarily to a more than doubling in the
sale of parts as a greater number of machines are in service in 1997.
Gross Profit. Gross profit increased for the six months ended June 30,
1997 to approximately $2,362,000, or 23.5% of net sales, from $1,195,000, or
22.4% of net sales, for the six months ended June 30, 1996. The increased gross
profit is due to increased sales while the increased gross profit percentage was
due to the increased efficiencies obtained from the Company's increased
production volume.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from 11.1% of net sales for the six months
ended June 30, 1996 to 10.1% of net sales for the six months ended June 30,
1997. The increased dollar amount of approximately $428,000 is due to increased
sales and marketing costs and increased costs for administrative personnel hired
to support increased sales volumes. The decreased percentage of selling,
general and administrative expenses is due to the Company closely managing its
costs as sales increase.
Research and Development. Research and development expenses increased from
approximately $74,000 in 1996 to approximately $108,000 in 1997. The increase is
due mainly to the introduction of the Company's two new models in 1997,
continuing improvements to the Company's existing models and exploration of
additional models.
Interest Expense. Interest expense increased from approximately $24,000
for the six months ended June 30, 1996 to approximately $186,000 for the same
period in 1997. This increase is due to the Company's $5,000,000 private
placement of 6.5% convertible debentures which was completed in October 1996.
Other Income. Other income increased from approximately $23,000 in 1996 to
approximately $211,000 in 1997. This increase is primarily due to the Company
receiving $75,000 which represents the second distribution of grant monies
under its agreement with the State of Minnesota as a result of attaining certain
increased employment levels. In 1996, grant monies of $50,000 were not received
until the third quarter. The remainder of the increase is due to interest
income earned on the Company's short-term investments from proceeds from its
convertible debenture offering in October 1996.
Net Income. Net income for the six months ended June 30, 1997 increased to
approximately $780,000 from approximately $328,000 for 1996. The increase is
due to increased sales and gross profit, offset in part by increased operating
expenses and interest expense.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of approximately
$11,033,000 compared with working capital of approximately $4,740,000 at June
30, 1996, an increase of approximately $6,293,000. The majority of this
increase is the rise in the Company's inventory levels of approximately
$4,080,000 to accommodate greater production and the anticipated start of
production of the model HD 4500 Posi-Track in third quarter 1997. The remainder
of the increase in working capital is due to proceeds remaining from the
Company's private placement of convertible debentures, offset by increased
accounts payable and accrued liabilities.
The Company's working capital position at June 30, 1997 remained relatively
constant when compared with December 31, 1996. However, the Company's
inventories increased approximately $2,320,000 and accounts payable increased
approximately $1,051,000 due to an increase in raw materials to support the
Company's increased production levels and for the HD 4500 Posi-Track for which
production is expected to begin in third quarter 1997. Cash and short-term
investments decreased $915,000 as the Company internally financed certain
equipment and building related expenditures.
7
<PAGE>
The Company is in the process of expanding its present manufacturing
facility from 40,000 square feet to 100,000 square feet. Under the expected
terms of the construction and lease arrangements, the Company will incur an
additional $1,600,000 of long-term debt for a twenty-year period at a composite
interest rate of 6-7%. As of June 30, 1997, the Company has expended
approximately $440,000 of its own funds for the expansion project.
The Company believes its existing cash and investments, together with cash
expected to be provided by operations and available, unused credit lines, will
satisfy the Company's projected working capital needs and other cash
requirements at least through the end of June 1998.
The Company has increased its number of employees by approximately 50% in
the last 12 months. In order to meet its anticipated sales levels for the next
twelve months, the Company expects it will increase its number of employees by
approximately 20-40% over the next twelve months. It is anticipated that nearly
all the additional employees will be in the production area. The Company
believes the local work force is sufficient to hire the additional employees.
In order to maintain its competitive advantage over other manufacturers of
similar products, the Company believes it will increase the level of spending on
research and development activities. It is expected the main thrust of these
activities will be directed towards extensions of the Company's current product
lines and improvements of existing products.
The statements set forth above under 'Liquidity and Capital Resources' and
elsewhere in this Form 10-QSB which are not historical facts are forward-looking
statements and involve risks and uncertainties, many of which are outside the
Company's control and, accordingly, actual results may differ materially.
Factors that might cause such a difference include, but are not limited to, lack
of market acceptance of existing products, lack of market acceptance of new
products, inability to attract new dealers for the Company's products,
unexpected delays in obtaining raw materials, unexpected delays in expanding its
plant capacity, unexpected additional expenses or operating losses or the
activities of competitors. Any forward-looking statements provided from time-
to-time by the Company represents only management's then-best current estimate
of future results or trends.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of A.S.V., Inc. was held on June 6,
1997. Matters submitted at the meeting for vote by the shareholders
were as follows:
(a) Election of Directors.
The following directors were elected at the Annual Meeting, each
with the following votes:
<TABLE>
<CAPTION>
For Against
--------- ---------
<S> <C> <C>
Philip C. Smaby 4,354,808 10,959
Gary D. Lemke 4,354,733 10,959
Edgar E. Hetteen 4,354,733 10,959
Jerome T. Miner 4,351,058 14,634
Karlin S. Symons 4,354,883 10,809
Leland T. Lynch 4,230,583 135,109
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
James H. Dahl 4,354,883 10,809
R. E. "Teddy" Turner, IV 4,353,545 12,147
</TABLE>
(b) Adoption of the 1996 Incentive and Stock Option Plan
Shareholders adopted the 1996 Incentive and Stock Option Plan
with a vote of 3,055,756 votes for, 67,180 votes against, 44,913
shares abstaining and 1,197,843 broker non-votes.
(c) Ratification of Appointment of Independent Public Accountants.
Shareholders ratified the appointment of Grant Thornton LLP as
the Company's independent public accountants for the fiscal year
ending December 31, 1997, with a vote of 4,331,485 votes for,
5,999 votes against and 28,208 shares abstaining.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit
Number Description
------- -----------
3.1 Second Restated Articles of Incorporation of the Company (a)
3.1a Amendment to Second Restated Articles of Incorporation of the Company
(e)
3.2 Bylaws of the Company (a)
4.1 Specimen form of the Company's Common Stock Certificate (a)
4.2 1987 Stock Option Plan (a)
4.3 1994 Long-Term Incentive and Stock Option Plan (a)
4.4 Form of Warrant issued to Summit Investment Corporation (b)
4.5 Form of Debenture issued October 1996 (d)
4.6 Warrant issued to Leo Partners, Inc. on December 1, 1996 (e)
4.7 1996 Incentive and Stock Option Plan
10.1 Development Agreement dated July 14, 1994 among the Iron Range
Resources and Rehabilitation Board ("IRRRB"), the Grand Rapids
Economic Development Agency ("EDA") and the Company (b)
10.2 Lease and Option Agreement dated July 14, 1994 between the Grand
Rapids Economic Development Agency and the Company (b)
10.3 Option Agreement dated July 14, 1994 between the EDA and the Company
(b)
10.4 Grant Contract dated July 1, 1994 between the Company and the IRRRB
(b)
10.5 Letter Credit Agreement dated June 15, 1994 between the Security State
Bank of Hibbing and the Company (a)
9
<PAGE>
10.6 Supplemental Lease Agreement dated April 18, 1997 between the EDA and
the Company
10.7 Supplemental Development Agreement dated April 18, 1997 between the
EDA and the Company
10.8 Line of Credit dated May 22, 1997 between Norwest Bank Minnesota
North, N.A. and the Company
10.9 Employment Agreement dated October 17, 1994 between the Company and
Thomas R. Karges (c)
10.10 Consulting Agreement between the Company and Leo Partners, Inc.
dated December 1, 1996 (e)
11 Statement re: Computation of Per Share Earnings
22 List of Subsidiaries (a)
27 Financial Data Schedule
- --------------
(a) Incorporated by reference to the Company's Registration Statement
on Form SB-2 (File No. 33-61284C) filed July 7, 1994.
(b) Incorporated by reference to the Company's Post-Effective
Amendment No. 1 to Registration Statement on Form SB-2 (File No.
33-61284C) filed August 3, 1994.
(c) Incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1994 (File No. 33-
61284C) filed November 11, 1994.
(d) Incorporated by reference to the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1996 (File No. 0-
25620) filed electronically November 13, 1996.
(e) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996 (File No. 0-25620)
filed electronically March 28, 1997.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
A.S.V., INC.
Dated: August 13, 1997 By /s/ Gary Lemke
-----------------------------------
Gary Lemke
President
10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Method of Filing
- ------- -----------------------------
<S> <C>
4.7 1996 Incentive and Stock Option Plan................ Filed herewith electronically
10.6 Supplemental Lease Agreement........................ Filed herewith electronically
10.7 Supplemental Development Agreement.................. Filed herewith electronically
10.8 Line of Credit Agreement............................ Filed herewith electronically
11 Statement re: Computation of Per Share Earnings..... Filed herewith electronically
27 Financial Data Schedule............................. Filed herewith electronically
</TABLE>
<PAGE>
A.S.V., INC.
1996 INCENTIVE AND STOCK OPTION PLAN
Section 1. Purpose.
The purpose of this 1996 Incentive and Stock Option Plan (the "Plan") is to
promote the interests of A.S.V., Inc. (the "Company") and its shareholders by
aiding the Company in attracting and retaining employees and directors capable
of contributing to the growth and success of, and providing strategic direction
to, the Company, and by offering such employees and directors an opportunity to
acquire a proprietary interest in the Company, thereby providing them with
incentives to put forth maximum efforts for the success of the Company's
business and aligning the interests of such employees and directors with those
of the Company's shareholders.
Section 2. Definitions.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, in each case as
determined by the Committee.
(b) "Award" shall mean any Option, Restricted Stock or other award granted
under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of the
Company designated by such Board to administer the Plan, which shall consist of
members appointed from time to time by the Board of Directors and shall be
composed solely of two or more "non-employee directors" within the meaning of
Rule 16b-3, each of whom is an "outside director" within the meaning of Section
162(m) of the Code to the extent required by such Section.
(f) "Company" shall mean A.S.V., Inc., a Minnesota corporation, and any
successor corporation.
-1-
<PAGE>
(g) "Eligible Person" shall mean any employee, officer, director,
consultant or independent contractor providing services to the Company or any
Affiliate.
(h) "Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended.
(i) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as the Committee
shall establish in good faith from time to time. Where there is a public market
for the Shares, the fair market value per Share on a given date shall be the
closing price of a Share in the over-the-counter market on such date, as
reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by The Nasdaq Stock Market ("Nasdaq")) or, in the event the Shares are
traded on the Nasdaq National Market ("NMS") or listed on a stock exchange, the
fair market value per Share shall be the closing price on such system or
exchange on such date, as reported in The Wall Street Journal; if such market or
exchange is not open for trading on such date, the Fair Market Value shall be
determined as of the day closest to such date when such market or exchange is
open for trading.
(j) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provision.
(k) "Non-Qualified Stock Option" shall mean an option granted under Section
6(a) of the Plan that is not intended to be an Incentive Stock Option.
(l) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(m) "Other Stock Grant" shall mean any right granted under Section 6(c) of
the Plan.
(n) "Participant" shall mean an Eligible Person whom the Committee
designates to receive an Award under the Plan.
(o) "Person" shall mean any individual, corporation, partnership,
association or trust.
(p) "Restricted Stock" shall mean any Share granted under Section 6(c) of
the Plan.
(q) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act or any successor rule or regulation.
-2-
<PAGE>
(r) "Shares" shall mean shares of Common Stock, $.01 par value, of the
Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.
Section 3. Administration.
(a) Power and Authority of the Committee. The Plan shall be administered
by the Committee. Subject to the express provisions of the Plan and to
applicable law, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to each Participant under the Plan; (iii) determine the number of Shares to be
covered by each Award; (iv) determine the terms and conditions of any Award or
Award Agreement; (v) amend the terms and conditions of any Award or Award
Agreement and accelerate the exercisability of Options or the lapse of
restrictions relating to Restricted Stock; (vi) interpret and administer the
Plan and any instrument or agreement relating to, or Award made under, the Plan;
(vii) establish, amend, suspend or waive such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the
Plan; and (viii) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of the
Company or any Affiliate.
(b) Delegation. The Committee may delegate its powers and duties under the
Plan to one or more officers of the Company or any Affiliate or a committee of
such officers, subject to such terms, conditions and limitations as the
Committee may establish in its sole discretion; provided, however, that the
Committee shall not delegate its powers and duties under the Plan (i) with
regard to officers or directors of the Company or any Affiliate who are subject
to Section 16 of the Exchange Act or (ii) in such a manner as would cause the
Plan not to comply with the requirements of Section 162(m) of the Code to the
extent required by such Section.
(c) Power and Authority of the Board of Directors. Notwithstanding
anything to the contrary contained herein, the Board of Directors may, at any
time and from time to time, without any further action of the Committee,
exercise the powers and duties of the Committee under the Plan.
-3-
<PAGE>
Section 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section 4(c),
the aggregate number of Shares which may be issued under all Awards under the
Plan shall be 500,000. Shares to be issued under the Plan shall be authorized
but previously unissued Shares. If any Shares covered by an Award or to which
an Award relates are not purchased or are forfeited, or if an Award otherwise
terminates without delivery of any Shares, then the number of Shares counted
against the aggregate number of Shares available under the Plan with respect to
such Award, to the extent of any such forfeiture or termination, shall again be
available for granting Awards under the Plan.
(b) Accounting for Awards. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number of Shares
covered by such Award or to which such Award relates shall be counted on the
date of grant of such Award against the aggregate number of Shares available for
granting Awards under the Plan.
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Shares (or
other securities or other property) which thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or other securities or other
property) subject to outstanding Awards and (iii) the purchase or exercise price
with respect to any Award; provided, however, that the number of Shares covered
by any Award or to which such Award relates shall always be a whole number.
Section 5. Eligibility.
Any Eligible Person, including any Eligible Person who is an officer or
director of the Company or any Affiliate, shall be eligible to be designated a
Participant. In determining which Eligible Persons shall receive an Award and
the terms of any Award, the Committee may take into account the nature of the
services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors as
the Committee, in its discretion, shall deem relevant. Notwithstanding the
foregoing, an Incentive Stock Option may only be granted to full or part-time
employees (which term as used
-4-
<PAGE>
herein includes, without limitation, officers and directors who are also
employees), and an Incentive Stock Option shall not be granted to an employee of
an Affiliate unless such Affiliate is also a "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.
Section 6. Awards.
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee; provided, however, that the
purchase price per Share purchasable under an Incentive Stock Option shall
not be less than 100% of the Fair Market Value of a Share on the date of
grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee; provided, however, that the term of an Incentive Stock Option
may not extend more than ten years from the date of grant of such Incentive
Stock Option.
(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, other securities or other property, or any
combination thereof, having a Fair Market Value on the exercise date equal
to the relevant exercise price) in which, payment of the exercise price
with respect thereto may be made or deemed to have been made.
(iv) Certain Options to be Treated as Non-Qualified Stock Options. If
the aggregate Fair Market Value of all Shares subject to Incentive Stock
Options granted to a Participant under all plans of the Company and its
parent and subsidiary corporations (as described in Section 422(d) of the
Code) that are exercisable for the first time during any calendar year
exceeds $100,000 at the time an Option is granted to such Participant, then
such Option shall be treated as an Option that does not qualify as an
Incentive Stock Option.
(v) Ten Percent Shareholder Rule. Notwithstanding any other provision
in the Plan, if at the time an Option is otherwise to be granted pursuant
to the Plan to a Participant who owns, directly or indirectly (within the
meaning of Section 424(d) of the Code), Common Stock of the Company
possessing more than 10% of the total combined voting power of all classes
of stock of the Company or its parent or any subsidiary, then any Incentive
Stock
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<PAGE>
Option to be granted to such Participant pursuant to the Plan shall satisfy
the requirements of Section 422(c)(5) of the Code, and the exercise price
of such Option shall be not less than 110% of the Fair Market Value of the
Shares covered, and such Option by its terms shall not be exercisable after
the expiration of five years from the date such Option is granted.
(vi) Option Limitations Under the Plan For Purposes of Section 162(m).
No Eligible Person who is an employee of the Company at the time of grant
may be granted any Option, the value of which is based solely on an
increase in the value of the Shares after the date of grant of such Option,
covering more than 500,000 Shares in the aggregate in any calendar year.
The foregoing annual limitation specifically includes the grant of any
Option representing "qualified performance-based compensation" within the
meaning of Section 162(m) of the Code to the extent required by such
Section.
(b) Restricted Stock. The Committee is hereby authorized to grant Awards
of Restricted Stock to Participants with the following terms and conditions and
with such additional terms and conditions not inconsistent with the provisions
of the Plan as the Committee shall determine:
(i) Restrictions. Shares of Restricted Stock shall be subject to such
restrictions as the Committee may impose (including, without limitation,
any limitation on the right to vote a Share of Restricted Stock or on the
right to receive any dividend or other right or property with respect
thereto), which restrictions may lapse separately or in combination, at
such time or times, in such installments or otherwise as the Committee may
deem appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or certificates,
which certificate or certificates shall be held by the Company. Such
certificate or certificates shall be registered in the name of the
Participant and shall bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock.
(iii) Forfeiture; Delivery of Shares. Except as otherwise determined
by the Committee, upon termination of employment (as determined under
criteria established by the Committee) during the applicable restriction
period, all Shares of Restricted Stock at such time subject to restriction
shall be forfeited and become authroized but unissued Shares; provided,
however, that the Committee, when it finds that a waiver would be in the
best interests of the Company, may waive in whole or in part any or all
remaining restrictions with respect to Shares of Restricted Stock. Any
Share representing Restricted Stock that is no longer subject to
restrictions shall be delivered to the holder thereof promptly after the
applicable restrictions lapse or are waived.
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<PAGE>
(c) Other Stock Grants. The Committee is hereby authorized, subject to the
terms of the Plan and any applicable Award Agreement, to grant to Participants
Shares without restrictions thereon as are deemed by the Committee to be
consistent with the purpose of the Plan; provided, however, that such grants
must comply with Rule 16b-3 and applicable law.
(d) General.
(i) No Cash Consideration for Awards. Awards shall be granted for no
cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) Grant of Additional Awards. An Eligible Person who has been
granted an Award under this Plan may be granted additional Awards under the
Plan if the Committee shall so determine.
(iii) Forms of Payment under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to be made by
the Company or an Affiliate upon the grant, exercise or payment of an Award
may be made in such form or forms as the Committee shall determine
(including, without limitation, cash, Shares, other securities or other
property or any combination thereof), and may be made in a single payment
or transfer, in installments or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee.
(iv) Limits on Transfer of Awards. No Award and no right under any
such Award shall be transferable by a Participant otherwise than by will or
by the laws of descent and distribution; provided, however, that, if so
determined by the Committee, a Participant may, in the manner established
by the Committee, designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with
respect to any Award upon the death of the Participant; and provided,
further, except in the case of an Incentive Stock Option, Awards may be
transferable as specifically provided in any applicable Award Agreement
pursuant to terms determined by the Committee. Except as otherwise provided
in any applicable Award Agreement (other than an Award Agreement relating
to an Incentive Stock Option), pursuant to terms determined by the
Committee, each Award or right under any Award shall be exercisable during
the Participant's lifetime only by the Participant or, if permissible under
applicable law, by the Participant's guardian or legal representative.
-7-
<PAGE>
(v) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee and the Committee shall be under no
duty to provide terms of like duration for Awards granted under the Plan.
(vi) Restrictions; Securities Exchange Listing. All certificates for
Shares or other securities delivered under the Plan pursuant to any Award
or the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations and other requirements of the Securities and
Exchange Commission and any applicable federal or state securities laws,
and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. If the
Shares or other securities are quoted on Nasdaq, traded on NMS or listed on
a stock exchange, the Company shall not be required to deliver any Shares
or other securities covered by an Award unless and until such Shares or
other securities have been admitted for quotation or trading on NMS or such
stock exchange.
Section 7. Income Tax Withholding; Tax Bonuses.
(a) Withholding. In order to comply with all applicable federal or state
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll, withholding,
income or other taxes, all of which are and shall remain the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of the
federal and state taxes to be withheld or collected upon exercise or receipt of
(or the lapse of restrictions relating to) an Award, the Committee, in its
discretion and subject to such additional terms and conditions as it may adopt,
may permit the Participant to satisfy such tax obligation by (i) electing to
have the Company withhold a portion of the Shares otherwise to be delivered upon
exercise or receipt of (or the lapse of restrictions relating to) such Award
with a Fair Market Value equal to the amount of such taxes or (ii) delivering to
the Company Shares other than Shares issuable upon exercise or receipt of (or
the lapse of restrictions relating to) such Award with a Fair Market Value equal
to the amount of such taxes. The election, if any, must be made on or before
the date that the amount of tax to be withheld is determined.
(b) Tax Bonuses. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid upon
their exercise or receipt of (or the lapse of restrictions relating to) Awards
in order to provide funds to pay all or a portion of the federal and state taxes
due as a result of such exercise or receipt (or the lapse of such restrictions).
The Committee shall have full authority in its discretion to determine the
amount of any such tax bonus.
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<PAGE>
Section 8. General Provisions.
(a) No Rights to Awards. No Eligible Person, Participant or other Person
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to
different Participants.
(b) Award Agreements. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company and, if requested by the Company, signed
by the Participant.
(c) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(d) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained as an employee or director of
the Company or any Affiliate, nor will it affect in any way the right of the
Company or an Affiliate to terminate such employment or directorship at any
time, with or without cause. In addition, the Company or an Affiliate may at
any time dismiss a Participant from employment or directorship free from any
liability or any claim under the Plan, except as otherwise expressly provided in
the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction and effect of the Plan or of
any Award, and any rules and regulations relating to the Plan or any Award,
shall be determined in accordance with the laws of the State of Minnesota.
(f) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee or the Board of Directors, such provision shall be construed or deemed
amended to conform to applicable law, or if it cannot be so construed or deemed
amended without, in the determination of the Committee or the Board of
Directors, materially altering the purpose or intent of the Plan or the Award,
such provision shall be stricken as to such jurisdiction or Award, and the
remainder of the Plan or any such Award shall remain in full force and effect.
(g) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
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<PAGE>
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or interpretation
of the Plan or any provision thereof.
(j) Other Benefits. No compensation or benefit awarded to or realized by
any Participant under the Plan shall be included for the purpose of computing
such Participant's compensation under any compensation-based retirement,
disability, or similar plan of the Company unless required by law or otherwise
provided by such other plan.
Section 9. Amendment and Termination; Adjustments.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; provided, however,
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the shareholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval, would:
(i) violate the rules or regulations of Nasdaq, NMS or any stock
exchange that are applicable to the Company; or
(ii) cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions or rights
of the Company under any outstanding Award, prospectively or retroactively. The
Committee may not amend, alter, suspend, discontinue or terminate any
outstanding Award in any way which would adversely affect the rights,
expectancies or benefits of the Participant thereunder, prospectively or
retroactively, without the consent of the Participant or holder or beneficiary
thereof, except as otherwise provided herein or in the Award Agreement.
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<PAGE>
(c) Correction of Defects, Omissions and Inconsistencies. The Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
Section 10. Effective Date; Term.
(a) Effective Date. The Plan shall be effective as of December 21, 1996
(the "Effective Date"); provided, however, that if the Company's shareholders do
not approve the Plan at the next meeting of Shareholders, the Plan shall be null
and void and all Awards granted prior to the date of such Special Meeting shall
be of no force or effect.
(b) Term. Awards shall be granted under the Plan only during a 10-year
period beginning on the Effective Date. Unless otherwise expressly provided in
the Plan or in an applicable Award Agreement, however, any Award theretofore
granted may extend beyond the end of such 10-year period, and the authority of
the Committee provided for hereunder with respect to the Plan and any Awards,
and the authority of the Board of Directors of the Company to amend the Plan,
shall extend beyond the termination of the Plan.
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EXHIBIT 10.6
Exhibit "B"
SUPPLEMENTAL LEASE
------------------
THIS SUPPLEMENTAL LEASE AGREEMENT, made and entered into this 18th day of
April, 1997, by and between the GRAND RAPIDS ECONOMIC DEVELOPMENT AUTHORITY, a
public body politic and corporate and a political subdivision under the laws of
the State of Minnesota, hereinafter referred to as "Landlord", and ASV, INC., a
Minnesota corporation, hereinafter referred to as "Tenant".
RECITALS
--------
A. Pursuant to a Lease and Option Agreement dated as of July 14, 1994,
Landlord leased to Tenant certain land situated in the City of Grand Rapids,
County of Itasca and State of Minnesota, described therein (the "Land") together
with certain buildings, structures and improvements (the "Improvements") since
constructed on the Land.
B. Landlord is in the process of acquiring fee title to certain
additional land (the "Additional Land"), as described in Exhibit "A" attached,
located in the City of Grand Rapids, County of Itasca, State of Minnesota, to be
leased by Landlord to Tenant pursuant to a this Supplemental Lease.
C. Landlord and Tenant desire to supplement and modify the Lease and
Option Agreement to incorporate the Additional Land as well as additions and
improvements to the Improvements, to be constructed upon the Land and the
Additional Land, which improvements and additions shall be referred to as the
"Phase II Development".
D. Landlord and Tenant wish to provide for certain lease payments in
addition to the lease payments and other obligations of Tenant pursuant to the
Lease and Option Agreement, which additional lease payments shall be referred to
herein as the Supplemental Rent.
NOW, THEREFORE, in consideration of the foregoing and the mutual
obligations of the parties hereto, each of them does hereby covenant and agree
with the others as follows:
ARTICLE I
TERM
----
1.1 The term of the Lease and Option Agreement shall not be changed or
modified, and shall terminate twenty years from the
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<PAGE>
effective date of commencement of term of the Lease and Option
Agreement as set forth in that certain Commencement of Lease
Memorandum referenced in Exhibit "B" to the Lease and Option
Agreement, and dated July 14, 1994.
ARTICLE II
RENT
----
2.1 In addition to the monthly rent payable pursuant to the Lease and
Option Agreement and the Commencement of Lease Memorandum, Tenant
shall pay Supplemental Rent, determined as follows:
A. On or before the due date of any payment which Landlord is
obligated to pay Norwest Bank Northern Minnesota N.A. (the "Bank")
pursuant to any Note, Mortgage or other loan document made and
entered into to enable construction of the Phase II Development
(the "Loan"), a copy of which Note and Mortgage are attached hereto
as Exhibits "B-1" and B-2", respectively, Tenant shall pay to
Landlord an amount equal to that sum so payable to the Bank. Tenant
may, upon appropriate written notice to Landlord, make arrangements
to make such payments directly to the Bank.
B. Any amount payable by Tenant to Landlord pursuant to that certain
Supplemental Development Agreement of this date, and in particular
subsections 2.4 and 2.5 thereof, shall be immediately due and
payable by Tenant to Landlord upon written notification by Landlord
to Tenant that such costs have been incurred by Landlord.
ARTICLE III
OPTION
------
3.1 The Option contained in Article III of the Lease and Option Agreement
shall continue unaffected by this Supplemental Lease, provided,
however, that as a condition to exercise of the Option by Tenant,
Tenant shall, on or before closing of the transfer of the Option
Property cause any Note, Mortgage or other security document given to
the Bank by Landlord pursuant to the Loan to be satisfied, and shall
further pay in full any amount due Landlord pursuant to the
Supplemental Development Agreement.
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<PAGE>
3.2 The Option Agreement between Landlord and Tenant dated as of July 14,
1994, with respect to the Additional Land shall continue in full force
and effect, provided that exercise of that Option Agreement, to be
effective, must be exercised simultaneously with the Option referenced
in Section 3.1 above. Likewise, for the Option referenced in Section
3.1 above to be effectively exercised, it must be so exercised
contemporaneously with the Option referenced in this Section 3.2.
ARTICLE IV
CONTINUED OBLIGATIONS PURSUANT TO THE LEASE AND OPTION AGREEMENT
----------------------------------------------------------------
4.1 Except as is specifically deleted, replaced or otherwise modified by
express terms of this Supplemental Lease, all terms and conditions of
the Lease and Option Agreement shall continue in full force and
effect, unaffected by this Supplemental Lease.
4.2 All representations, warranties, covenants and obligations contained
in the Lease and Option Agreement not so deleted, replaced or
modified, are hereby ratified and reaffirmed by Landlord and Tenant,
to extend to the Additional Land and the Phase II Development.
4.3 Tenant shall modify and update the insurance policies required under
Article IV of the Lease and Option Agreement to include the Additional
Land and the Phase II Development, under the same terms, conditions
and obligations of that Article.
4.4 The obligations of Tenant relating to taxes and special assessments
pursuant to Article V of the Lease and Option Agreement shall be
extended to include and provide for the Additional Land and Phase II
Development.
4.5 All other provisions of the Lease and Option Agreement relating to the
Land and the Lease to Property shall extend and be applicable to the
Additional Land and the Phase II Development.
4.6 Any default under the Lease and Option Agreement shall be deemed a
default hereunder, and any default of the terms of this Supplemental
Lease shall, likewise, be deemed a default of the Lease and Option
Agreement.
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<PAGE>
4.7 The provisions of Article XXV of the Lease and Option Agreement
regarding environmental matters shall extend to the Additional Land
and the Phase II Development.
ARTICLE V
ONE PARCEL OF PROPERTY
----------------------
5.1 Tenant for all purposes other than as specifically set forth herein
Landlord and Tenant shall deem the Land, the Additional Land, the
Improvements and Phase II Development to constitute one parcel of
property, as improved, which may not be separately operated by Tenant,
its successors or assigns for any purpose.
ARTICLE VI
ENTIRE AGREEMENT
----------------
6.1 Tenant and Landlord hereby agree that this Supplemental Lease as
written represents the entire agreement between the parties hereto and
that there are no other agreements, written or verbal, between the
parties hereto pertaining to the Leased property or the subject matter
hereof except the Development Agreement entered into as of July 14,
1994, the Supplemental Developmental Agreement entered as of this date
and the Lease and Option Agreement entered into as of July 14, 1994.
The Supplemental Lease may not be amended or supplemented orally but
only by an agreement in writing which has been signed by the party
against whom enforcement of any such amendment or supplement is
sought.
ARTICLE VII
SHORT FORM OR MEMO LEASE
------------------------
7.1 Both parties agree not to record this Supplemental Lease: but each
party hereto agrees, at the request of the other, to execute a so-
called "short form" of lease in form recordable and reasonably
satisfactory to Landlord's attorneys. In no event shall such "short
form" lease set forth the rental and other charges payable by Tenant
under this Lease, and any such "short form" lease shall expressly
state that it is executed pursuant to the provisions contained in this
Supplemental Lease and is not intend to vary the terms and conditions
of this Supplemental Lease.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have each caused this Agreement to
be duly executed in its name and behalf on or as of the date first above
written.
LANDLORD: TENANT:
GRAND RAPIDS ECONOMIC ASV, INC.
DEVELOPMENT AUTHORITY
BY: /s/ Skip Drake BY: /s/Gary Lemke
--------------- -------------
SKIP DRAKE GARY LEMKE
Its President Its President
AND:/s/ Thomas Saxhaug
------------------
THOMAS SAXHAUG
Its Vice President
STATE OF MINNESOTA )
) ss.
COUNTY OF ITASCA )
The foregoing instrument was acknowledged before me this 18th day of April,
1997, by Skip Drake and Thomas Saxhaug, the President and Vice President,
respectively, of the Grand Rapids Economic Development Authority, a public body
politic and corporate and a political subdivision under the laws of the State of
Minnesota, on behalf of the body.
/s/ Sara L. Holum
--------------------------
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF ITASCA )
The foregoing instrument was acknowledged before me this 17th day of April,
1997, by Gary Lemke, the President, of ASV, Inc. a corporation under the laws of
the State of Minnesota, on behalf of the corporation.
/s/ Jacquelyn M. Berard
--------------------------
Notary Public
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<PAGE>
LISTS OF EXHIBITS
Exhibit "A" - Land Description
Exhibit "B" - Commencement of Lease Memorandum
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<PAGE>
EXHIBIT 10.7
SUPPLEMENTAL DEVELOPMENT AGREEMENT
----------------------------------
THIS AGREEMENT, made as of the 18th day of April, 1997, by and among THE
STATE OF MINNESOTA ACTING THROUGH ITS OFFICE OF THE COMMISSIONER OF IRON RANGE
RESOURCES AND REHABILITATION (hereinafter referred to as the "IRRRB"), the GRAND
RAPIDS ECONOMIC DEVELOPMENT AUTHORITY, a public body politic and corporate and a
political subdivision under the laws of the State of Minnesota (hereinafter
referred to as the "Authority"), and ASV, INC., a Minnesota corporation
(hereinafter referred to as "ASV").
RECITALS
--------
A. The IRRRB, the Authority and ASV entered into a Development Agreement
as of July 14, 1994 in order to provide for construction of a manufacturing
facility (the "ASV Manufacturing Facility") to be located upon certain land
(identified in the Development Agreement as the "Land").
B. The Authority is in the process of acquiring fee title to certain
additional land (the "Additional Land"), as described in Exhibit "A" attached,
located in the City of Grand Rapids, County of Itasca, State of Minnesota, which
will be leased by the Authority to ASV pursuant to a supplemental lease (the
"Supplemental Lease"), a copy of which is attached as Exhibit "B", which will
supplement and modify the terms of that certain Lease and Option Agreement (the
"Lease"), entered into as of July 14, 1994 by and between the Authority and ASV
with regard to the Land and pursuant to the Development Agreement.
C. The Additional Land is subject to a Ground Lease and Assignment (the
"Ground Lease") dated November 27, 1996, a copy of which is attached hereto as
Exhibit "C". It is the intent of the parties that this Ground Lease shall
terminate prior to execution of the Supplemental Lease and that any improvements
and partial improvements shall, pursuant to the terms of the Ground Lease,
become the property of the Authority.
D. The IRRRB, the Authority and ASV desire to supplement and modify the
Development Agreement, and other documents and agreements made and entered into
pursuant to or otherwise relating to the Development Agreement in order to
construct additions and improvements to the ASV Manufacturing Facility (as
defined in the Development
-1-
<PAGE>
Agreement). These improvements and additions (the "Phase II Development") shall
be constructed upon the Additional Land and a portion of the Land.
E. The Authority and ASV have agreed to cooperate in obtaining from
Norwest Bank Minnesota North, National Association, (the "Bank") a loan to
enable construction of the Phase II Development (the "Norwest Loan") to be
secured by the Land, ASV Manufacturing Facility, the Additional Land and the
Phase II Development.
F. The IRRRB intends to become a participant with Norwest in the Norwest
Loan, upon terms and conditions to be separately negotiated between the Bank and
the IRRRB.
NOW, THEREFORE, in consideration of the foregoing and the mutual
obligations of the parties hereto, each of them does hereby covenant and agree
with the others as follows:
ARTICLE I
RATIFICATION AND CONTINUANCE OF DEVELOPMENT AGREEMENT
-----------------------------------------------------
1.1 Except as is specifically deleted, replaced or otherwise modified by
express terms of this Supplemental Development Agreement, all terms
and conditions of the Development Agreement shall continue in full
force and effect, unaffected by this Supplemental Development
Agreement.
1.2 All representations, warranties, covenants and obligations contained
in the Development Agreement, not so deleted, replaced or modified,
are hereby ratified and reaffirmed by the IRRRB, the Authority and
ASV, to extend to the Additional Land and the Phase II Development.
ARTICLE II
CONSTRUCTION OF THE PHASE II DEVELOPMENT
----------------------------------------
2.1 The Authority hereby agrees to immediately proceed to acquire fee
title to the Additional Land free and clear of any liens, encumbrances
or restrictions except as set forth on the attached Exhibit "A" and to
furnish all material and labor and to do all things necessary for the
construction of the Phase II Development in a good and workmanlike
manner in accordance with the Preliminary Plans and Specifications
described or set forth on Exhibit "D" attached hereto and made a part
hereof (the "Preliminary Plans and Specifications") and to complete
-2-
<PAGE>
the construction thereof in accordance with applicable building and
zoning regulations, as the same are presently enforced by the
governmental bodies having jurisdiction thereof. ASV agrees to
forthwith cause final plans and specifications for the Phase II
Development (the "Final Plans and Specifications") to be prepared in
accordance with the Preliminary Plans and Specifications. When said
Final Plans and Specifications have been approved by the Authority and
ASV, a list and description of said Final Plans and Specifications
shall be attached to each party's copy of this Agreement and the
Authority shall construct and complete the Phase II Development in a
good and workmanlike manner in accordance with said Final Plans and
Specifications and the aforesaid applicable building and zoning
regulations.
2.2 The Authority and ASV shall cause the Phase II Development to be
substantially completed in accordance with the approved Final Plans
and Specifications on or before January 1, 1998, provided, however,
that in the event substantial completion is delayed by act or neglect
of ASV or those acting for or under ASV, by the Authority's inability
to obtain materials, by act of God, act of war, act of governmental
authority other than the Authority, labor disputes, fire weather,
casualties, changes requested by ASV to the approved plans and
specifications or any other cause beyond the control of the Authority,
then the time for completion shall be extended for the period of any
such delay.
2.3 Particularly, ASV has been made aware that the Additional Land is
currently owned in fee by the City of Grand Rapids, a Minnesota
municipal corporation, for the benefit of the Itasca County Grand
Rapids Airport Commission, is subject to certain zoning ordinances and
other conditions relating to the Additional Land and that approval of
acquisition of the Additional Land by the Authority, and construction
of the Phase II Development is subject to approval by the Federal
Aviation Administration, which is beyond the control of the Authority,
and the time for completion shall specifically be extended for a
period of any delay occasioned by the Federal Aviation Administration.
-3-
<PAGE>
2.4 ASV hereby agrees to pay the amount, if any, by which the total cost
of the Phase II Development, including attorney fees, Construction
Manager fees and other direct costs or out-of-pocket payments for the
Phase II Development shall exceed the total of the proceeds of the
Norwest Loan and the sum of $7,500.00, and shall provide the IRRRB and
the Authority reasonable evidence and assurances that ASV can pay such
amount, if any, as it becomes due and payable. That amount shall not
be interpreted to include the value of improvements to the Additional
Land prior to the effective date of the Supplemental Lease, or any
items of personalty acquired by ASV to become improvements or fixtures
upon the Additional Land and which were acquired for such purposes
pursuant to the Ground Lease. A schedule of these items is attached
hereto as Exhibit "E".
2.5 The parties agree that the portion of the Phase II Development
constructed upon the Land, and in accordance with the Preliminary
Plans and Specifications and the Final Plans and Specifications, shall
be permitted as alterations, additions or improvements to the Lease
Property pursuant to Article IX of that certain Lease and Option
Agreement between the authority and ASV dated as of July 14, 1994.
Those alterations, additions or improvements shall remain subject to
all terms of that Lease and Option Agreement, which shall be otherwise
deemed unaffected by the Supplemental Development Agreement or any
other documents or agreement entered into pursuant hereto.
ARTICLE III
SUPPLEMENTAL LEASE AGREEMENT
----------------------------
3.1 As soon as feasible following acquisition of the Additional Land by
the Authority, the Authority and ASV shall each execute and deliver
the Supplemental Lease.
3.2 ASV shall remain obligated to make all payments of monthly rental
pursuant to the Lease, together with all additional payments of
monthly rent as set forth in the Supplemental Lease.
-4-
<PAGE>
3.3 At such time the Authority has acquired fee title in the Additional
Land, it shall grant to the IRRRB a mortgage thereon as additional
collateral supplementing the Mortgage dated as of August 17, 1994
between the Authority and the IRRRB with regard to the Land,
subordinate to the Norwest Loan.
ARTICLE IV
ADDITIONAL PROVISIONS
---------------------
4.1 Authority Representatives Not Individually Liable. No member,
official or employee of the Authority shall be personally liable to
ASV, or any successor in interest, in the event of any default or
breach by the Authority or for any amount which may become due to the
ASV or successor or any obligations under the terms of this Agreement.
4.2 Titles of Articles and Sections. Any titles of the several parts,
articles and sections of this Agreement are inserted for convenience
of reference only and shall be disregarded in construing or
interpreting any of its provisions.
4.3 Notice and Demands. Except as otherwise expressly provided in this
Agreement, a notice, demand or other communication under this
Agreement by any party to any other party hereto shall be sufficiently
given or delivered if it is dispatched by registered or certified
mail, postage prepaid, return receipt requested, or delivered
personally; and
A. In the case of ASV, is addressed to or delivered
personally to ASV at 840 Lily Lane, Grand Rapids, Minnesota 55744.
B. In the case of the Authority, is addressed to or delivered
personally to the Authority at City Hall, 420 North Pokegama
Avenue, Grand Rapids, Minnesota 55744.
C. In the case of IRRRB, is addressed to or delivered personally to
the IRRRB at Box 441, Highway 53 South, Eveleth, Minnesota 55734.
Each party hereto may from time to time by notice to the other parties
hereto as provided above change the address with respect to such
party.
-5-
<PAGE>
4.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the Authority, the IRRRB and ASV have each caused this
Agreement to be duly executed in its name and behalf on or as of the date first
above written.
GRAND RAPIDS ECONOMIC
DEVELOPMENT AUTHORITY
BY: /s/ Skip Drake
--------------------------
Its President
AND: /s/ Thomas Saxhaug
--------------------------
Its Vice President
ASV, INC.
BY: /s/ Gary Lemke
--------------------------
Its President
THE STATE OF MINNESOTA ACTING
THROUGH ITS OFFICE OF THE
COMMISSIONER OF IRON RANGE
RESOURCES AND REHABILITATION
BY: /s/ Shawn K. Harper
-------------------
Its Deputy Commissioner
STATE OF MINNESOTA )
) ss.
COUNTY OF ITASCA )
The foregoing instrument was acknowledged before me this 18th day of April,
1997, by Skip Drake and Thomas Saxhaug, the President and Vice President,
respectively, of the Grand Rapids Economic Development Authority, a public body
politic and corporate and a political subdivision under the laws of the State of
Minnesota, on behalf of the body.
/s/ Sara L. Holum
----------------------------
Notary Public
-6-
<PAGE>
STATE OF MINNESOTA )
) ss.
COUNTY OF ITASCA )
The foregoing instrument was acknowledged before me this 17th day of April,
1997, by Gary Lemke, the President of ASV, Inc. a corporation under the laws of
the State of Minnesota, on behalf of the corporation.
/s/ Jacquelyn M. Berard
---------------------------
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF ST. LOUIS )
The foregoing instrument was acknowledged before me this 27th day of May,
1997, by Shawn K. Harper and ___________________, the Deputy Commissioner and
____________________, respectively, of the State of Minnesota acting through its
office of the Commissioner of Iron Range Resources and Rehabilitation, on behalf
of the State
/s/ Sheryl Ann Aho Kochevar
-----------------------------
Notary Public
-7-
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit "A" - Legal Description of Additional Land
Exhibit "B" - Supplemental Lease
Exhibit "C" - Ground Lease
Exhibit "D" - Preliminary Plans and Specifications
Exhibit "E" - Personalty to Become Improvements or Fixtures
</TABLE>
-8-
<PAGE>
EXHIBIT 10.8
NORWEST BANK MINNESOTA NORTH, NATIONAL ASSOCIATION
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement") dated as of May 22, 1997 (the
"Effective Date") is between Norwest Bank Minnesota North, National Association
(the "Bank") and A.S.V., Inc. (the "Borrower").
BACKGROUND
The Borrower has asked the Bank to provide a Two Million and 00/100 Dollars
($2,000,000.00) line of credit to be used for working capital. The Bank is
agreeable to meeting the Borrower's request provided that the Borrower agrees to
the term and conditions of this Agreement. For the purposes of this Agreement,
all promissory notes that evidence indebtedness of the Borrower to the Bank and
which are documented under this Agreement and defined below shall collectively
be referred to as the Notes.
The Notes, this Agreement and all "Security Documents" described in Exhibit A-1
shall be referred to collectively as the "Documents".
In consideration of the above premises, the Bank and the Borrower agree as
follows:
1. LINE OF CREDIT
1.1 LINE OF CREDIT AMOUNT. During the Line Availability Period defined below,
the Bank agrees to provide a revolving line of credit (the "Line") to the
Borrower. Outstanding amounts under the Line shall not, at any one time,
exceed the lesser of the Borrowing Base or Two Million Dollars
($2,000,000.00) The Borrowing Base is defined in Exhibit A-2 to this
Agreement.
1.2 LINE AVAILABILITY PERIOD. The "Line Availability Period" shall mean the
period of time from the Effective Date or the date on which all conditions
precedent described in this Agreement have been met, whichever is later, to
the Line Expiration Date of June 1, 1998.
1.3 MANDATORY PREPAYMENT. If at any time the principal outstanding under the
Revolving Note exceeds the Borrowing Base, the Borrower must immediately
prepay the Revolving Note in an amount sufficient to eliminate the excess.
FEE AND EXPENSES
COMMITMENT FEE. During the Line Availability Period the Borrower shall pay
the Bank a commitment fee of .125% per annum on the daily unused amount of
the Line. This fee shall be calculated on the basis of actual days elapsed
in a 360 day year and paid quarterly beginning July 1, 1997.
1.
<PAGE>
DOCUMENTATION EXPENSE. The Borrower agrees to reimburse the Bank for its
reasonable expenses relating to the preparation of the Documents and any
possible future amendments to the Documents, which reimbursement may
include, but shall not be limited to, reimbursement of reasonable
attorneys' fees including the costs of the Bank in-house counsel, which
shall not be in the excess of $500.00.
Despite such reimbursement the Borrower acknowledges that the Bank's
counsel is engaged solely to represent the Bank and does not represent the
Borrower.
COLLECTION EXPENSE. In the event the Borrower fails to pay the Bank any
amounts due under this Agreement or under the Documents, the Borrower shall
pay all costs of collection. including reasonable attorney's fees and legal
expenses incurred by the Bank.
MISCELLANEOUS EXPENSE. The Borrower agrees to reimburse the Bank for its
expenses incurred in perfecting any security interest in property granted
by the Borrower to the Bank.
ADVANCES AND PAYMENTS
REQUEST FOR ADVANCES, DISBURSEMENTS AND PAYMENTS.
Any line advance requested under the terms of this Agreement shall be
requested by telephone or in a writing delivered to the Bank (or
transmitted via facsimile) by any person reasonably believed by the Bank to
be authorized by the Borrower to do so. The Bank will not consider any such
request following an event which is, or with notice or the lapse of time
would be, an event of default under this Agreement. Proceeds shall be
deposited into the Borrower's account at the Bank or disbursed in such
other manner as the parties may agree.
PAYMENTS. All principal, interest and fees due under the Documents shall be
paid by the direct debit of available funds deposited in the Borrower's
account with the Bank. The Bank shall debit the account on the date the
payments become due. If a due date does not fall on a day on which the Bank
is open for substantially all of its business (a "Banking Day"), the Bank
shall debit the account on the next Banking Day and interest shall continue
to accrue during the extended period. If there are insufficient funds in
the account on the day the Bank enters any debit authorized by this
Agreement, the debit will be reversed and the payment shall be due
immediately without necessity of demand by direct payment of immediately
available funds.
2.
<PAGE>
SECURITY
During the time period that credit is available under this Agreement, and
afterward until all amounts due under the Documents are paid in full,
unless the Bank shall otherwise agree in writing, all amounts due under
this Agreement and the Documents shall be secured at all times as provided
in Exhibit A-1. The Borrower hereby grants the Bank a security interest
(independent of the Bank's right of set-off) in its deposit accounts at the
Bank and in any other debt obligations of the Bank to the Borrower.
CONDITIONS PRECEDENT
The Borrower must deliver to the Bank the Documents described in Exhibit
A-2 properly executed in form and content acceptable to the Bank, prior to
the Bank's initial advance or disbursement under this Agreement.
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement, the Borrower, to the best
of its knowledge and upon due inquiry, makes the representations and
warranties contained in the Company's financial information provided
through March 31, 1997.
Each request for an advance or a disbursement under this Agreement
following the Effecitive Date constitutes a reaffirmation of these
representations and warranties.
Organiational Status. The Borrower is a corporation duly formed and in good
standing under the Laws of the State of Minnesota.
Authorization. This Agreement, and the execution and delivery of the
Documents required hereunder, is within the Borrowers powers, and has been
duly authorized and does not conflict with any of its organizational papers
or any other agreement by which the Borrower is bound.
Financial Reports. The Borrower has provided the Bank with its annual
audited financial statement dated December 31, 1996, and this statement
fairly represents the financial condition of the Borrower as of its dated
and was prepared in accordance with GAAP.
Financial Projections. The Borrower has provided the Bank with its four (4)
year projections dated December 6, 1996 and these projections fairly
represent the Borrowers projections for these periods
Litigation. There is no litigation or governmental proceeding pending or
threatened against the Borrower which could have a material adverse effect
on the Borrower's financial condition or business.
Taxes. The Borrower has paid when due, all federal, state and local taxes.
No default. There is no event which is, or with notice or the lapse of time
would be, an event of default under this Agreement.
3.
<PAGE>
Erisa. The borrower is in compliance in all material respects with ERISA
and has
received no notice contrary from the PBGC or other governmental area.
Environmental Matters. To the best of the Borrower's knowledge following
diligent inquiry: 1) the Borrower is in compliance in all material respects
with all applicable environmental, health, and safety statutes and
regulations, 2) the Borrower is not the subject of any "Superfund"
evaluations, and 3) the Borrower has not incurred, directly or indirectly,
any material contingent liability in connection with the release of any
toxic or hazardous waste or substance into the environment.
COVENANTS
1. FINANCIAL INFORMATION AND REPORTING
Except as otherwise stated in this Agreement, all financial information
provided to the Bank shall be compiled using generally accepted accounting
principles consistently applied.
During the time period that credit is available under this Agreement, and
afterward until all amounts due under the Documents are paid in full,
unless the Bank shall otherwise agree in writing, the Borrower agrees to:
Annual Financial Statements. Provide the Bank within 90 days of the
Borrower's fiscal year end, the Borrower's annual statements for the fiscal
year then ending, in form acceptable to the Bank. The statements must be
audited with an unqualified opinion by a certified public accountant
acceptable to the Bank.
Interim Financial Statements. Provide the Bank within 20 days of each month
end, the Borrower's interim financial statements for the interim period
then ending. The statements must be current through the end of that period
and must be prepared on a consolidated basis and be certified as correct by
an officer of the Borrower in form acceptable to the Bank
Borrowing Base Certificate. Provide the Bank within 20 days of each month
end, a Borrowing Base Certificate in the form of Exhibit A-3, current
through the end of that period and certified as correct by an officer of
the Borrower acceptable to the Bank.
Accounts Receivable Aging. Provide the Bank within 20 days of each month
end, an accounts receivable aging report in form acceptable to the Bank,
current through the end of that period and certified as correct by an
officer of the Borrower acceptable to the Bank.
Accounts Payable Aging. Provide the Bank within 20 days of each month end,
an accounts payable aging report in form acceptable to the Bank, current
through the end of that period and certified as correct by an office of the
Borrower acceptable to the Bank.
Inventory List. Provide the Bank within 20 days of each month end an
inventory reconciliation in form acceptable to the Bank, current through
the end of that period and certified as correct by an of officer of the
Borrower acceptable to the Bank. On a semi-annual basis, borrower to
provide complete copy of the detail list on January 20 and July 20.
4.
<PAGE>
Financial Projections. Provide the Bank no later than 30 days prior to each
fiscal year end, financial projections for the Borrowers operations in the
next fiscal year in for acceptable to the Bank.
SEC Reporting. Provide the Bank within 15 days of filing with the
Securities and Exchange Commission, copies of its Form 10-K Annual Report
Form 10-Q Quarterly Report and 8-K Current Report.
Notices of Default. Provide the Bank prompt written notice of: 1) any event
which has or might after the passage of time or the giving of notice, or
both, constitute an event of default under any of the Documents; 2) any
future event that would cause the representations andwarranties contained
in this Agreement to be untrue when applied to the Borrowerscircumstances
as of the date of such event. 3) its discovery of any unpermitted release,
emission, discharge or disposal of any material of environmental concern.
or 4) its receipt of a claim from any governmental entity or third party
alleging noncompliance with environmental laws applicable to its operations
or properties.
Additional Information. Provide the Bank with such other information as it
may reasonably request, and permit the Bank to visit and inspect its
properties and examine its books and records.
2. FINANCIAL COVENANTS
During the time period that credit is available under this Agreement, and
afterward until all amounts due under the Documents are paid in full,
unless the Bank shall otherwise agree in writing, the Borrower agrees to
comply with the financial covenants described below, which shall be
calculated using generally accepted accounting principles consistently
applied, except as that may be otherwise modified by the following
capitalized definitions:
"Current Assets" means current assets less receivables and investments in
or other amounts due from any shareholder, director, officer, employee or
any person or entity related to or affiliated with the Borrower.
"Current Liabilities" means current liabilities less any portion of such
current liabilities that constitute Subordinated Debt.
"Current Maturities Long Term Debt" means that principal portion of the
Borrower's long term debt and capital leases payable within 12 months of
the determination date.
"Financing Costs" means dividends paid (except stock dividends) plus
interest.
"Net Cash After Operations" means net cash from operating activities under
the indirect method described in FASB 95, plus interest paid net of amounts
capitalized under FASB 95.
"Net Working Capital" means Current Assets less Current Liabilities.
"Subordinated Debt" means debt that is expressly subordinated to the Bank
in a writing acceptable to the Bank.
5.
<PAGE>
"Tangible Net Worth" means total assets less liabilities and less the
following types of assets; (1) leasehold improvements capped at net value
not to exceed $750M; (2) receivables and other investments in or amounts
due from any shareholder, director, officer, employee or other person or
entity related to or affiliated with the Borrower; (3) goodwill, patents,
copyrights, mailing lists, trade names, trademarks, servicing rights,
organizational and franchise costs, bond underwriting costs and other like
assets properly classified as intangible.
"Traditional Cash Flow" means the aggregate amount of the following: (1)
net income after taxes; (2) amortization expense; (3) depreciation and
depletion expense; (4) deferred tax expense and (5) similar non-cash
charges against income which the Bank determines in its discretion to be
appropriate "add-backs".
Cash Flow Coverage Ratio. Maintain a ratio of after tax net profit plus
depreciation and amortization to Current Maturities of Long Term Debt of at
least 1.25 to 1.0 as of the end of each fiscal year.
Tangible Net Worth. Maintain a minimum Tangible Net Worth of at least
$5,900,000 as of the end of each fiscal year.
Current Ratio. Maintain a ratio of Current Assets to Current Liabilities of
at least 3.0 to 1.0 as of the end of each fiscal year.
Quick Ratio. Maintain a ratio of cash plus marketable securities plus net
accounts receivable to Current Liabilities of at least 1.5 to 1.0 as of the
end of each fiscal year.
Total Liabilities to Net Worth Ratio. Maintain a ratio of total liabilities
to total assets less total liabilities equal to or less than 2.0 to 1.0 as
of the end of each fiscal year.
OTHER COVENANTS
During the time period that credit is available under this Agreement, and
afterward until all amounts due under the Documents are paid in full,
unless the Bank shall otherwise agree in writing, the Borrower agrees to:
Insurance. Cause its properties to be adequately insured by a reputable
insurance company against loss or damage and to carry such other insurance
(including business interruption, flood, or environmental risk insurance)
as is required of or usually carried by persons engaged in the same or
similar business. Such insurance must, with respect to the Bank's
collateral security, include a lender's loss payable endorsement in favor
of the Bank in form acceptable to the Bank.
Change of Ownership. Refrain from permitting or suffering any change,
direct or indirect, in its capital ownership.
Collateral Audits. Permit the Bank to conduct audits of all collateral
pledged to the Bank by the Borrower at such intervals as the Bank may
reasonably require, but not in excess of two times each calendar year. The
audits may be performed by employees of the Bank or independent contractors
retained by the Bank.
6.
<PAGE>
Nature of Business. Refrain from engaging in any line of business
materially different from that presently engaged in by the Borrower.
Loans to Officers. Refrain from making any loans or advances to any of its
executives, officers, directors or shareholders.
Sale of Assets. Refrain from selling or leasing during any fiscal year
assets with a cumulative value in excess of $50,000, other than sales of
inventory in the ordinary course of business.
Deposit Accounts. Maintain its principal deposit accounts with the Bank
Form of Organization and Mergers. Refrain from changing its legal form of
organization, or consolidating, merging, pooling, syndicating or otherwise
combining with any other entity.
Maintenance of Properties. Make all repairs, renewals or replacements
necessary to keep its plant, properties and equipment in good working
condition.
Books and Records. Maintain adequate books and records, refrain from making
any material changes in its accounting procedures for tax or other
purposes, and permit the Bank to inspect same upon reasonable notice.
Compliance with Laws. Comply in all material respects with all laws
applicable to its form of organization, business, and the ownership of its
property.
Preservation of Rights. Maintain and preserve all permits, licenses,
rights, privileges, charters and franchises that it now owns.
These covenants were negotiated by the Bank and Borrower based on
information provided to the Bank by the Borrower. A breach of a covenant is
an indication that the risk of the transaction has increased. As
consideration for any waiver or modification of these covenants, the Bank
may require: additional collateral, guaranties or other credit support;
higher fees or interest rates; and possible modifications to the Documents
and the monitoring of the Agreement. The waiver or modification of any
covenant that has been violated by the Borrower shall be made at the sole
discretion of the Bank. These options do not limit the Bank's right to
exercise its rights under any other Section of this Agreement.
EVENTS OR DEFAULT AND REMEDIES
.1 DEFAULT
Upon the occurrence of any one or more of the following events of default,
or at any time afterward unless the default has been cured, the Bank may
declare each revolving facility documented in this Agreement to be
terminated and in its discretion accelerate and declare the unpaid
principal, accrued interest and all other amounts payable under the
Revolving Note and the Documents to be immediately due and payable:
(a) Failure by the Borrower to make any payment of principal or interest due
under the Revolving Note which continues for 15 days after its due date.
7.
<PAGE>
(b) Default by the Borrower in the observance or performance of any covenant or
agreement contained in this Agreement, and continuance for more than 15
days.
(c) Any representation or warranty made by the Borrower to the Bank is untrue
in any material respect.
(d) Any litigation or governmental proceeding against the Borrower seeking an
amount in excess of $100,000 which is not insured or subject to indemnity
by a solvent third party either 1) results in a judgment equal to or in
excess of that amount against the Borrower, or 2) remains unresolved on the
270th day following the date of service on the Borrower, unless as of that
date no judgment has been rendered and the contingent liability arising as
a result is classified as "remote" by Borrower's counsel as defined in FASB
5 in a signed opinion addressed to the Bank.
(e) A garnishment, levy or writ of attachment, or any local, state, or federal
notice of tax lien or levy is made or issues against the Borrower, or any
post judgment process or procedure is commenced or any supplementary remedy
for the enforcement of a judgment is employed against the Borrower or the
Borrower's property.
(f) A material adverse change occurs in the Borrower's financial condition or
ability to repay its obligations to the Bank.
.2 IMMEDIATE DEFAULT
If, with or without the Borrower's consent, a custodian, trustee or
receiver is appointed for any of the Borrower's properties, or if a
petition is filed by or against the Borrower under the United States
Bankruptcy Code, or the Borrower is dissolved, liquidated, or winds up its
business, then the unpaid principal, accrued interest, and all other
amounts payable under the Revolving Note and the Documents shall become
immediately due and payable without notice or demand.
MISCELLANEOUS
(a) No Waiver; Cumulative Remedies. No failure or delay by the Bank in
exercising any rights under this Agreement shall be deemed a waiver of
those rights. The remedies provided for in the Agreement are cumulative and
not exclusive of any remedies provided by law.
(b) Amendments or Modifications. Any amendment or modification of this
Agreement must be in writing and signed by the Bank and Borrower. Any
waiver of any provision in this Agreement must be in writing and signed by
the Bank.
(c) Binding Effect: Assignment. This Agreement and the Documents are binding
on the successors and assigns of the Borrower and Bank. The Borrower may
not assign its rights under this Agreement and the Documents without the
Bank's
8.
<PAGE>
(d) Minnesota Law. This Agreement and the Documents shall be governed by the
substantive laws of the State of Minnesota.
(e) Severability of Provisions. If any part of this Agreement or the Documents
are unenforceable, the rest of this Agreement or the Documents may still be
enforced.
(f) Integration. This Agreement and the Documents describes the entire
understanding and agreement of the parties and supersedes all prior
agreements between the Bank and the Borrower relating to each credit
facility subject to this Agreement, whether verbal or in writing.
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ
CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS
OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED.
YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
THIS NOTICE ALSO APPLIES TO ANY OTHER CREDIT AGREEMENTS (EXCEPT CONSUMER LOANS
OR OTHER EXEMPT TRANSACTIONS) NOW IN EFFECT BETWEEN YOU AND THIS LENDER.
Address for notices to Bank: Address for notices to Borrower:
Norwest Bank Minnesota North, A.S.V., Inc.
National Association 840 Lily Lane
220 First Avenue Northwest PO Box 5160
Grand Rapids, MN 55744 Grand Rapids, MN 55744
Attention: Gerald K. Johnson Attention: Mr. Thomas Karges
NORWEST BANK MINNESOTA NORTH, A.S.V., INC.
NATIONAL ASSOCIATION
BY: /S/ GERALD K. JOHNSON BY: /S/ THOMAS R. KARGES
--------------------- --------------------
ITS: VICE PRESIDENT ITS: C.F.O.
-------------------- --------------------
<PAGE>
EXHIBIT A-1
CONDITIONS PRECEDENT TO THE INITIAL ADVANCE
Promissory Note. The Revolving Note executed by the Borrower.
Security Agreement. A security agreement (the "Security Agreement") signed by
the Borrower granting the Bank a first lien security interest in the Borrower's
accounts, inventory, and general intangibles. The Borrower will also execute
financing statements sufficient to perfect the security interest granted to the
Bank.
Corporate Certificate of Authority. A certificate of the Borrower's corporate
secretary as to the incumbency and signatures of the officers of the Borrower
signing the Documents and containing a copy of resolutions of the Borrower's
board of directors authorizing execution of the Documents and performance in
accordance with the terms of the Agreement.
Articles of Incorporation and By-Laws. A certified copy of the Borrower's
Articles of Incorporation and By-laws and any amendments, if applicable.
Certificate of Good Standing. A copy of the Borrower's Certificate of Good
Standing, certified within 30 days of the Effective Date by the Minnesota
Secretary of State.
Arbitration Agreement. The Bank's standard form of arbitration agreement (the
"Arbitration Agreement") signed by the Bank and Borrower, subjecting to binding
arbitration potential controversies between the Bank and Borrower relating to
the Documents and the Agreement, as more fully described in the Arbitration
Agreement.
Evidence of Insurance. Evidence that the insurance required under the Covenant
Section of this Agreement is in force, including a binder showing the Bank as
loss payee with respect to the collateral subject to its security interest.
CONDITIONS PRECEDENT TO SUBSEQUENT ADVANCES
Borrowing Base Certificate. Concurrent with each request for credit under the
First Line and the Second Line, the Borrower will deliver a borrowing base
certificate to the Bank in form identical to the borrowing base certificate
attached as an exhibit to this Agreement, unless the Bank is in possession of a
borrowing base certificate current within 30 days of the requested advance.
<PAGE>
EXHIBIT A-2
A.S.V., INC.
BORROWING BASE CERTIFICATE
TO: NORWEST BANK
220 N.W. 1ST AVE.
GRAND RAPIDS, MN 55744
The Borrower certifies that the following computation of the Borrowing Base was
computed pursuant to the terms of the Agreement, and in accordance with the
definitions detailed above, as of _________________,19___.
Total Accounts Receivable $_____________
Less: 1) Greater than 90 days in age $_____________
2) Other ineligibles $_____________
Eligible Accounts Receivable $_____________
INVENTORY:
Total production parts & materials $_____________
Total Finished Goods & service parts $_____________
Used equipment $_____________
Less: Ineligible Inventory $_____________
Eligible Inventory $_____________
75% of Eligible Accounts Receivable $_____________
50% of Eligible Inventory $_____________
Total Borrowing Base $_____________
Total Line Outstandings $_____________
Excess (Deficit) $_____________
A.S.V., INC.
BY:_______________________
ITS:______________________
<PAGE>
A-2 Continued
BORROWING BASE DEFINITION
Borrowing Base means the sum of 75% of Eligible Accounts Receivable (as defined
below) plus 50% of Eligible Inventory (as defined below).
Eligible Accounts Receivable means all accounts receivable except those which
are:
1) Greater than 90 days past the invoice date.
2) Due from an account debtor, 10% or more of whose accounts owed to the
Borrower are more than 90 days past the Invoice date.
3) Subject to offset or dispute.
4) Due from an account debtor who is subject to bankruptcy proceeding.
5) Owed by a shareholder of 10% or more, subsidiary, affiliate, officer
or employee of the Borrower.
6) Not subject to a perfected security interest in favor of the Bank.
7) Due from an account debtor located outside the United States and not
supported by a standby letter of credit acceptable to the Bank.
8) Due from a unit of foreign government.
Eligible Inventory means all inventory of the Borrower, at the lower of cost or
market as determined by generally accepted accounting principles, except
inventory which is:
1) In transit; or located at any warehouse not approved by the Bank.
2) Covered by a warehouse receipt, bill of lading or other document of
title.
3) On consignment to or from any other person or subject to any bailment.
4) Damaged, obsolete or not salable in the Borrower's ordinary course of
business.
5) Subject to a security interest in favor of any third party.
6) In the process of being returned.
7) Otherwise deemed ineligible by the Bank in its reasonable discretion.
<PAGE>
NORWEST BANK MINNESOTA NORTH, NATIONAL ASSOCIATION
REVOLVING NOTE
===============================================================================
$2,000,000.00
FOR VALUE RECEIVED, A.S.V., Inc. (the "Borrower") promises to pay to the order
of Norwest Bank Minnesota North, National Association (the "Bank"), at its
principal office or such other address as the Bank or holder may designate from
time to time, the principal sum of Two Million Dollars. ($2,000,000.00), or the
amount shown on the Bank's records to be outstanding, plus interest (calculated
on the basis of actual days elapsed in a 360-day year) accruing each day on the
unpaid principal balance at the annual interest rate defined below. Absent
manifest error, the Bank's records shall be conclusive evidence of the principal
and accrued interest owing hereafter.
INTEREST RATE. The principal outstanding under this Revolving Note shall bear
interest at an annual rate equal to the Base Rate. Base rate means the rate of
interest established by the Bank from time to time as its "base" rate or "prime"
rate of interest at its principal office of Norwest Bank Minnesota, National
Association.
INTEREST. Interest shall be payable on the 1st day of each month beginning June
1, 1997. Principal shall be due on the earlier of DEMAND or June 1, 1998.
ADDITIONAL TERMS AND CONDITIONS. This revolving note is issued pursuant to a
Credit Agreement of even date between the Bank and the Borrower (the
"Agreement"). The Agreement, and any amendments or substitutions, contains
additional terms and conditions, including default and acceleration provisions,
which are incorporated into this Revolving Note by reference. Capitalized terms
not expressly defined herein shall have the meanings given them in the
Agreement. The Borrower agrees to pay all costs of collection, including
reasonable attorneys' fee and legal expenses incurred by the Bank if this
Revolving Note is not paid as provided above. This Revolving Note shall be
governed by the substantive laws of the State of Minnesota.
WAIVER AND PRESENTMENT AND NOTICE OF DISHONOR. Borrower and any other person
who signs, guarantees or endorses this Revolving Note, to the extent allowed by
law, hereby waives presentment, demand for payment, notice of dishonor, protest,
and any notice relating to the acceleration of the maturity of this Revolving
Note.
A.S.V., Inc.
By: /s/ Thomas R. Karges
---------------------
Its, C.F.O. May 22, 1997
---------------------
Disputes arising from obligations evidenced by this note are subject to
arbitration per the terms of a signed Arbitration Agreement.
<PAGE>
A.S.V., INC. AND SUBSIDIARY
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------
1997 1996 1997 1996
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Earnings
Net income $ 464,893 $ 175,061 $ 780,435 $ 328,057
Add after tax interest expense applicable
to 6.5% convertible debentures 50,375 - 100,750 -
---------- ---------- ---------- ----------
Net income applicable to common stock $ 515,268 $ 175,061 $ 881,185 $ 328,057
========== ========== ========== ==========
Shares
Weighted average number of common
shares outstanding 4,831,767 4,775,727 4,829,082 4,769,793
Assuming exercise of options and warrants
reduced by the number of shares which could
have been purchased with the proceeds from
the exercise of such options and warrants 647,921 441,492 665,294 384,477
Assuming conversion of 6.5% convertible
debentures 454,545 - 454,545 -
---------- ---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 5,934,233 5,217,219 5,948,921 5,154,270
========== ========== ========== ==========
Earnings per common share $ .09 $ .03 $ .15 $ .06
========== ========== ========== ==========
</TABLE>
<PAGE>
A.S.V., INC. AND SUBSIDIARY
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE
Earnings
Net income $ 464,893 $ 175,061 $ 780,435 $ 328,057
Add after tax interest expense applicable
to 6.5% convertible debentures 50,375 - 100,750 -
---------- ---------- ---------- ----------
Net income applicable to common stock $ 515,268 $ 175,061 $ 881,185 $ 328,057
========== ========== ========== ==========
Shares
Weighted average number of common
shares outstanding 4,831,767 4,775,727 4,829,082 4,769,793
Assuming exercise of options and warrants
reduced by the number of shares which could
have been purchased with the proceeds from
the exercise of such options and warrants 794,611 491,532 738,639 410,934
Assuming conversion of 6.5% convertible
debentures 454,545 - 454,545 -
---------- ---------- ---------- ----------
Weighted average number of common and
common equivalent shares outstanding 6,080,923 5,267,259 6,022,266 5,180,727
========== ========== ========== ==========
Earnings per common share $ .09 $ .03 $ .15 $ .06
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHDEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND
STATEMENTS OF EARNINGS FOUND ON PAGES 2 AND 3 OF THE COMPANY'S FORM 10-QSB FOR
THE YEAR TO DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 630,380
<SECURITIES> 3,766,840
<RECEIVABLES> 1,162,256
<ALLOWANCES> 20,000
<INVENTORY> 7,480,497
<CURRENT-ASSETS> 13,286,658
<PP&E> 2,739,464
<DEPRECIATION> 614,177
<TOTAL-ASSETS> 15,411,945
<CURRENT-LIABILITIES> 2,253,630
<BONDS> 5,716,938
0
0
<COMMON> 49,097
<OTHER-SE> 7,392,280
<TOTAL-LIABILITY-AND-EQUITY> 15,411,945
<SALES> 10,059,000
<TOTAL-REVENUES> 10,059,000
<CGS> 7,697,483
<TOTAL-COSTS> 7,697,483
<OTHER-EXPENSES> 1,127,060
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,940
<INCOME-PRETAX> 1,259,435
<INCOME-TAX> 479,000
<INCOME-CONTINUING> 780,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 780,435
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
