-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S3DPAWAunLX3TxBlYnzo6XxSyNuupDl4VPtt7b40rBBlBonlRosbmI0PsTUdG//L D6nnQHNbJS9AgFKAG1PWOQ== /in/edgar/work/0001045969-00-000851/0001045969-00-000851.txt : 20001114 0001045969-00-000851.hdr.sgml : 20001114 ACCESSION NUMBER: 0001045969-00-000851 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASV INC /MN/ CENTRAL INDEX KEY: 0000926763 STANDARD INDUSTRIAL CLASSIFICATION: [3531 ] IRS NUMBER: 411459569 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25620 FILM NUMBER: 759007 BUSINESS ADDRESS: STREET 1: P O BOX 5160 STREET 2: 840 LILY LANE CITY: GRAND RAPIDS STATE: MN ZIP: 55744-5160 BUSINESS PHONE: 2183273434 MAIL ADDRESS: STREET 1: PO BOX 5160 STREET 2: 840 LILY LANE CITY: GRAND RAPIDS STATE: MN ZIP: 55744-5160 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 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 ----- ----- As of November 7, 2000, 10,205,497 shares of registrant's $.01 par value Common Stock were outstanding. PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS A.S.V., INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, December 31, 2000 1999 ------------- ------------ ASSETS CURRENT ASSETS Cash and cash equivalents ........................... $ 688,947 $ 743,184 Short-term investments .............................. 999,792 1,247,696 Accounts receivable, net ............................ 9,690,058 8,661,049 Inventories ......................................... 30,023,728 32,391,256 Prepaid expenses and other .......................... 814,559 811,076 ----------- ----------- Total current assets ..................... 42,217,084 43,854,261 Property and equipment, net ............................ 4,712,632 4,795,674 ----------- ----------- Total Assets ............................. $46,929,716 $48,649,935 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Line of credit ...................................... $ -- $ 4,080,000 Current portion of long-term liabilities ............ 81,331 254,412 Accounts payable .................................... 2,796,072 1,775,883 Accrued liabilities Compensation ...................................... 243,421 252,708 Warranties ........................................ 450,000 450,000 Commission ........................................ 164,358 306,831 Other ............................................. 284,929 237,134 Income taxes payable ................................ 251,543 -- ----------- ----------- Total current liabilities ..................... 4,271,654 7,356,968 ----------- ----------- LONG-TERM LIABILITIES, less current portion ............ 2,137,353 2,197,046 ----------- ----------- COMMITMENTS AND CONTINGENCIES .......................... -- -- SHAREHOLDERS' EQUITY Capital stock, $.01 par value: Preferred stock, 11,250,000 shares authorized; no shares outstanding ........................... -- -- Common stock, 33,750,000 shares authorized; 9,701,541 shares issued and outstanding in 2000; 9,686,457 shares issued and outstanding in 1999 97,015 96,865 Additional paid-in capital .......................... 31,047,816 30,859,403 Retained earnings ................................... 9,375,878 8,139,653 ----------- ----------- 40,520,709 39,095,921 ----------- ----------- Total Liabilities and Shareholders' Equity $46,929,716 $48,649,935 =========== ===========
See notes to consolidated financial statements. -2- A.S.V., INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net sales .............................. $ 10,532,697 $ 8,781,259 $ 33,840,722 $ 26,308,077 Cost of goods sold ..................... 8,606,189 7,195,515 26,414,175 20,066,378 ------------ ------------ ------------ ------------ Gross profit .................. 1,926,508 1,585,744 7,426,547 6,241,699 Operating expenses Selling, general and administrative 1,423,396 1,388,115 4,941,593 3,753,773 Research and development .......... 113,949 149,062 370,319 412,446 ------------ ------------ ------------ ------------ Operating income .............. 389,163 48,567 2,114,635 2,075,480 Other income (expense) Interest expense .................. (65,601) (62,618) (229,602) (188,750) Other, net ........................ 25,594 49,949 80,192 196,810 ------------ ------------ ------------ ------------ Income before income taxes .... 349,156 35,898 1,965,225 2,083,540 Provision for income taxes ............. 129,000 15,000 729,000 725,000 ------------ ------------ ------------ ------------ NET EARNINGS .................. $ 220,156 $ 20,898 $ 1,236,225 $ 1,358,540 ============ ============ ============ ============ Net earnings per common share Basic ............................. $ .02 $ .00 $ .13 $ .14 ============ ============ ============ ============ Diluted ........................... $ .02 $ .00 $ .12 $ .14 ============ ============ ============ ============ Weighted average number of common shares outstanding Basic ............................. 9,701,541 9,681,249 9,696,413 9,552,556 ============ ============ ============ ============ Diluted ........................... 9,894,887 10,069,097 9,908,598 9,943,549 ============ ============ ============ ============
See notes to consolidated financial statements. -3- A.S.V., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months ended September 30,
2000 1999 ------------ ------------ Cash flows from operating activities: Net earnings ..................................................... $ 1,236,225 $ 1,358,540 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation ................................................. 305,975 256,500 Interest accrued on capital lease obligation ................. 36,215 36,215 Deferred income taxes ........................................ (70,000) (90,000) Effect of warrant earned ..................................... 113,400 113,400 Changes in assets and liabilities: Accounts receivable ........................................ (1,029,009) (4,136,087) Inventories ................................................ 2,367,528 (14,494,888) Prepaid expenses and other ................................. 66,517 232,176 Accounts payable ........................................... 1,020,189 1,893,972 Accrued liabilities ........................................ (103,965) 217,283 Income taxes payable ....................................... 286,543 265,000 ------------ ------------ Net cash provided by (used in) operating activities ................. 4,229,618 (14,347,889) ------------ ------------ Cash flows from investing activities: Purchase of property and equipment ............................... (222,933) (462,156) Purchase of short-term investments ............................... (2,096) (3,104,522) Redemption of short-term investments ............................. 250,000 2,101,105 ------------ ------------ Net cash provided by (used in) investing activities ................. 24,971 (1,465,573) ------------ ------------ Cash flows from financing activities: Principal payments on line of credit, net ........................ (4,080,000) (1,915,000) Principal payments on long-term liabilities ...................... (268,989) (249,539) Proceeds from sale of common stock and warrant, net of offering costs ................................................ -- 17,549,173 Proceeds from exercise of stock options .......................... 62,108 802,703 Retirements of common stock ...................................... (21,945) (604,446) ------------ ------------ Net cash provided by (used in) financing activities ................. (4,308,826) 15,582,891 ------------ ------------ Net decrease in cash and cash equivalents ........................... (54,237) (230,571) Cash and cash equivalents at beginning of period .................... 743,184 308,565 ------------ ------------ Cash and cash equivalents at end of period .......................... $ 688,947 $ 77,994 ============ ============ Supplemental disclosure of cash flow information: Cash paid for interest ........................................... $ 256,883 $ 191,405 Cash paid for income taxes ....................................... 472,799 540,714 Supplemental disclosure of non-cash investing and financing activity: Tax benefit from exercise of stock options ....................... $ 35,000 $ 265,000
See notes to consolidated financial statements. -4- A.S.V., INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 (Unaudited) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interim Financial Information The accompanying unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information. Accordingly, they do not include all of the footnotes required by US GAAP 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. INVENTORIES Inventories consist of the following: September 30, December 31, 2000 1999 ------------- ------------ Raw materials, semi-finished and work in process inventory $18,135,190 $19,531,208 Finished goods 6,467,220 7,574,115 Used equipment held for resale 5,421,318 5,285,933 ----------- ----------- $30,023,728 $32,391,256 =========== =========== NOTE 3. SUBSEQUENT EVENT On October 31, 2000 Caterpillar Inc. purchased 500,000 newly issued shares of ASV Common Stock at $18 per share pursuant to the terms of a Securities Purchase Agreement. The two companies also announced the signing of an alliance agreement in which they plan to jointly develop and manufacture a new product line of Caterpillar rubber track skid steer loaders called Multi-Terrain Loaders. Under the terms of this alliance agreement, ASV will use a portion of the stock sale proceeds to fund development of the new models. The first two models are expected to be introduced to a limited number of North American Caterpillar dealers in the second quarter of 2001. The new machines will be assembled in Sanford, N.C., at Caterpillar's skid steer loader facility. The undercarriages will be manufactured at ASV's facilities in Grand Rapids, Minnesota. -5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth certain Consolidated Statement of Earnings data as a percentage of net sales:
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ------- ------- ------- ------- Net sales ......................... 100.0% 100.0% 100.0% 100.0% Cost of goods sold ................ 81.7 81.9 78.1 76.3 Gross profit ...................... 18.3 18.1 21.9 23.7 Selling, general and administrative 13.5 15.8 14.6 14.3 Operating income .................. 3.7 .6 6.2 7.9 Interest expense .................. .6 .7 .7 .7 Net income ........................ 2.1 .2 3.7 5.2
For the three months ended September 30, 2000 and 1999. Net Sales. For the three months ended September 30, 2000, net sales were approximately $10,533,000 compared with approximately $8,781,000 for the same period in 1999. The increased sales were the result of several offsetting factors. First, sales of the Company's 4810 Posi-Track for the third quarter of 2000 increased due to this product being available for sale during the entire quarter in 2000 versus being available for only a portion of the quarter in the third quarter of 1999. Second, the Company's sales increased in the third quarter of 2000 due to the introduction of the Company's newest product, the RCo30 All Surface Loader. Third, sales of used equipment increased due to the result of increased marketing efforts. Finally, the increase in sales for the third quarter of 2000 was offset by a decrease in military sales. The Company had no sales under its military contract in the third quarter of 2000 compared with approximately $1.7 million of sales under this contract in the third quarter of 1999. Gross Profit. Gross profit for the three months ended September 30, 2000 was approximately $1,927,000, or 18.3% of net sales compared with approximately $1,586,000, or 18.1% of net sales, for the same period in 1999. The increased gross profit was attributable to increased sales volume and a slightly higher gross profit percentage for third quarter 2000. Although the gross profit percentage for the third quarter of 2000 was approximately the same as the same period in 1999, it was less than the Company experienced in the second quarter of 2000. The decreased gross profit percentage was attributable to several factors. First, the Company saw decreased demand for its higher margin 4810 Posi-Track due to the softening construction equipment market. Second, the Company began a more aggressive discount program to reduce its inventory of its 2800 series Posi-Tracks. Third, a greater amount of used equipment was sold during the third quarter of 2000, which carries a lower gross profit percentage than new machines. Finally, ASV's latest product, the RCo30 All Surface Loader, went into production during third quarter 2000 and inefficiencies were encountered during the initial production process. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased from approximately $1,388,000 for the third quarter of 1999 to approximately $1,423,000 for the same period in 2000. As a percentage of net sales, selling, general and administrative expenses decreased from 15.8% of net sales in the third quarter of 1999, to 13.5% of net sales in the third quarter of 2000. The increased dollar volume was due to increased sales and marketing costs, offset by reduced commissions paid to Caterpillar Inc. for sales of products to Caterpillar dealers. The decrease in selling, general and administrative expenses when expressed as a percentage of net sales was due to the increase in sales for the third quarter of 2000. Research and Development. Research and development expenses decreased from approximately $149,000 in the third quarter of 1999 to approximately $114,000 in the third quarter of 2000. The decrease was due to the completion of testing and the start of production of the Company's newest model, the RCo30 All Surface Loader. -6- Under the terms of the new alliance agreement entered into between the Company and Caterpillar Inc., ASV will use a portion of the stock sale proceeds it received to fund development of several new models of machines. The first two models are expected to be introduced to a limited number of North American Caterpillar dealers in the second quarter of 2001. The Company anticipates this will have a dilutive effect on its earnings for the year 2000 in the amount of approximately $400,000. The Company also expects a dilutive effect in 2001, but is not able to currently project the amount. Interest Expense. Interest expense was approximately the same for the third quarter of 2000 and 1999. The Company anticipates its interest expense will decrease in the fourth quarter of 2000 due to the decreased line of credit usage. Net Income. Net income for the third quarter of 2000 was approximately $220,000, compared with approximately $21,000 for the third quarter of 1999. The increase in 2000 resulted primarily from increased sales with a slightly increased gross profit percentage and decreased research and development expenses, offset in part by increased selling, general and administrative expenses. For the nine months ended September 30, 2000 and 1999. Net Sales. Net sales for the nine months ended September 30, 2000 increased 29%, to approximately $33,841,000 compared with approximately $26,308,000 for the same period in 1999. This increase was due primarily to the increased sales of the Company's Posi-Track and RCo30 products, offset in part by decreased sales under military contracts. The Company experienced increased sales of the Company's model 4810 Posi-Track in 2000 which went into production in September 1999. In addition, as discussed above, the Company introduced its newest product, the RCo30 All Surface Loader, during the third quarter of 2000. Also, sales of used equipment increased due to the result of increased marketing efforts. Offsetting these increases for 2000 was a decrease in military sales as the Company had no sales under its military contracts in 2000 compared with approximately $2,365,000 in 1999. Gross Profit. Gross profit for the nine months ended September 30, 2000 was approximately $7,427,000, or 21.9% of net sales, compared with approximately $6,242,000, or 23.7% of net sales, for the nine months ended September 30, 1999. The increased gross profit for 2000 was due to increased sales offset in part by a lower gross profit percentage. The decreased gross profit percentage in 2000 was due to several factors. First, a lesser number of equivalent units were produced in 2000, which resulted in higher fixed costs per unit. Second, the Company's newest product, the RCo30 All Surface Loader, went into production during third quarter 2000 and inefficiencies were encountered during the initial production process which decreased the gross profit percentage. Finally, a greater amount of used equipment was sold during 2000, which carries a lower gross profit percentage than new machines Selling, General and Administrative Expenses. Selling, general and administrative expenses increased from approximately $3,754,000, or 14.3% of net sales, for the nine months ended September 30, 1999, to approximately $4,942,000, or 14.6% of net sales, for the same period in 2000. These increases are due primarily to additional dealer support programs, including the hiring of field service representatives during the fourth quarter of 1999. Also, the Company paid a greater commission to Caterpillar in 2000 due to increased sales to Caterpillar dealers and a full nine months of commissionable sales in 2000 compared with eight months in 1999. The commission paid to Caterpillar increased from approximately $616,000 for the nine months ended September 30, 1999 to approximately $989,000 for the same period in 2000. Research and Development. Research and development expenses decreased from approximately $412,000 in 1999 to approximately $370,000 in 2000. The decrease was due mainly to the completion of testing and the start of production of the Company's newest model, the RCo30 All Surface Loader. Interest Expense. Interest expense increased from approximately $189,000 for the nine months ended September 30, 1999 to approximately $230,000 for the same period in 2000. The increase was due to greater utilization of the Company's line of credit to fund operations in 2000. Net Income. Net income for the nine months ended September 30, 2000 decreased to approximately $1,236,000 from approximately $1,359,000 for the same period in 1999. The decrease was primarily a result of a lower gross profit percentage on increased sales with increased operating and interest expense. In addition, the Company's effective income tax rate increased in 2000 compared with 1999. In 1999, the Company recorded a $50,000 income tax benefit for amended income tax returns for prior years. No similar item was available in 2000. -7- Liquidity and Capital Resources At September 30, 2000, working capital increased approximately $1,448,000 to approximately $37,945,000 compared with approximately $36,497,000 at December 31, 1999. This increase was due to several offsetting factors. First, accounts receivable increased as the Company experienced a 29% rise in sales for the nine months of 2000 compared with the same period in 1999. In addition, the Company has offered extended payment terms, generally less than 180 days, on certain sales of its products, thereby causing accounts receivable, along with working capital, to increase. Second, working capital increased as the Company's borrowings on its line of credit were eliminated during the third quarter of 2000 due to improved cash flow. Third, working capital decreased due to decreases in raw materials and finished goods, as the Company continues its inventory reduction program. Finally, working capital was reduced by increased income taxes payable due to higher levels of taxable income in the second and third quarters of 2000. The Company continues to work on reducing its inventory levels. In an effort to reduce its used equipment inventory, a retail store was opened in the second quarter of 2000 in Grand Rapids, Minnesota to sell used Posi-Tracks and related accessories directly to the end user. The Company also began selling its RCo30 All Surface Loader from this location to retail customers in the third quarter of 2000. The Company anticipates it will continue the operation of its retail store based on the results experienced to date. On October 31, 2000 Caterpillar Inc. purchased 500,000 newly issued shares of ASV Common Stock at $18 per share pursuant to the terms of a Securities Purchase Agreement. The two companies also announced the signing of an alliance agreement in which they plan to jointly develop and manufacture a new product line of Caterpillar rubber track skid steer loaders called Multi-Terrain Loaders. Under the terms of this alliance agreement, ASV will use a portion of the stock sale proceeds to fund development of the new models. Accordingly, during product design and production ramp-up in 2000 and 2001, the Company expects the agreement will have dilutive effect on its earnings. However, a positive impact on earnings is anticipated beginning in 2002. The first two models are expected to be introduced to a limited number of North American Caterpillar dealers in the second quarter of 2001. The new machines will be assembled in Sanford, N.C., at Caterpillar's skid steer loader facility. The undercarriages will be manufactured at ASV's facilities in Grand Rapids, Minnesota. The Company believes its existing cash and marketable securities, together with cash expected to be provided by operations and available credit lines, will satisfy the Company's projected working capital needs and other cash requirements for at least the next twelve months and into the foreseeable future. The statements set forth above under "Liquidity and Capital Resources" in this Form 10-Q regarding ASV's plans to jointly develop and manufacture rubber-tracked machines with Caterpillar, including the number of models to be developed, the timing of their planned introduction, and ASV's intended use of the proceeds from the sale of shares to Caterpillar are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. Certain factors may effect whether these machines are ultimately produced including the parties' ability to successfully jointly manufacture the machines, unanticipated delays, costs or other difficulties in the development or manufacture of the machines, market acceptance of the new machines, general market conditions, corporate developments at ASV or Caterpillar and ASV's ability to realize the anticipated benefits from its relationship with Caterpillar and its dealers, could cause actual results to differ materially from those anticipated in such forward-looking statements. Additional information regarding these risk factors and uncertainties is detailed in the Risk Factors filed as Exhibit 99 to this Current Report on Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has no history of, and does not anticipate in the future, investing in derivative financial instruments, derivative commodity instruments or other such financial instruments. Transactions with international customers are entered into in US dollars, precluding the need for foreign currency hedges. Additionally, the Company invests in money market funds and fixed rate U.S. government and corporate obligations, which experience minimal volatility. Thus, the exposure to market risk is not material. -8- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES On October 31, 2000, the Company sold 500,000 newly issued shares of Common Stock to Caterpillar Inc. for an aggregate purchase price of $9,000,000 pursuant to the exemption from registration contained in Section 4 (2) of the Securities Act of 1933. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 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 filed January 6, 1997 (e) 3.1b Amendment to Second Restated Articles of Incorporation of the Company filed May 4, 1998 (h) 3.2 Bylaws of the Company (a) 3.3 Amendment to Bylaws of the Company adopted April 13, 1999 (l) 4.1 Specimen form of the Company's Common Stock Certificate (a) 4.3 * 1994 Long-Term Incentive and Stock Option Plan (a) 4.4 Warrant issued to Leo Partners, Inc. on December 1, 1996 (d) 4.5 * 1996 Incentive and Stock Option Plan (e) 4.6 * 1996 Incentive and Stock Option Plan, as amended (f) 4.7 * 1998 Non-Employee Director Stock Option Plan (f) 4.8 * Amendment to 1998 Non-Employee Director Stock Option Plan (m) 4.9 Securities Purchase Agreement dated October 14, 1998 between Caterpillar Inc. and the Company (h) 4.10 Warrant issued to Caterpillar Inc. on January 29, 1999 (i) -9- 4.11 Voting Agreement dated as of October 14, 1998 by certain shareholders of the Company and Caterpillar Inc. (h) 4.12 Securities Purchase Agreement dated October 31, 2000 between Caterpillar Inc. and the Company 4.13 Replacement Warrant issued to Caterpillar Inc. on October 31, 2000 10.1 Development Agreement dated July 14, 1994 among the Iron Range Resources and Rehabilitation Board, the Grand Rapids Economic Development Authority ("EDA") and the Company (b) 10.2 Lease and Option Agreement dated July 14, 1994 between the EDA and the Company (b) 10.3 Option Agreement dated July 14, 1994 between the EDA and the Company (b) 10.4 Supplemental Lease Agreement dated April 18, 1997 between the EDA and the Company (e) 10.5 Supplemental Development Agreement dated April 18, 1997 between the EDA and the Company (e) 10.6 Line of Credit dated May 22, 1997 between Norwest Bank Minnesota North, N.A. and the Company (e) 10.7 * Employment Agreement dated October 17, 1994 between the Company and Thomas R. Karges (c) 10.8 Consulting Agreement between the Company and Leo Partners, Inc. dated December 1, 1996 (d) 10.9 Extension of Lease Agreement dated May 13, 1998 between the EDA and the Company (g) 10.10 First Amendment to Credit Agreement dated September 30, 1998 between Norwest Bank Minnesota North, N.A. and the Company (g) 10.11 Commercial Alliance Agreement dated October 14, 1998 between Caterpillar Inc. and the Company (h) 10.12 Management Services Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (j) 10.13 Marketing Agreement dated January 29, 1999 between Caterpillar Inc. and the Company (j) 10.14 Third Amendment to Credit Agreement dated June 9, 1999 between Norwest Bank Minnesota North, N.A. and the Company (k) 10.15 Fourth Amendment to Credit Agreement dated June 1, 2000 between Norwest Bank Minnesota North, N.A. and the Company (m) 10.16** Multi-Terrain Rubber-Tracked Loader Alliance Agreement dated October 31, 2000 between Caterpillar Inc. and the Company 11 Statement re: Computation of Per Share Earnings 22 List of Subsidiaries (a) 27 Financial Data Schedule for the nine months ended September 30, 2000 99 Risk Factors -------------------------------------------------------------- (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. -10- (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 Annual Report on Form 10-KSB for the year ended December 31, 1996 (File No. 0-25620) filed electronically March 28, 1997. (e) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997 (File No. 0-25620) filed electronically August 13, 1997. (f) Incorporated by reference to the Company's Definitive Proxy Statement for the year ended December 31, 1997 (File No. 0-25620) filed electronically April 28, 1998. (g) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 0-25620) filed electronically August 12, 1998. (h) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-25620) filed electronically October 27, 1998. (i) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-25620) filed electronically February 11, 1999. (j) Incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 0-25620) filed electronically March 26, 1999. (k) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 (File No. 0-25620) filed electronically August 9, 1999. (l) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 (File No. 0-25620) filed electronically November 12, 1999. (m) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 (File No. 0-25620) filed electronically August 10, 2000. * Indicates management contract or compensation plan or arrangement. ** Certain information contained in this document has been omitted and filed separately accompanied by a confidential request pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 2000. -11- 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: November 14, 2000 By /s/ Gary Lemke ----------------------------------- Gary Lemke President Dated: November 14, 2000 By /s/ Thomas R. Karges ----------------------------------- Thomas R. Karges Chief Financial Officer (principal financial and accounting officer) -12- EXHIBIT INDEX
Exhibit Method of Filing - ------- ---------------- 4.12 Securities Purchase Agreement dated October 31, 2000 between Caterpillar Inc. and the Company.................................. Filed herewith electronically 4.13 Replacement Warrant issued to Caterpillar Inc. on October 31, 2000 Filed herewith electronically 10.16** Multi-Terrain Rubber-Tracked Loader Alliance Agreement dated October 31, 2000 between Caterpillar Inc. and the Company......... Filed herewith electronically 11 Statement re: Computation of Per Share Earnings................... Filed herewith electronically 27 Financial Data Schedule........................................... Filed herewith electronically 99 Risk Factors...................................................... Filed herewith electronically
** Certain information contained in this document has been omitted and filed separately accompanied by a confidential request pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. -13- EX-4.12 2 0002.txt SECURITIES PURCHASE AGREEMENT Exhibit 4.12 SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (this "Agreement") is entered into as of October 31, 2000 between CATERPILLAR INC., a Delaware corporation (together with its successors and permitted assigns, "Investor"), and A.S.V., INC., a Minnesota corporation (together with its successors and permitted assigns, "Issuer"). Capitalized terms used but not otherwise defined herein shall have the meanings set forth in Section 6.1. RECITALS Investor and Issuer are parties to a Securities Purchase Agreement, dated October 14, 1998, whereby Investor purchased 1,000,000 shares of Issuer's common stock, par value $0.01 per share (the "Common Stock"), and a Warrant Certificate dated October 14, 1998 (the "Warrant"), whereby Issuer issued a warrant to Investor for 10,267,127 shares of Issuer's common stock. Subject to the terms and conditions of this Agreement, Investor desires to purchase, and Issuer desires to issue and sell to Investor, 500,000 shares of Common Stock. Concurrent with this purchase, the Warrant will be amended to reduce the number of shares of Common Stock subject to the Warrant by 500,000 shares to 9,767,127 shares. TERMS OF AGREEMENT In consideration of the mutual representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE I ISSUANCE AND PURCHASE OF COMMON STOCK 1.1. Issuance and Purchase of Common Stock. Subject to the terms and conditions of this Agreement, Issuer will issue and sell to Investor and Investor will purchase from Issuer for an aggregate purchase price of $9,000,000 (the "Purchase Price"), 500,000 shares of Common Stock (the "Shares"). 1.2. Legend. Any certificate or certificates representing the Shares shall bear the following legend: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER OR UNDER APPLICABLE STATE SECURITIES LAWS. 1.3. Amendment of Warrant Agreement. (a) Investor hereby agrees that the Warrant shall be and hereby is amended to read in its entirety as set forth in the form of Replacement Warrant Certificate attached hereto as Exhibit A (the "Replacement Warrant Certificate"). At the Closing, Investor shall surrender the Warrant to Issuer for cancellation, and Issuer shall deliver to Investor the Replacement Warrant Certificate, which shall supercede and replace the Warrant in its entirety. Investor acknowledges and agrees that upon issuance of the Replacement Warrant Certificate, the Warrant dated January 29, 1999 shall terminate and be of no further force or effect. (b) Investor hereby agrees that the purchase price per share under the Replacement Warrant shall be $21.00 immediately following the issuance of the Shares without adjustment as a result of such issuance, notwithstanding the anti-dilution provisions contained in Section 2.6 of the Warrant and the Replacement Warrant Certificate. 1.4. Use of Proceeds. ASV shall use the proceeds received from the sale of Shares as described in Section 2.8 of the Multi-Terrain Rubber-Tracked Loader Alliance Agreement between Issuer and Investor (the "Multi-Terrain Rubber-Tracked Loader Alliance Agreement"). ARTICLE II. CLOSING 2.1. Closing. The closing of the transactions contemplated herein (the "Closing") shall take place on the date hereof, at the offices of McDermott, Will & Emery, 227 West Monroe Street, Chicago, Illinois 60606. At the Closing, (i) Investor shall pay to Issuer, by wire transfer of immediately available funds to an account designated in writing by Issuer, the Purchase Price; (ii) Issuer shall issue to Investor the Shares, and deliver to Investor certificates for the Shares duly registered in the name of Investor; and (iii) all other agreements and other documents referred to in this Agreement shall be executed and delivered (if not done prior to the Closing). ARTICLE III REPRESENTATIONS AND WARRANTIES OF ISSUER As a material inducement to Investor entering into this Agreement and purchasing the Shares, Issuer represents and warrants to Investor as follows: 3.1. Corporate Status. Issuer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Minnesota. Issuer has all requisite corporate power and authority to own or lease, as the case may be, its properties and to carry on its business as now conducted. Issuer and its Subsidiaries are qualified or licensed to conduct business in all jurisdictions where its or their ownership or lease of property and the conduct of its or their business requires such qualification or licensing, except to the extent that failure to so qualify or be licensed would not have a Material Adverse Effect on Issuer. There is no pending or threatened proceeding for the dissolution, liquidation, insolvency or rehabilitation of Issuer or any of its Subsidiaries. 3.2. Corporate Power and Authority. Issuer has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby. Issuer has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby. 3.3. Execution, Delivery and Enforceability. This Agreement has been duly executed and delivered by Issuer and constitutes a legal, valid and binding obligation of Issuer, enforceable against Issuer in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and general equitable principles regardless of whether such enforceability is considered in a -2- proceeding at law or in equity. 3.4. No Violation. The execution and delivery by Issuer of this Agreement, the consummation of the transactions contemplated hereby, and the compliance by Issuer with the terms and provisions hereof (including, without limitation, the issuance to Investor of the Shares as contemplated by and in accordance with this Agreement) will not result in a default under (or give any other party the right, with the giving of notice or the passage of time (or both), to declare a default or accelerate any obligation under) or violate the Articles of Incorporation or bylaws or any Contract to which Issuer or any of its Subsidiaries is a party or by which Issuer or its properties or assets are bound (except to the extent such a default would not, in the case of a Contract, have a Material Adverse Effect on Issuer), or any Requirement of Law applicable to Issuer or any of its Subsidiaries, or result in the creation or imposition of any Lien upon any of the capital stock, properties or assets of Issuer or any of its Subsidiaries (except where such Lien would not have a Material Adverse Effect on Issuer). 3.5. Consents/Approvals. (a) No consents, filings, authorizations or other actions of any Governmental Authority are required for Issuer's execution, delivery and performance of this Agreement and (b) no consent, approval, waiver or other action by any Person under any Contract to which Issuer or any of its Subsidiaries is a party or by which Issuer or any of its properties or assets are bound is required or necessary for the execution, delivery or performance by Issuer of this Agreement and the consummation of the transactions contemplated hereby, except where the failure to obtain such consents would not have a Material Adverse Effect on Issuer. 3.6. Capitalization. The authorized capital stock of Issuer consists of 45,000,000 shares, of which 33,750,000 are shares of Common Stock and 11,250,000 are shares of preferred stock, par value $0.01 per share. As of the date hereof, 9,705,497 shares of Common Stock are validly issued and outstanding, fully paid, and non-assessable, and no shares of preferred stock are issued or outstanding. Except with respect to the Shares, and except for options for 286,300 shares of Common Stock issued and 541,125 shares of Common Stock reserved for issuance pursuant to the A.S.V., INC. 1994 Long-Term Incentive and Stock Option Plan, as amended (the "1994 Plan"), options for 1,096,562 shares of Common Stock issued and 1,083,873 shares of Common Stock reserved for issuance pursuant to the A.S.V., INC. 1996 Incentive and Stock Option Plan, as amended (the "1996 Plan"), options for 36,000 shares of Common Stock issued and 414,000 shares of Common Stock reserved for issuance pursuant to the A.S.V., INC. 1998 Non-Employee Director Stock Option Plan, as amended (the "1998 Plan"), 10,267,127 shares of Common Stock issuable pursuant to the Warrant (prior to its amendment as set forth herein, and 337,500 shares of Common Stock issuable pursuant to that certain warrant issued to Leo Partners, Inc. on December 1, 1996 (the "Leo Partners Warrant", together with the 1994 Plan, the 1996 Plan, the 1998 Plan, and the Warrant, being the "Derivative Equity Documents"), no other shares of Common Stock and no shares of preferred stock, or any rights, options, warrants, convertible securities, subscription rights or other agreements or commitments of any kind obligating Issuer to issue or sell any other shares of Common Stock or preferred stock, are outstanding or have been authorized. Upon delivery to Investor of the certificates for the Shares and payment of the Purchase Price, Investor will acquire good, valid and marketable title to and record ownership of the Shares, and such Shares will be validly issued, fully paid and non-assessable. 3.7. SEC Reports and Nasdaq Compliance. Issuer has made all filings (the "SEC Reports") required to be made by it under the Securities Act, the Exchange Act and the securities laws of any state, and any rules and regulations promulgated thereunder and pursuant to any Requirements of Law. The SEC Reports, when filed, complied in all material respects with all applicable requirements of the Securities Act, the Exchange Act and other Requirements of Law. None of the SEC Reports, at the time of filing, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading in light of the -3- circumstances in which they were made. Issuer has taken all necessary actions to ensure its continued inclusion in, and the continued eligibility of the Common Stock for trading on the Nasdaq National Market under all currently effective and currently proposed inclusion requirements. 3.8. Governing Documents. Issuer has delivered or made available to Investor true, accurate and complete copies of the Articles of Incorporation and Bylaws in effect as of the date hereof. 3.9. Subsidiaries. Except as set forth on Exhibit 22 to Issuer's Form 10-K for the fiscal year ended December 31, 1999, Issuer does not own, directly or indirectly, any outstanding voting securities of or other interests in, and does not control, any corporation, partnership, limited liability company, joint venture or other business entity. 3.10. Financial Statements. Each of the balance sheets included in the SEC Reports (including any related notes and schedules) fairly presents in all material respects the consolidated financial position of Issuer and its Subsidiaries as of its date, and each of the other financial statements included in the SEC Reports (including any related notes and schedules) fairly presents in all material respects the consolidated financial condition, results of operations, cash flows, or other information therein of Issuer and its Subsidiaries for the periods or as of the dates therein set forth in accordance with GAAP consistently applied during the periods involved (except that the interim reports are subject to normal recurring adjustments which might be required as a result of year end audit and except as otherwise stated therein). 3.11. Changes Since December 31, 1999. Except as set forth in the SEC Reports, since December 31, 1999, there has been no Material Adverse Change in Issuer. Except as set forth in the SEC Reports or on Schedule 3.11 hereto, since December 31, 1999, (a) there has not been (i) any direct or indirect redemption, purchase or other acquisition by Issuer of any shares of Issuer's capital stock or (ii) declaration, setting aside or payment of any dividend or other distribution by Issuer in respect of its capital stock, or (iii) issuance of any shares of capital stock of Issuer or any granting to any person of any option to purchase or other right to acquire shares of capital stock of Issuer other than pursuant to the Derivative Equity Plans, (b) none of the officers or directors of Issuer (or any of their spouses or children) has (i) any direct or indirect investment or equity interest in, or power to control the business affairs of, any manufacturer, supplier, lender or provider of services or goods to Issuer, except for their interest in Issuer, (ii) any material contractual relationship with Issuer, and (iii) has any direct or indirect interest in any material right, property or asset which is owned or used by Issuer in the conduct of its business. 3.12. Environmental Matters. Except as set forth in the SEC Reports or on Schedule 3.12 hereto: (a) Issuer is and has at all times been in compliance with all Environmental Laws (as defined below) governing its business, operations, properties and assets, including, without limitation, Environmental Laws with respect to discharges into the ground water, surface water and soil, emissions into the ambient air, and generation, accumulation, storage, treatment, transportation, labeling or disposal of solid and hazardous waste materials and substances or process by-products, in each case, for which failure to comply could have a Material Adverse Effect on Issuer. Issuer is not currently liable for any penalties, fines or forfeitures for failure to comply with any of the foregoing, which penalty, fine or forfeiture could have a Material Adverse Effect on Issuer. Issuer is in compliance with all notice, record keeping and reporting requirements of all Environmental Laws, and has complied with all informational requests or demands arising under the Environmental Laws, where failure to comply could have a Material Adverse Effect on Issuer. -4- (b) As used in this Agreement, "Environmental Laws" means all federal, state or local laws, rules, regulations, orders or ordinances or judicial or administrative interpretations thereof, any of which govern (or purport to govern) or relate to air emissions, water discharges, hazardous or toxic substances, solid or hazardous waste and occupational health and safety, as any of these terms are or may be defined in such laws, rules, regulations, orders, or ordinances, or judicial or administrative interpretations thereof, including, without limitation, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, by the Superfund Amendments and Reauthorization Act, the Hazardous Materials Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the Clean Water Act and the Occupational Safety and Health Act. 3.13. No Commissions. Issuer has not incurred any obligation for any finder, broker or agent's fees or commissions in connection with the transactions contemplated hereby. 3.14. Inapplicability of Section 302A.673 of Minnesota Business Corporations Act. The Board of Directors of Issuer has approved the execution and delivery by Issuer of this Agreement and the consummation of the transactions contemplated by this Agreement and the other transactions contemplated hereby, and no further action is required to render inapplicable to Investor and/or any affiliates or associates (as defined in Section 302A.673 of the Minnesota Business Corporations Act ("MBCA")) of Investor and/or all or any combination of such persons the provisions of Section 302A.673 of MBCA that restrict business combinations (as defined in Section 302A.673 of MBCA) between an interested shareholder and Issuer. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INVESTOR As a material inducement to Issuer entering into this Agreement and issuing the Shares, Investor represents and warrants to Issuer as follows: 4.1. Corporate Status; Power and Authority. Investor is a corporation duly organized, validly existing, and in good standing under the laws of Delaware. Investor has the corporate power and authority to execute and deliver and to perform its obligations under this Agreement and consummate the transactions contemplated hereby. Investor has taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby. 4.2. No Violation. The execution and delivery by Investor of this Agreement, the consummation of the transactions contemplated hereby, and the compliance by Investor with the terms and provisions hereof, will not result in a default under (or give any other party the right, with the giving of notice or the passage of time (or both), to declare a default or accelerate any obligation under) or violate the Certificate of Incorporation or Bylaws of Investor or any Contract to which Investor is a party or by which it or its properties or assets are bound, or violate any Requirement of Law applicable to Investor, other than such violations, conflicts, defaults or breaches which, individually and in the aggregate, do not and will not have a Material Adverse Effect on Investor. 4.3. Consents/Approvals. (a) No consents, filings, authorizations or actions of any Governmental Authority are required for Investor's execution, delivery and performance of this Agreement, and (b) no consent, approval, waiver or other actions by any Person under any Contract to which Investor is a party or by which Investor or any of his properties or assets are bound is required or necessary for the execution, delivery and performance by Investor of this Agreement and the consummation of the transactions contemplated hereby. -5- 4.4. Enforceability. This Agreement has been duly executed and delivered by Investor and constitutes a legal, valid and binding obligation of Investor, enforceable against Investor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor's rights generally and general equitable principles regardless of whether enforceability is considered in a proceeding at law or in equity. 4.5. Investment Intent. Investor is acquiring the Shares for its own account and with no present intention of distributing or selling such Shares in violation of the Securities Act or any applicable state securities law. Investor agrees that it will not sell or otherwise dispose of any of the Shares unless such sale or other disposition has been registered under the Securities Act or, in the opinion of counsel to Investor satisfactory to Issuer, is exempt from registration under the Securities Act and has been registered or qualified or, in the opinion of such counsel, in exempt from registration or qualification under applicable state securities laws. Investor understands that the sale of the Shares has not been registered under the Securities Act by reason of their contemplated issuance in transactions exempt from the registration and prospectus delivery requirements of the Securities Act pursuant to Section 4(2) thereof, and that the reliance of Issuer on such exemption from registration is predicated in part on the representations and warranties of Investor. Investor acknowledges that pursuant to Section 1.2 a restrictive legend consistent with the foregoing has been or will be placed on the certificates for the Shares issued upon exercise thereof. 4.6. No Commissions. Investor has not incurred any obligation for any finder, broker, or agent's fees or commissions in connection with the transactions contemplated hereby. ARTICLE V COVENANTS 5.1. Filings. Each of Investor and Issuer shall make on a prompt and timely basis all governmental or regulatory notifications and filings required to be made by it for the consummation of the transactions contemplated hereby. 5.2. Public Announcements. Except as required by law or the policies or rules of any stock exchange (or the Nasdaq National Market) on which Issuer's securities are listed or quoted as of the date hereof, the form and content of all press releases or other public communications of any sort relating to the subject matter of this Agreement, and the method of their release, or publication thereof, shall be subject to the prior approval of the parties hereto, which approval shall not be unreasonably withheld or delayed. 5.3. Further Assurances. Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby. 5.4. Cooperation. Issuer and Investor each agree to cooperate with the other in the preparation and filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to any Requirement of Law or the rules of any exchange on which the Common Stock is traded or the Nasdaq National Market in connection with the transactions contemplated by this Agreement and to use their respective reasonable best efforts to agree jointly on a method to overcome any objections by any Governmental Authority to any such transactions. Except as may be specifically required hereunder, neither of the parties hereto or their respective Affiliates shall be required to agree to take any action that in the reasonable opinion of such party would result in or produce a Material Adverse -6- Effect on such party. 5.5. Other Actions. Each of the parties hereto shall use its reasonable best efforts to take, or cause to be taken, all appropriate actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated herein, including, without limitation, using its reasonable best efforts to obtain all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Authorities and parties to contracts with Issuer and its Subsidiaries as are necessary for the consummation of the transactions contemplated hereby. The parties also agree to use their reasonable best efforts to defend all lawsuits or other legal proceedings challenging this Agreement, or the consummation of the transactions contemplated hereby, and to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated. ARTICLE VI DEFINITIONS 6.1. Defined Terms. As used herein the following terms shall have the following meanings: "Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof. "Articles of Incorporation" means Issuer's Second Restated Articles of Incorporation, as the same may be or have been supplemented, amended or restated from time to time. "Bylaws" means Issuer's Bylaws, as the same may be or have been supplemented, amended or restated from time to time. "Closing" has the meaning specified in Section 2.1 of this Agreement. "Common Stock" has the meaning specified in the Recitals to this Agreement. "Contract" means any indenture, lease, sublease, loan agreement, mortgage, note, restriction, commitment, obligation or other contract, agreement or instrument. "Derivative Equity Documents" has the meaning specified in Section 3.6 of this Agreement. "Environmental Laws" has the meaning specified in Section 3.12(b) of this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in effect in the United States of America from time to time. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Indemnified Party" has the meaning specified in Section 7.2 of this Agreement. "Indemnifying Party" has the meaning specified in Section 7.1 of this Agreement. -7- "Issuer" means A.S.V., INC., a Minnesota corporation. "Investor" means Caterpillar Inc., a Delaware corporation. "Leo Partners Warrant" has the meaning specified in Section 3.6 of this Agreement. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give an financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in connection with such mortgage, pledge, security interest, encumbrance, lien or charge). "Material Adverse Change (or Effect)" means a change (or effect), in the condition (financial or otherwise), properties, assets, liabilities, rights, obligations, operations, business or prospects which change (or effect) individually or in the aggregate with other such changes (or effects) is materially adverse to such condition, properties, assets, liabilities, rights, obligations, operations, business or prospects. "MBCA" has the meaning specified in Section 3.14 of this Agreement. "1994 Plan" has the meaning specified in Section 3.6 of this Agreement. "1996 Plan" has the meaning specified in Section 3.6 of this Agreement. "1998 Plan" has the meaning specified in Section 3.6 of this Agreement. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, estate, trust, unincorporated association, joint venture, Governmental Authority or other entity, of whatever nature. "Purchase Price" has the meaning specified in Section 1.1 of this Agreement. "Replacement Warrant Certificate" has the meaning specified in Section 1.3 of this Agreement. "Requirement of Law" means as to any Person, the articles of incorporation, by-laws or other organizational or governing documents of such person, and any domestic or foreign and federal, state or local law, rule, regulation, statute or ordinance or determination of any arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its properties or to which such Person or any of its property is subject. "SEC" means the Securities and Exchange Commission. "SEC Reports" has the meaning specified in Section 3.7 of this Agreement. "Securities Act" means the Securities Act of 1933, as amended. "Shares" has the meaning specified in Section 1.1 of this Agreement. "Subsidiary" means as to any Person, a corporation of which more than 50% of the outstanding capital stock having full voting power is at the time directly or indirectly owned or controlled by such Person. -8- "Warrant" has the meaning specified in the recitals to this Agreement. 6.2. Other Definitional Provisions. (a) All terms defined in this Agreement shall have the defined meanings when used in any certificates, reports or other documents made or delivered pursuant hereto or thereto, unless the context otherwise requires. (b) Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (c) All matters of an accounting nature in connection with this Agreement and the transactions contemplated hereby shall be determined in accordance with GAAP applied on a basis consistent with prior periods, where applicable. (d) As used herein, the neuter gender shall also denote the masculine and feminine, and the masculine gender shall also denote the neuter and feminine, where the context so permits. 6.3. The words "hereof," "herein" and "hereunder," and words of similar import, when used in this Agreement shall refer to this Agreement as a whole (including any Exhibits or Schedules hereto) and not to any particular provision of this Agreement. ARTICLE VII INDEMNIFICATION 7.1. Indemnification Generally. Issuer, on the one hand, and Investor, on the other hand (each an "Indemnifying Party"), shall indemnify the other from and against any and all losses, damages, liabilities, claims, charges, actions, proceedings, demands, judgments, settlement costs and expenses of any nature whatsoever (including, without limitation, attorneys' fees and expenses) or deficiencies resulting from any breach of a representation, warranty or covenant by the Indemnifying Party and all claims, charges, actions or proceedings incident to or arising out of the foregoing. 7.2. Indemnification Procedures. Each person entitled to indemnification under this Section (an "Indemnified Party") shall give notice as promptly as reasonably practicable to each Indemnifying Party required to provide indemnification under this Article VII of any action commenced against or by it in respect of which indemnity may be sought hereunder, but failure to so notify an Indemnifying Party shall not relieve such Indemnifying Party from any liability that it may have otherwise than on account of this indemnity agreement so long as such failure shall not have materially prejudiced the position of the Indemnifying Party. Upon such notification, the Indemnifying Party shall assume the defense of such action if it is a claim brought by a third party. If and after such assumption the Indemnified Party shall not be entitled to reimbursement of any expenses incurred by it in connection with such action except as described below. In any such action, any Indemnified Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the contrary or (ii) the named parties in any such action (including any impleaded parties) include both the Indemnifying Party and the Indemnified Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing or conflicting interests between them. The Indemnifying Party shall not be liable for any settlement of any proceeding effected without its written consent (which shall not be unreasonably withheld or delayed by such Indemnifying Party), but if settled with such consent or if there -9- be final judgment for the plaintiff, the Indemnifying Party shall indemnify the Indemnified Party from and against any loss, damage or liability by reason of such settlement or judgment. ARTICLE VIII CONDITIONS TO CLOSING 8.1. Conditions to the Obligations of Investor and Issuer. The obligation of Investor and Issuer to proceed with the Closing is also subject to the following conditions, any and all of which may be waived, in whole or in part, to the extent permitted by applicable law: (a) Alliance Agreement. Issuer and Investor shall have executed the Multi-Terrain Rubber-Tracked Loader Alliance Agreement substantially in the form attached. (b) Replacement Warrant. Issuer shall have issued to Investor the Replacement Warrant. (c) Warrant. Investor shall have delivered the Warrant to Issuer for cancellation. ARTICLE IX MISCELLANEOUS 9.1. Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be delivered by certified or registered mail (first class postage pre-paid), guaranteed overnight delivery, or facsimile transmission to the following addresses and facsimile numbers (or to such other addresses or facsimile numbers which such party shall designate in writing to the other party): (a) if to Issuer to: A.S.V., INC. 840 Lily Lane Grand Rapids, Minnesota 55744 Attention: Mr. Gary D. Lemke Fax: (218) 326-5579 Telephone: (281) 327-3434 with a copy to: Dorsey & Whitney LLP Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402-1498 Attention: Amy E. Ayotte Fax: (612) 340-8738 Telephone: (612) 340-2600 (b) if to Investor to: CATERPILLAR INC. Building Construction Products Division Suite 300 100 Regency Forest Drive -10- Cary, North Carolina 27511 Attention: Donald M. Ings, Vice President Fax: (919) 465-2868 Telephone: (919) 465-2777 with a copy to: CATERPILLAR INC. 100 N.E. Adams Street Peoria, Illinois 61615 Attention: Sean P. Leuba Fax: (309) 675-1795 Telephone: (312) 675-5654 9.2. Survival. Notwithstanding any knowledge of facts determined or determinable by Investor or Issuer by investigation, Investor and Issuer shall have the right to fully rely on the representations, warranties, covenants and agreements of Issuer contained in this Agreement or in any other documents or papers delivered in connection herewith. Each representation, warranty, covenant and agreement of the parties set forth in this Agreement is independent of each other representation, warranty, covenant and agreement. Each representation and warranty made by any party in this Agreement shall survive the Closing for a period of two years. 9.3. Remedies. (a) Each of Investor and Issuer acknowledge that the other party would not have an adequate remedy at law for money damages in the event that any of the covenants or agreements of such party in this Agreement was not performed in accordance with its terms, and it is therefore agreed that each of Investor and Issuer in addition to and without limiting any other remedy or right such party may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach and enforcing specifically the terms and provisions hereof, and each of Investor and Issuer hereby waive any and all defenses such party may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. (b) All rights, powers and remedies under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. 9.4. Entire Agreement. This Agreement (including the Exhibits and Schedules attached hereto), and other documents delivered at the Closing pursuant hereto, contain the entire understanding of the parties in respect of its subject matter and supersede all prior agreements and understandings between or among the parties with respect to such subject matter. The Exhibits and Schedules hereto constitute a part hereof as though set forth in full above. 9.5. Expenses; Taxes. Except as otherwise provided in this Agreement, the parties shall pay their own fees and expenses, including their own counsel fees, incurred in connection with this Agreement or any transaction contemplated hereby. Any sales tax, stamp duty, deed transfer or other tax (except taxes based on the income of Investor) arising out of the sale of the Shares by Issuer to Investor, and the consummation of the transactions contemplated by this Agreement shall be paid by Issuer. -11- 9.6. Amendment; Waiver. This Agreement may not be modified, amended, supplemented, canceled or discharged, except by written instrument executed by both parties. No failure to exercise, and no delay in exercising, any right, power or privilege under each of this Agreement shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision hereunder or thereunder shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the parties. No extension of time for performance of any obligations or other acts hereunder, thereunder, or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. 9.7. Binding Effect; Assignment. The rights and obligations of this Agreement shall bind and inure to the benefit of the parties and their respective successors and legal assigns. The rights and obligations of this Agreement may not be assigned by any party without the prior written consent of the other party. 9.8. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. 9.9. Headings. The headings contained in this Agreement are for convenience of reference only and are not to be given any legal effect and shall not affect the meaning or interpretation of this Agreement. 9.10. Governing Law; Interpretation. This Agreement shall be construed in accordance with and governed for all purposes by the laws of the State of Minnesota applicable to contracts executed and to be wholly performed within such State. 9.11. Severability. The parties stipulate that the terms and provisions of this Agreement are fair and reasonable as of the date hereof. However, any provision of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement, as applicable, shall remain in full force and effect and shall in, no way be affected, impaired or invalidated. If, moreover, any of those provisions shall for any reason be determined by a court of competent jurisdiction to be unenforceable because excessively broad or vague as to duration, geographical scope, activity or subject, it shall be construed by limiting, reducing or defining it, so as to be enforceable. * * * -12- IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed and delivered as of the day and year first above written. A.S.V., INC. By: /s/ Gary Lemke ----------------------------------- Name: Gary D. Lemke Title: President CATERPILLAR INC. By: /s/ Donald M. Ings ----------------------------------- Name: Donald M. Ings Title: Vice President -13- EX-4.13 3 0003.txt REPLACEMENT WARRANT CERTIFICATE Exhibit 4.13 THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER OR UNDER APPLICABLE STATE SECURITIES LAWS. REPLACEMENT WARRANT CERTIFICATE To Purchase 9,767,127 Shares of Common Stock of: A.S.V., INC. THIS IS TO CERTIFY THAT CATERPILLAR INC. (the "Holder"), or Holder's registered assigns, is entitled to purchase from A.S.V., INC., a Minnesota corporation (the "Company"), up to 9,767,127 shares of the Company's common stock, par value $.01 per share (the "Common Stock"), on the terms and conditions hereinafter set forth. This warrant is being issued in connection with a Securities Purchase Agreement between the Company and the Holder dated October 31, 2000 (the "Purchase Agreement"). Capitalized terms used but not defined herein shall have the meanings set forth in the Purchase Agreement. I. GRANT OF WARRANT 1.1 GRANT. The Company hereby grants the Holder a warrant to purchase 9,767,127 shares of Common Stock at a purchase price of $21.00 per share, exercisable in whole or in part at any time and from time to time from the date hereof until 6:00 p.m. on January 29, 2009, subject to the provisions of Article V hereof (the "Warrant" and the shares to be issued upon the exercise thereof are "Warrant Shares"). This Warrant is granted this 31st day of October, 2000. 1.2 SHARES TO BE ISSUED; RESERVATION OF SHARES. The Company covenants and agrees that (1) all Warrant Shares will upon issuance in accordance with the terms hereof be duly authorized, validly issued and outstanding, fully paid and non-assessable, and free from all taxes, liens and charges with respect to the issuance thereof, (2) the Company will from time to time take all actions necessary to assure that the par value per share of the Common Stock is at all times equal to or less than the applicable purchase price per Warrant Share, and (3) the Company will at all times during the exercise period have authorized and reserved sufficient shares of Common Stock to provide for the exercise of the Warrant in full. II. ADJUSTMENTS TO WARRANT RIGHTS 2.1 STOCK SPLITS AND COMBINATIONS. If the Company shall combine all of the outstanding Common Stock proportionately into a smaller number of shares, the number of Warrant Shares issuable to the Holder upon exercise of the Warrant shall be proportionately decreased and the purchase price per Warrant Share hereunder in effect immediately prior to such combination shall be proportionately increased, as of the effective date of such combination, as follows: (a) the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to the effective date of such combination shall be adjusted so that the Holder of the Warrant exercised on or after that date shall be entitled to receive the number and kind of Warrant Shares which the Holder of the Warrant would have owned and been entitled to receive as a result of the combination had the Warrant been exercised immediately prior to that date, and (b) the purchase price per Warrant Share in effect immediately prior to such adjustment shall be adjusted by multiplying such purchase price by a fraction, the numerator of which is the aggregate number of shares of Common Stock purchasable upon exercise of the Warrant immediately prior to such adjustment, and the denominator of which is the aggregate number of shares of Common Stock purchasable upon exercise of the Warrant immediately thereafter. If the Company shall effect a subdivision of the outstanding Common Stock, the number of Warrant Shares issuable to the Holder upon exercise of the Warrant shall be proportionally increased and the purchase price per Warrant Share hereunder in effect prior to such subdivision shall be proportionately decreased, as of the effective date of such subdivision, as follows: (a) the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to the effective date of such subdivision, shall be adjusted so that the Holder of the Warrant exercised on or after that date shall be entitled to receive the number and kind of Warrant Shares which the Holder of the Warrant would have owned and been entitled to receive as a result of the subdivision had the Warrant been exercised immediately prior to that date (pro rated in the case of any partial exercise), and (b) the purchase price per Warrant Share in effect immediately prior to such adjustment shall be adjusted by multiplying the purchase price by a fraction, the numerator of which is the aggregate number of shares of Common Stock purchasable upon exercise of the Warrant immediately prior to such adjustment, and the denominator of which is the aggregate number of shares of Common Stock purchasable upon exercise of the Warrant immediately thereafter. 2.2 STOCK DIVIDENDS AND DISTRIBUTIONS. If the Company shall make or fix a record date for the holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock, then the number of Warrant Shares issuable to the Holder upon exercise of the Warrant shall be proportionately increased and the purchase price per Warrant Share hereunder in effect prior to the time of such issuance or the close of business on such record date shall be proportionately decreased, as of the time of such issuance, or in the event such record date is fixed, as of the close of business on such record date, as follows: (a) the number of Warrant Shares purchasable upon the exercise of the Warrant immediately prior to the time of such issuance or the close of business on such record date shall be adjusted so that the Holder of the Warrant exercised after that date shall be entitled to receive the number and kind of Warrant Shares which the Holder of the Warrant would have owned and been entitled to receive as a result of the dividend or distribution had the Warrant been exercised immediately prior to that date (pro rated in the case of any partial exercise), and (b) the purchase price in effect immediately prior to such adjustment shall be adjusted by multiplying such purchase price by a fraction, the numerator of which is the aggregate number of shares of Common Stock purchasable upon exercise of the Warrant immediately prior to such adjustment, and the denominator of which is the aggregate number of shares of Common Stock purchasable upon exercise of the Warrant immediately thereafter. 2.3 OTHER DIVIDENDS AND DISTRIBUTIONS. If the Company shall make or fix a record date for the holders of Common Stock entitled to receive a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then lawful and adequate provision shall be made so that the Holder of the Warrant shall be entitled to receive upon exercise of the Warrant, for the aggregate purchase price in effect prior thereto, in addition to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, the kind and number of securities of the Company which the Holder would have owned and been entitled to receive had the Warrant been exercised immediately prior to that date (pro rated in the case of any partial exercise). -2- 2.4 RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Common Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this Article II), then the Holder of the Warrant shall be entitled to receive upon exercise of the Warrant, in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, for the aggregate purchase price in effect prior thereto, the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change, by the holders of the number of shares of Common Stock for which such Warrant could have been exercised immediately prior to such recapitalization, reclassification or change (pro rated in the case of any partial exercise). 2.5 REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If any of the following transactions (each, a "Special Transaction") shall become effective: (i) a capital reorganization (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Article II), (ii) a consolidation or merger of the Company with and into another entity, or (iii) a sale or conveyance of all or substantially all of the Company's assets, then as a condition of any such Special Transaction, lawful and adequate provision shall be made so that the Holder of the Warrant shall thereafter have the right to purchase and receive upon exercise of the Warrant, in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, for the aggregate purchase price in effect immediately prior to such consummation, such shares of stock, other securities, cash or other assets as may be issued or payable in and pursuant to the terms of such Special Transaction to the holders of shares of Common Stock for which such Warrant could have been exercised immediately prior to such Special Transaction (pro rated in the case of any partial exercises). In connection with any Special Transaction, appropriate provision shall be made with respect to the rights and interests of the Holder of the Warrant to the end that the provisions of the Warrant (including without limitation provisions for adjustment of the purchase price and the number of Warrant Shares issuable upon the exercise of the Warrant), shall thereafter be applicable, as nearly as may be practicable, to any shares of stock, other securities, cash or other assets thereafter deliverable upon the exercise of the Warrant. The Company shall not effect any Special Transaction unless prior to or simultaneously with the closing, the successor entity (if other than the Company), if any, resulting from such consolidation or merger or the entity acquiring such assets shall assume by a written instrument executed and mailed by certified mail or delivered to the Holder of the Warrant at the address of the Holder appearing on the books of the Company, the obligation of the Company or such successor corporation to deliver to the Holder such shares of stock, securities, cash or other assets, as in accordance with the foregoing provisions, which the Holder shall have the right to purchase. 2.6 SALES BELOW WARRANT EXERCISE PRICE. (a) In the event the Company shall sell and issue shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding (i) shares, rights, options, warrants or convertible or exchangeable securities issued in any of the transactions described in Sections 2.1, 2.2, 2.3, 2.4 or 2.5 above), (ii) shares issuable upon exercise of currently outstanding options, warrants and convertible securities and (iii) options issued to employees and directors of the Company or shares issued upon exercise thereof provided the exercise price of any such options on the date of grant shall be equal to or greater than the fair market value as of such date) at a price per share less than the purchase price per Warrant Share in effect as of the date the Company fixes the offering price of such shares, rights, options, warrants or convertible or exchangeable securities, then the purchase price per Warrant Share shall immediately be reduced to a price determined by multiplying the then current purchase price per Warrant -3- Share by a fraction (i) the numerator of which shall be the number of shares of Common Stock outstanding at the close of business on the date next preceding the date of such issue or sale, plus the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities so issued would purchase at the then current purchase price per Warrant Share, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding at the close of business on the date of such issuance after giving effect to such issuance. (b) For the purpose of making any adjustment required under this Section 2.6, the consideration received by the Company for any issue or sale of securities shall (A) to the extent it consists of cash be computed at the gross amount of cash received by the Company after deduction of any expenses payable by the Company and any underwriting or similar commissions, compensation or concession in connection with such issue or sale, (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined by the Company's Board of Directors in good faith, (C) if such shares of Common Stock or rights, options, warrants or convertible securities are issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, be computed as that portion of the consideration so received that may be reasonably determined by the Board of Directors of the Company in good faith to be allocated to such shares of Common Stock, or rights, options, warrants or convertible or exchangeable securities, and (D) if the issuance shall be of such rights, options, warrants or convertible or exchangeable securities, be determined by dividing (X) the total amount receivable by the Company in consideration of the sale and issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to the Company upon exercise, conversion or exchange thereof by (Y) the total number of shares of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities. (c) Upon each adjustment of the purchase price per Warrant Share pursuant to Section 2.6 hereof, the Warrant shall thereupon evidence the right to purchase that number of shares of Common Stock (calculated to the nearest hundredth of a share) obtained by multiplying the number of shares of Common Stock purchasable upon exercise immediately prior to such adjustment by the purchase price per Warrant Share in effect immediately prior to such adjustment and dividing the product so obtained by the purchase price per Warrant Share in effect immediately after such adjustment. The adjustment pursuant to this Section 2.6 to the number of shares of Common Stock purchasable upon exercise of a Warrant shall be made each time an adjustment of the purchase price is made pursuant to Section 2.6 hereof. 2.7 LIQUIDATION. If the Company shall, at any time prior to the expiration of this Warrant, dissolve, liquidate or wind up its affairs, the Holder shall have the right, but not the obligation, to exercise this Warrant. Upon such exercise, the Holder shall have the right to receive, in lieu of the shares of Common Stock that the Holder otherwise would have been entitled to receive upon such exercise, the same kind and amount of assets as would have been issued, distributed or paid to the Holder upon any such dissolution, liquidation or winding up with respect to such shares of Common Stock had the Holder been the holder of record of such shares of Common Stock receivable upon exercise of this Warrant on the date for determining those entitled to receive any such distribution. If any such dissolution, liquidation or winding up results in any cash distribution in excess of the application purchase price per Warrant Share provided for by this Warrant, the Holder may, at the Holder's option, exercise this Warrant without making payment of the applicable purchase price per Warrant Share and, in such case, the Company shall, upon distribution to the Holder, consider the applicable purchase price per -4- Warrant Share to have been paid in full, and in making settlement to the Holder shall deduct an amount equal to the applicable purchase price per Warrant Share from the amount payable to the Holder. 2.8 NOTICE. Whenever a Warrant or the number of Warrant Shares issuable hereunder is to be adjusted as provided herein or a dividend or distribution (in cash, stock or otherwise and including, without limitation, any liquidating distributions) is to be declared by the Company, or a definitive agreement with respect to a Special Transaction has been entered into, the Company shall forthwith cause to be sent to the Holder at the last address of the Holder shown on the books of the Company, by first-class mail, postage prepaid, at least ten (10) days prior to the record date specified in (a) below or at least twenty (20) days before the date specified in (b) below, a notice stating in reasonable detail the relevant facts and any resulting adjustments and the calculation thereof, if applicable, and stating (if applicable): (a) the date to be used to determine (i) which holders of Common Stock will be entitled to receive notice of such dividend, distribution, subdivision or combination (the "Record Date"), and (ii) the date as of which such dividend distribution, subdivision or combination shall be made; or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined (provided, that in the event the Company institutes a policy of declaring cash dividends on a periodic basis, the Company need only provide the relevant information called for in this clause (a) with respect to the first cash dividend payment to be made pursuant to such policy and thereafter provide only notice of any changes in the amount or the frequency of any subsequent dividend payments), or (b) the date on which a Special Transaction is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon consummation of the Special Transaction (the "Exchange Date"). 2.9 FRACTIONAL INTERESTS. The Company shall not be required to issue fractions of shares of Common Stock on the exercise of the Warrant. If any fraction of a share of Common Stock would be issuable upon the exercise of the Warrant, the Company shall, upon such issuance, purchase such fraction for an amount in cash equal to the current value of such fraction, computed on the basis of the last reported closing price of the Common Stock on NASDAQ on the last business day prior to the date of exercise upon which such a sale shall have been effected, or, if the Common Stock is not so quoted on NASDAQ, as the Board of Directors of the Company may in good faith determine. 2.10 EFFECT OF ALTERNATE SECURITIES. If at any time, as a result of an adjustment made pursuant to this Article II, the Holder of the Warrant shall thereafter become entitled to receive any securities of the Company other than shares of Common Stock, then the number of such other securities receivable upon exercise of the Warrant shall be subject to adjustment from time to time on terms as nearly equivalent as practicable to the provisions with respect to shares of Common Stock contained in this Article II. 2.11 SUCCESSIVE APPLICATION. The provisions of this Article II shall similarly apply from time to time to successive events covered by this Article II. III. EXERCISE 3.1 EXERCISE OF WARRANT. -5- (a) The Holder may exercise their Warrant by (i) surrendering this Warrant Certificate, with the form of exercise notice attached hereto as Exhibit A duly executed by Holder, and (ii) making payment to the Company of the aggregate purchase price for the applicable Warrant Shares in cash, by certified check, bank check or wire transfer to an account designated by the Company. Upon any partial exercise of the Warrant, the Company, at its expense, shall promptly issue to the Holder for its surrendered Warrant Certificate a replacement Warrant Certificate identical in all respects to this Warrant Certificate, except that the number of Warrant Shares shall be reduced accordingly. (b) Each person in whose name any Warrant Share certificate is issued upon exercise of a Warrant shall for all purposes been deemed to have become the holder of record of the Warrant Shares for which such Warrant was exercised, and such Warrant Share certificate shall be dated the date upon which the Warrant exercise notice was duly surrendered and payment of the purchase price was tendered to the Company. 3.2 ISSUANCE OF WARRANT SHARES. The Warrant Shares purchased shall be issued to the Holder exercising this Warrant as of the close of business on the date on which all actions and payments required to be taken or made by the Holder, pursuant to Section 3.1, shall have been so taken or made. Certificates for the Warrant Shares so purchased shall be delivered to the Holder within three (3) days after a Warrant is surrendered. IV. RIGHTS OF HOLDER 4.1 WARRANTHOLDER RIGHTS. Holder shall not, solely by virtue of the Warrant and prior to the issuance of the Warrant Shares upon due exercise thereof, be entitled to any rights of a shareholder in the Company. 4.2 NO IMPAIRMENT. The Company shall not by any action including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant and (b) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the company to perform its obligations under this Warrant. Upon the request of the Holder, the Company will at any time during the period this Warrant is outstanding acknowledge in writing, in form satisfactory to the Holder, the continuing validity of this Warrant and the obligations of the Company hereunder. V. PARTIAL ACCELERATION OF WARRANT 5.1 ACCELERATION. Notwithstanding the provisions of Section 1.1 with respect to the term of the Warrant, if and when the Company achieves an Acceleration Goal (as defined below) and the average closing sale price for a share of Common Stock on the principal trading market for the Common Stock for the preceding ten trading days is above the current purchase price per Warrant Share, the Company shall have the right, by giving of notice to the Holder (an "Acceleration Notice"), to cause (i) a -6- Reduced Amount (as defined below) of Warrant Shares to remain subject to the Warrant for the original term and (ii) the balance of any Warrant Shares then subject to the Warrant to remain subject to the Warrant only for a period of 75 days from the giving of the Acceleration Notice. An "Acceleration Goal" shall mean the reporting by the Company of Qualifying Revenues (as herein defined) for the immediately preceding four fiscal quarters in the amounts specified in the table below and the "Reduced Amount" shall mean the number of Warrant Shares specified in the table below that shall then remain subject to the Warrant in accordance with its terms: Amount of Qualifying Revenues Reduced Amount ----------------------------- -------------- $100 million 8,727,058 $150 million 6,673,632 $200 million 4,106,851 $250 million Zero "Qualifying Revenues" for a fiscal period shall mean the sum of (i) net sales of the Company from continuing operations determined in accordance with GAAP consistently applied throughout the period, and reported in periodic reports filed by the Company pursuant to the Exchange Act (the "Reports"), provided that the gross profit (net sales less cost of goods sold) derived from such revenues and reported by the Company in the Reports, exceeds 20% of such revenues, and (ii) gross revenues received by the Holder for sales of Alliance Machines (as defined in the Multi-Terrain Rubber-Tracked Loader Alliance Agreement), less the amount of gross revenue already recognized by the Company for sales of Alliance Machine undercarriages. If the Company has the right to and does give an Acceleration Notice, only the associated Reduced Amount of Warrant Shares shall remain subject to the Warrant for the original term. With respect to all other Warrant Shares then subject to the Warrant, the Holder shall have a period of 75 days from the date of such Acceleration Notice to exercise its rights hereunder and if not so exercised such rights shall elapse and terminate on the 76th day following receipt of the Acceleration Notice. 5.2 TERMINATION. Notwithstanding anything contained herein to the contrary, Issuer shall have the right to terminate this Warrant by giving sixty (60) days prior written notice to Holder in the event that: (i) Holder has failed to perform the Marketing Agreement in any material respect and has not remedied such failure and the Company has terminated the Marketing Agreement pursuant to Section 4.1 thereof; (ii) Holder and the Company have entered into the Technology License Agreement contemplated by Section 6 of the Commercial Alliance Agreement, Holder has materially breached the terms of that Technology License Agreement and has not remedied such breach and the Company has terminated the Technology License Agreement pursuant to its terms; or (iii) Holder and the Company have entered into and Holder has materially breached one or more of the Trademark and Trade Dress License Agreement, the Management Services Agreement, the Supply Agreements or the Joint Venture Agreement contemplated by the Commercial Alliance Agreement and Holder has not remedied such breach, the Company has terminated one or more of such agreement pursuant to their terms and the material breach by Holder, collectively with all other breaches of such agreements by the Holder, are of sufficient materiality to cause the Company to be materially unable to realize the benefits provided collectively by those agreements to Holder; provided, however, that during any such sixty (60) day period of termination notice, this Warrant shall remain exercisable in accordance with its terms. The Reduced Amounts set forth in the table above shall be subject to adjustment in accordance with the provisions of Article II hereof. -7- VI. TRANSFERABILITY The Holder hereby represents and warrants that it is acquiring the Warrant and, upon the exercise thereof, the Warrant Shares, for investment and not with a view to resale or distribution thereof. Subject to compliance with federal and state securities laws, the Holder may sell, assign, transfer or otherwise dispose of all or any portion of the Warrant or the Warrant Shares acquired upon any exercise hereof at any time and from time to time, provided however, that the Warrant may only be transferred to an Affiliate of the Holder. Upon the sale, assignment, transfer or other disposition of all or any portion of the Warrant, the Holder shall deliver to Company a written notice of such in the form attached hereto as Exhibit B duly executed by the Holder which includes the identity and address of any purchaser, assignor, or transferee. VII. LEGEND ON WARRANT SHARES Certificates evidencing the Warrant Shares shall bear the following legend until such time as the Warrant Shares are duly registered for resale: THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR UNDER ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE ACT OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER OR SUCH STATE SECURITIES LAWS. VIII. MISCELLANEOUS 8.1 NOTICES. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be delivered by certified or registered mail (first class postage pre-paid), or guaranteed overnight delivery, to the Company at the address at which its principal business office is located from time to time, and the Holder at the address it advises the Company of. 8.2 EXPENSES; TAXES. Any sales tax, stamp duty, deed transfer or other tax (except only taxes based on the income of Holder) arising out of the issuance and sale of the Warrant or the Warrant Shares issuable upon exercise of the Warrant and consummation of the transactions contemplated by this Warrant Certificate shall be paid by the Company. 8.3 AMENDMENT; WAIVER. This Warrant Certificate may not be modified, amended, supplemented, canceled or discharged, except by written instrument executed by the Company and the Holder. No failure to exercise, and no delay in exercising, any right, power or privilege under this Warrant Certificate shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or any other provision, nor shall any waiver be implied from any course of dealing between the Company and the Holder. No extension of time for performance of any obligations or other acts hereunder or under any other agreement shall be deemed to be an extension of the time for performance of any other obligations or any other acts. -8- 8.4 HEADINGS. The headings contained in this Warrant Certificate are for convenience of reference only and are not to be given any legal effect and shall not affect the meaning or interpretation of this Warrant Certificate. 8.5 GOVERNING LAW; INTERPRETATION. This Warrant Certificate shall be construed in accordance with and governed for all purposes by the laws of the State of Minnesota. * * * -9- IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed and delivered as of the day and year first above written. A.S.V., INC. By: /s/ Gary Lemke ----------------------------------- Name: Gary Lemke --------------------------------- Title: President -------------------------------- -10- EXHIBIT A EXERCISE NOTICE [To be executed only upon exercise of Warrant] The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of the number of shares of Common Stock of A.S.V., Inc. as is set forth below, and herewith makes payment therefor, all at the price and on the terms and conditions specified in the attached Warrant Certificate and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to the person specified below whose address is set forth below, and, if such shares of Common Stock shall not include all of the shares of Common Stock now and hereafter issuable as provided in the attached Warrant Certificate, then A.S.V., Inc. shall, at its own expense, promptly issue to the undersigned a new Warrant Certificate of like tenor and date for the balance of the shares of Common Stock issuable thereunder. Date: ____________________ Amount of Shares Purchased: ______________ Aggregate Purchase Price: $_____________ Printed Name of Registered Holder: ________________________________ Signature of Registered Holder: ________________________________ NOTICE: The signature on this Exercise Notice must correspond with the name as written upon the face of the attached Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. Stock Certificates to be issued and registered in the following name, and delivered to the following address: ----------------------------------- (Name) ----------------------------------- (Street Address) ----------------------------------- (City) (State) (Zip Code) -11- EXHIBIT B ASSIGNMENT NOTICE [To be executed only upon transfer of Warrant] FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto the person named below, whose address is set forth below, the rights represented by the attached Warrant Certificate to purchase the number of shares of the Common Stock of A.S.V., Inc. ("ASV") as is set forth below, to which the attached Warrant Certificate relates, and appoints ____________________________ attorney to transfer such rights on the books of ASV with full power of substitution in the premises. If such shares of Common Stock of ASV shall not include all of the shares of Common Stock now and hereafter issuable as provided in the attached Warrant Certificate, then ASV, at its own expense, shall promptly issue to the undersigned a new Warrant of like tenor and date for the balance of the Common Stock issuable thereunder. Date: ____________________ Amount of Warrant Transferred: ______________ Printed Name of Registered Holder: ________________________________ Signature of Registered Holder: ________________________________ NOTICE: The signature on this Assignment Notice must correspond with the name as written upon the face of the attached Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. Warrant Certificate for transferred Warrant to be issued and registered in the following name, and delivered to the following address: ----------------------------------- (Name) ----------------------------------- (Street Address) ----------------------------------- (City) (State) (Zip Code) -12- EX-10.16 4 0004.txt MULTI-TERRAIN RUBBER-TRACKED ALLIANCE AGREEMENT EXHIBIT 10.16 Multi-Terrain Rubber-Tracked Loader Alliance Agreement ------------------------------------------------------ This Multi-Terrain Rubber-Tracked Loader Alliance Agreement ("Agreement"), is entered into as of October 31, 2000 ("Effective Date") by and between A.S.V., Inc., ("ASV") a Minnesota corporation with a principal place of business at 840 Lily Lane, Grand Rapids, Minnesota 55744 and Caterpillar Inc., ("Caterpillar") a Delaware corporation with a principal place of business at 100 Northeast Adams, Peoria, Illinois 61629, (each a "Party" and collectively, the "Parties"). WHEREAS, the Parties closed certain transactions on January 29, 1999, including a Stock Purchase Agreement whereby Caterpillar purchased 1,000,000 shares of ASV's common stock, a Commercial Alliance Agreement whereby Caterpillar agreed to assist ASV with marketing, logistics, management and other functional areas of ASV's business, and a Warrant Agreement whereby ASV issued a warrant to Caterpillar for 10,267,127 shares of ASV's common stock; WHEREAS, ASV is the developer and manufacturer of small rubber-tracked loaders which incorporate the Maximum Traction and Support System ("MTSS") technology; WHEREAS, Caterpillar is a developer and manufacturer of mining, construction and other heavy equipment including small loaders; WHEREAS, the Parties wish to enter into this Agreement pursuant to which they will jointly develop, manufacture and bring to market a five-model line of Caterpillar-branded, positive drive, rubber-tracked loaders, incorporating the ASV MTSS technology, combined with Caterpillar skid steer loader machine technology; and WHEREAS, contemporaneous with this Agreement, the Parties shall enter into a Stock Purchase Agreement whereby Caterpillar shall purchase 500,000 shares of ASV's common stock ("SPA") and ASV shall issue a replacement warrant to Caterpillar to reduce the number of available shares under the replacement warrant to 9,767,127 shares of ASV's common stock ("Replacement Warrant"). NOW, THEREFORE, the Parties agree as follows: ARTICLE I DEFINTIONS AND EFFECTIVE DATE 1.1 Definitions. All capitalized terms that are not otherwise defined herein shall have the meanings set forth below: (a) "Affiliate" means any person (individual, corporation, partnership, limited liability company or other entity) that directly or indirectly controls, is under common control of or is controlled by either Party to this Agreement. "Control" means the ownership, direct or indirect, of fifty percent (50%) or more of the voting shares or capital of such person. 1 (b) "Alliance Machine(s)" means a five model line of multi-terrain, Caterpillar-branded, positive drive, rubber-track loaders incorporating the ASV MTSS technology combined with Caterpillar skid steer loader machine technology. The Parties agree that these models shall generally be larger than the ASV "R" series and smaller than the ASV 4800 series. A detailed description of the proposed product line as currently contemplated is provided in Exhibit A. (c) "Alliance Products" means Alliance Machines, Alliance Machine parts and Work Tools. (d) "Annual Meeting" shall have the meaning ascribed in Section 2.1(b). (e) "ASV Cost" shall have the meaning ascribed in Section 6.1. (f) "Audited Party" shall have the meaning ascribed in Section 6.5. (g) "Auditing Party" shall have the meaning ascribed in Section 6.5. (h) "Business Plan" shall have the meaning ascribed in Section 2.1(a). (i) "Caterpillar Cost" shall have the meaning ascribed in Section 6.1. (j) "Change in Control" shall have the meaning ascribed in Section 12.2. (k) "Confidential Information" means all trade secrets, confidential knowledge, and proprietary data of any kind or nature whatsoever relating to this Agreement, or the businesses of either Party and its Affiliates. Confidential Information also shall include any information prepared or developed by a Party in connection with this Agreement, which reflects, interprets, evaluates, includes or is derived from the Confidential Information of another Party. Confidential Information shall include, but not be limited to, technical specifications, diagrams, discoveries, economic models, pro forma and other financial information, designs, business opportunities, cost and pricing data, records, customer lists, and engineering, manufacturing, and marketing know-how. Confidential Information does not include information which (i) was generally known or available to the public at the time of its disclosure hereunder, or which after such disclosure became generally known or available to the public, provided that such disclosure was made or occurred through no fault of the Receiving Party (defined below) or its Affiliates, or its or their officers, directors, or employees; (ii) was in the possession of the Receiving Party prior to its disclosure hereunder; (iii) was known by the Receiving Party at the time of its disclosure hereunder or was independently developed at any time by the Receiving Party without reference to the Disclosing Party's (defined below) Confidential Information; (iv) is required to be furnished pursuant to law or legal process; or (v) is rightfully obtained, subsequent to its disclosure hereunder, by the Receiving Party or its Affiliates from a third party who is lawfully in possession of such information and who is not under an obligation of confidentiality to the Disclosing Party. 2 (l) "Dealer Net-Net Price" shall mean the *** minus (i) any *** and (ii) any ***. (m) "Dealer Prices" shall mean the actual selling prices (net of any actual dealer trade discounts and actual Variances) of Alliance Machines from Caterpillar to Caterpillar dealers. (n) "Disclosing Party" means a Party that discloses Confidential Information hereunder. (o) "Effective Date" means October 31, 2000. (p) "Lower Frame Assembly" means that component of the Machine Upper that allows attachment of the Machine Undercarriage to the Machine Upper. A more detailed description of the Machine Undercarriages as currently contemplated is provided in Exhibit A. (q) "Machine Undercarriage(s)" means those rubber-tracked undercarriages that incorporate the ASV MTSS technology and that are designed to be combined with the Machine Uppers as contemplated herein. The Parties acknowledge that each of the Alliance Machines may require a different Machine Undercarriage. A more detailed description of the Machine Undercarriages as currently contemplated is provided in Exhibit A. (r) "Machine Upper(s)" means the upper portion of the Alliance Machines that incorporates Caterpillar skid steer loader machine technology and that is designed to be combined with the Machine Undercarriages as contemplated herein. The Parties acknowledge that each of the Alliance Machines may require a different Machine Upper. A more detailed description of the Machine Upper as currently contemplated is provided in Exhibit A. (s) "Manufacturing Costs" means, to the extent actually incurred by a Party hereunder in accordance with generally acceptable accounting principles, (i) the direct costs of materials; (ii) the direct labor costs, (iii) the direct burden costs (including shipping costs: (A) to Caterpillar, (B) from Caterpillar to NACD dealers and (C) from Caterpillar to any North American ports or depots for transit outside of North America) and (iv) the overhead allocated at such Party's overhead application rate and to the extent agreed at the Annual Meeting. (t) "Material Losses" shall have the meaning ascribed to it in Section 9.5(a). (u) "NACD" means Caterpillar's North American Commercial Division. (v) "Planning Group" shall have the meaning ascribed in Section 2.1(a). (w) "Receiving Party" means a Party that receives Confidential Information hereunder. - -------- *** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. 3 (x) "Replacement Warrant" shall have the meaning ascribed in the Recitals hereto. (y) "SPA" shall have the meaning ascribed in the Recitals hereto. (z) "Variances" means ***. (aa) "Work Tools" means those interchangeable portions of the Machine Upper designed to accomplish different tasks (e.g., bulldozer, snow plow, etc.). 1.2 Closing. This Agreement is conditioned upon the closing of the SPA and the issuance of the Replacement Warrant and is effective as of the Effective Date. ARTICLE II STRUCTURE OF ALLIANCE, RESPONSIBILITIES, USE OF PROCEEDS 2.1 Planning Group and Annual Meeting. (a) Caterpillar and ASV shall identify and designate sufficient business, financial and technical personnel and resources to form a joint planning group ("Planning Group"). The Planning Group shall develop a business plan ("Business Plan") consistent with the principles outlined herein. The Business Plan shall include, among other things, the annual proposed budget, the proposed product line, target dates for introduction of each model, the development schedule and the estimated and budgeted development costs for each model, personnel requirements, and equipment and tooling requirements for each model. Each Party shall bear their own costs and expenses incurred in developing the Business Plan. The Business Plan shall be updated on an annual basis not later than the date of the Annual Meeting (as defined below). (b) The Parties shall hold an annual meeting for each calendar year of this Agreement no later than November 15th ("Annual Meeting"). The members of the Planning Group shall attend such Annual Meeting. At the Annual Meeting, the Parties shall (i) finalize or update the Business Plan, including the annual budget, (ii) determine their respective Manufacturing Costs as described in Section 6.1, (iii) determine and update the forecast of the annual Alliance Machine production, and (iv) make any other decisions material to the success of the development and commercialization of the Alliance Machines as contemplated hereunder. It is contemplated that the Parties will incur losses during fiscal year 2001. At the 2000 Annual Meeting, the Parties shall address this issue and discuss ways to limit these projected losses. 2.2 Caterpillar Responsibilities. Caterpillar shall be responsible, at its own expense, for designing, developing, manufacturing, painting, improving and testing the Machine Upper in accordance with the Business Plan. Any designs, developments or modifications to the Machine Upper necessary to (a) combine the Machine Upper with the Machine Undercarriage and (b) to - -------- *** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. 4 ensure the proper functionality of the Machine Upper with the Machine Undercarriage, in both cases, shall be subject to and included in Section 2.4. To the maximum extent practicable, Caterpillar shall incorporate existing Caterpillar parts and components into the Machine Uppers. 2.3 ASV Responsibilities. ASV shall be responsible, at its own expense, for designing, developing, manufacturing, painting, improving and testing the Machine Undercarriages using mutual agreed standards developed by both Caterpillar and ASV and in accordance with the Business Plan. ASV shall use commercially reasonable efforts to incorporate Caterpillar parts and components into the Machine Undercarriages. ASV shall supply the Machine Undercarriages to Caterpillar as set forth below. 2.4 Development of Combination Technology. Caterpillar and ASV shall cooperate in the design, development, improvement and testing of the process, technology and parts (including the Lower Frame Assembly, axles and Machine Upper modifications) necessary to combine the Machine Upper with the Machine Undercarriage, in accordance with the Business Plan. The costs of such design, development, improvement and testing shall be borne by ASV. To the extent that Caterpillar incurs any of such costs, it shall provide ASV with a monthly written invoice, detailing the costs (including direct materials, direct labor and expenses) incurred during the prior month, and ASV shall pay such amounts within thirty (30) days of receiving such invoice. 2.5 Additional Responsibilities of Caterpillar. Caterpillar shall have the following additional responsibilities: (a) project management, (b) design and testing of structures, hydraulic and electrical systems and Alliance Machine performance analysis, including the Lower Frame Assembly, (c) process and reliability planning for the Alliance Machine, (d) completion of the necessary new product introduction to use the Caterpillar brand and (e) process and quality control planning for the Machine Upper components. 2.6 Additional Responsibilities of ASV. ASV shall have the following additional responsibilities: (a) assistance in the design of the Lower Frame Assembly, (b) rapid prototyping and development process and (c) process and quality control planning for the Machine Undercarriage components. 2.7 Work Tools. Caterpillar shall design, manufacture and market all Work Tools for the Alliance Machines. Until December 31, 2004, Caterpillar shall pay to ASV *** percent (***%)of the Dealer Net-Net Price received by Caterpillar for the sale of such Work Tools which occur with the sale of any Alliance Machine. After December 31, 2004, ASV shall not receive any amounts for the sale of Work Tools. 2.8 Use of Proceeds. ASV shall allocate the proceeds of the sale of ASV Common Stock to Caterpillar pursuant to the SPA for its obligations hereunder, to the extent provided for in the Business Plan. The Parties contemplate that, at a minimum, ASV shall pay for: - -------- *** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. 5 (a) research, development, designs, modification and improvements by either ASV and Caterpillar (separately or jointly) of the process or technology necessary to combine the Machine Upper and Machine Undercarriage as contemplated in Section 2.4 and (b) all machinery and equipment for (i) combining the Machine Upper and the Machine Undercarriage and (ii) testing such combination process or technology. ASV shall retain title to any machinery and equipment that it purchases. To the extent that any such machinery and equipment is located in a Caterpillar facility, Caterpillar agrees to keep and maintain such machinery and equipment in good working order, at Caterpillar's own cost (such cost to be included as a Manufacturing Cost), and to return such machinery and equipment to ASV promptly after termination or expiration of this Agreement for any reason. ARTICLE III PRODUCT LINE; NON-COMPETITION 3.1 Product Line. The Alliance Machine product line shall mean a five model line of multi-terrain, Caterpillar-branded, positive drive, rubber-track loaders incorporating the ASV MTSS technology combined with Caterpillar skid steer loader machine technology. The Parties agree that these models shall generally be larger than the ASV "R" series and smaller than the ASV 4800 series. A more detailed description of the proposed product line as currently contemplated is provided in Exhibit A. 3.2 Non-Competition. During the term of this Agreement, neither Caterpillar nor ASV shall develop, market or sell a rubber-track product that substantially competes with any of the Alliance Machines. Notwithstanding the foregoing, the Parties agree that (a) the current ASV 4810 and R Series products (***) and other products developed from these power trains and the Caterpillar Building Construction Products (and their derivatives) do not compete with the Alliance Machines and are excluded from this Agreement, and (b) any products developed by a Caterpillar/ASV agricultural joint venture do not compete with the Alliance Machines and are excluded from this Agreement. In addition, ASV shall discontinue its 2800 series machines in its present configuration after inventory quantities are depleted; provided, however, that ASV may continue to develop and sell (only to Caterpillar and ASV dealers) the 2800 series machines for special applications requiring bi-directional capabilities or other unique capabilities. ASV is currently a party to a long-term supply contract (which expires January 1, 2010) with the United States Defense Supply Center covering the MD70, the 2800 Series and the ASV 4810. The supply of these machines under this contract shall not be considered competing with the Alliance Machines. After this contract expires, ASV shall direct the United States Defense Supply Center to Alliance Machines for future contracts (except to the extent the United States Defense Supply Center needs functionality provided by the MD 70, the R Series and the ASV 4810). 3.3 Sale of Undercarriages. During the term of this Agreement, ASV shall not knowingly sell any Machine Undercarriage to any party who shall manufacture, or to any party who shall resell a Machine Undercarriage to a party who shall manufacture, a machine that substantially competes with any of the Alliance Machines. - -------- *** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. 6 ARTICLE IV DISTRIBUTION OF ALLIANCE MACHINES 4.1 Distribution by Caterpillar. (a) Caterpillar shall market and distribute the Alliance Machines through its dealer network as described in the Business Plan; provided that from the commercial introduction of the first Alliance Machine until December 31, 2001, Caterpillar shall engage ASV to market the Alliance Machines to Caterpillar dealers on the terms set forth in Section 4.2 below. (b) Caterpillar shall provide certain business support functions including developing executive production schedules, receiving dealer orders and resolving grief associated with these orders, answering dealer order inquiries, processing order changes, maintaining product compatibility tables, providing price lists to dealers, and shall set up and load all Caterpillar pricing and scheduling systems. (c) Caterpillar shall develop and distribute product support materials including parts and service manuals. ASV shall assist Caterpillar in developing such materials as they relate to the Machine Undercarriage. 4.2 Distribution Assistance by ASV. ASV shall assist Caterpillar (and at Caterpillar's direction) in the marketing of the Alliance Machines as follows: (a) ASV shall develop marketing materials (e.g., specification sheets, product bulletins, videos, sales presentations and dealer advertising materials) in support of the Alliance Machines. Such marketing materials shall be subject to review and approval by Caterpillar. Caterpillar shall distribute such materials prepared by ASV. (b) From the commercial introduction of the first Alliance Machine until December 31, 2001, ASV shall provide field representative coverage through its existing field force for the Alliance Machines for up to fifteen (15) Caterpillar dealers. Caterpillar and ASV shall jointly select the Caterpillar dealers where ASV shall provide such field representative coverage. ARTICLE V MANUFACTURE AND SUPPLY 5.1 Purchase and Supply of Machine Undercarriages. ASV shall supply and Caterpillar shall purchase one hundred percent (100%) of Caterpillar's requirements for Machine Undercarriages on the terms set forth herein. 5.2 Forecasts. Caterpillar shall submit to ASV, at least ninety (90) days in advance of the first applicable month, a written forecast of its requirements for Machine Undercarriages for the following twelve (12) month period, with the initial forecast being attached hereto as 7 Exhibit B. Caterpillar shall update such forecasts in writing on a monthly rolling basis. The first two (2) months of such updated forecasts shall be firm on the Parties, and the remaining ten (10) months shall be the Parties' best estimate. 5.3 Purchase Orders. Caterpillar shall submit to ASV written purchase orders for purchases of Machine Undercarriages in quantities consistent with its firm forecasts; and ASV shall accept such purchase orders. In addition, ASV shall use commercially reasonable efforts to accept, by written notice to Caterpillar, and fill any purchase orders for quantities in excess of the firm forecasted amounts. 5.4 Shipping and Delivery. ASV shall deliver all Machine Undercarriages to Caterpillar's Building Construction assembly facility in Sanford, North Carolina (or to another United States facility as directed by Caterpillar). ASV shall be responsible for all shipping charges (which charges shall be included in ASV Cost) and the risk of loss until the Machine Undercarriages arrive at the Caterpillar facility. 5.5 Final Assembly and Styling. Caterpillar shall perform the final assembly, final testing and additional painting (if any) of the Machine Upper and the Machine Undercarriage. Caterpillar shall have the final decision in all design related matters concerning the styling of the Alliance Machines and nomenclature. 5.6 Sale of Parts. (a) ASV shall sell and direct ship parts for the Machine Undercarriages to Caterpillar dealers in NACD via Caterpillar's parts distribution system. Caterpillar shall process all parts orders and collect payment for all ASV parts shipped to Caterpillar dealers. ASV shall invoice Caterpillar for such parts at the time of shipment. Such invoices shall be batched by Caterpillar not less than monthly. Caterpillar shall pay all invoices issued during a month not later than the last day of the following month. ASV shall tender to Caterpillar a fee of *** percent (***%)*** of each ASV part which Caterpillar processes. Caterpillar shall issue a monthly invoice detailing such processing fees and ASV shall pay such amounts within thirty (30) days of receiving such invoice. (b) For all parts sales outside of NACD, Caterpillar and ASV shall develop a strategy and incorporate it into the Business Plan once non-NACD sales of the Alliance Machines occur. (c) ASV covenants to satisfy the following parts availability requirements: (i) at least one (1) piece part stocking for one-hundred percent (100%) of all Machine Undercarriage serviced parts and (ii) at least a thirty (30) day supply of ninety-five percent (95%) of Machine Undercarriage new serviced parts. The Parties shall address any changes to this parts availability requirement in the Business Plan. - -------- *** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. 8 (d) ASV hereby agrees to supply all necessary parts for the Machine Undercarriage to Caterpillar dealers during the term of this Agreement and for a period of seven (7) years after (i) termination or (ii) expiration of this Agreement. (e) Caterpillar shall provide all parts for the Machine Upper, and shall retain one hundred percent (100%) of the profit for any parts sales related to the Machine Uppers. (f) During the term of this Agreement and to the extent that Caterpillar purchases any Machine Undercarriage parts, Caterpillar agrees to purchase one hundred percent (100%) of its requirements for parts for the Machine Undercarriage from ASV. Caterpillar shall not offer to Caterpillar dealers any parts for the Machine Undercarriages other than ASV parts. The limitation in this Section 5.6(f) shall not apply to any Caterpillar components incorporated in to the Machine Undercarriages. ARTICLE VI FINANCIALS 6.1 Determination of Manufacturing Costs. At or before the Annual Meeting, Caterpillar and ASV shall determine (a) the Caterpillar Manufacturing Costs for manufacturing, testing and painting the Machine Uppers and assembling, testing and delivering the Alliance Machines (collectively, "Caterpillar Cost"), and (b) the ASV Manufacturing Cost for manufacturing, testing, painting, shipping and delivering the Machine Undercarriages (collectively, "ASV Cost"). Such Caterpillar Cost and ASV Cost shall be applicable during the calendar year following such Annual Meeting. Any cost savings realized by a Party over such twelve (12) month period shall be ***, and the new cost structure shall be the starting point for the ASV Cost and the Caterpillar Cost for the next twelve (12) month period. 6.2 Pricing of Alliance Machines to Caterpillar Dealers. The Dealer Prices, Dealer Net-Net Prices and Variances for the Alliance Machines shall be determined solely by Caterpillar without input from ASV in any manner. 6.3 Pricing of Machine Undercarriages to Caterpillar. (a) Until December 31, 2004, Caterpillar shall purchase the Machine Undercarriages from ASV at the applicable ASV Cost as agreed to by the Parties during the Annual Meeting, plus an amount equal to the following (to be determined for each model of Alliance Machine): (i) *** less the ***, less the *** then multiplied by (ii) *** percent (***%). By way of example only, if the *** equals $***, minus the *** of $*** minus the *** of $***, then multiplied by *** percent (***%), the amount invoiced by ASV shall equal the applicable *** plus $***. ASV shall invoice Caterpillar on a monthly basis for Machine Undercarriages - -------- *** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. 9 manufactured and delivered in the previous month. Caterpillar shall pay such invoices within thirty (30) days of receiving such invoice. (b) Beginning January 1, 2005, Caterpillar shall purchase the Machine Undercarriages from ASV at the applicable ASV Cost as agreed to by the Parties during the Annual Meeting, plus an amount equal to the following (to be determined for each model of Alliance Machine): (i) *** less the ***, less the *** then multiplied by (ii) *** percent (***%). By way of example only, if the *** equals $***, minus the *** of $*** minus the *** of $***, then multiplied by *** (***%) percent, the amount invoiced by ASV shall equal the applicable *** plus $***. ASV shall invoice Caterpillar on a monthly basis for Machine Undercarriages manufactured and delivered in the previous month. Caterpillar shall pay such invoices within thirty (30) days of receiving such invoice. 6.4 Quarterly True-Up. Within thirty (30) days after the close of each calendar quarter, if the *** of the Alliance Machines were more or less than the *** used to determine the amounts paid to ASV under Section 6.3, Caterpillar shall (a) determine the amount by which it has overpaid or underpaid ASV under Section 6.3 for Machine Undercarriages during such calendar quarter and (b) in the case of underpayment, shall remit to ASV the amount of such underpayment, and in the case of overpayment, shall provide ASV a written statement of such overpayment, which ASV shall credit against its subsequent invoices to Caterpillar for purchases of Machine Undercarriages until such overpayment is fully credited. 6.5 Audit Rights. Each Party (the "Audited Party") shall keep true and accurate records of their respective Manufacturing Costs, and in the case of Caterpillar, (a) any development and equipment costs to be reimbursed by ASV pursuant to Section 2.4 or 2.8, (b) the Dealer Prices, Dealer Net-Net Prices and Variances and (c) any warranty costs and expenses to be reimbursed by ASV pursuant to Section 7.2(d). The other Party (the "Auditing Party") shall have the right to review and audit such books and records, using internal personnel or independent certified public accountants reasonably acceptable to the Audited Party, upon reasonable written notice to the Audited Party and during normal business hours. The Auditing Party shall bear the costs of such audit, unless such audit reveals that the Audited Party underpaid or overcharged by more than ten percent (10%) of the amount claimed by the Audited Party. In such case, the Audited Party shall bear the Auditing Party's out-of-pocket costs for such audit. ARTICLE VII PRODUCT WARRANTY 7.1 Warranty for Machine Undercarriage and Rubber Belts. (a) ASV warrants to Caterpillar each Machine Undercarriage (excluding the Machine Undercarriage rubber belts) under the same terms and during the same period that Caterpillar warrants the Alliance Machines to its end-user customers pursuant to Caterpillar's standard (e.g., not extended) warranty certificate. The Parties contemplate that the standard - -------- *** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. 10 Caterpillar warranty certificate may change from time to time and hereby agree that the warranty under this Section 7.1 shall change to match any new Caterpillar standard warranty certificate. (b) ASV warrants to Caterpillar the Machine Undercarriage rubber belts in accordance with the warranty as set forth in Exhibit C. 7.2 Warranty Service and Payment. (a) Caterpillar shall be responsible to the Caterpillar dealers and the end user customers for any warranty issues on the Alliance Machines. Caterpillar may authorize any warranty repairs on the Alliance Machines at its discretion. However, for twelve (12) months after the Effective Date, Caterpillar shall not receive any amounts for warranty repairs on Machine Undercarriages under Section 7.2(d) without the review and approval of ASV, not to be unreasonably withheld. After such twelve (12) month period, Caterpillar and ASV shall review the authorization requirement in this Section. (b) Caterpillar shall track all warranty claims for the Alliance Machines and shall provide to ASV, on a monthly basis, a written report of all warranty claims relating to the Machine Undercarriage, including notice of specific Machine Undercarriage failures, and summary information on the causes of such failure. (c) Warranty repairs shall be performed by Caterpillar dealers, and no Machine Undercarriage shall be returned to ASV for repairs unless ASV specifically requests such return in writing and at ASV's sole expense, such request not to be unreasonably given. (d) ASV shall reimburse Caterpillar for the parts costs actually incurred by Caterpillar dealers and charged back to Caterpillar for repairs to Machine Undercarriages pursuant to warranty claims as set forth in Section 7.2(a). The Parties acknowledge that *** currently responsible for labor costs associated with such repairs. Caterpillar shall invoice ASV for such costs on a monthly basis, and ASV shall pay such invoices within thirty (30) days of receiving such invoice. Such reimbursement shall be ASV's sole liability and Caterpillar's sole remedy under the warranty set forth in Section 7.1, except for (i) any indemnity provided in Article XI or (ii) a comprehensive Alliance Machine recall due to a defect in materials or workmanship of the Machine Undercarriage. 7.3 Additional Warranty Programs. Claims for Caterpillar's "Product Improvement Programs" (PIP), "Product Support Programs" (PSP), "Extended Warranty" and other warranty programs are to be negotiated on a case-by-case basis by both Parties. Participation in these programs shall be based on an amount to be mutually agreed by Caterpillar and ASV. 7.4 Warranty Disclaimer. ASV MAKES NO WARRANTIES WITH RESPECT TO THE MACHINE UNDERCARRIAGES OTHER THAN THOSE EXPRESSLY SET FORTH IN SECTION 7.1, AND HEREBY DISCLAIMS ALL OTHER WARRANTIES, - -------- *** Denotes confidential information that has been omitted from the exhibit and filed separately, accompanied by a confidential treatment request, with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. 11 EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 7.5 WAIVER. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR RELIANCE DAMAGES ARISING OUT OF THIS AGREEMENT ON ANY THEORY OF LIABILITY EVEN IF SUCH PARTY IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. ARTICLE VIII INTELLECTUAL PROPERTY RIGHTS 8.1 Intellectual Property Relating to Machine Uppers. Any patents, copyrights, trade secrets, designs, drawings, know-how or any other intellectual property developed by either Party or jointly developed by the Parties specifically for the Machine Uppers shall belong to Caterpillar. ASV agrees to acknowledge and deliver promptly to Caterpillar without charge such written instruments as may be necessary to vest the entire right, title and interest in the same in Caterpillar subject to a grant back to ASV of a royalty-free license to make, use and sell any improvements developed by ASV (either solely or jointly with Caterpillar) and assigned to Caterpillar hereunder in its own non-competing products. 8.2 Intellectual Property Relating to Machine Undercarriages. Any patents, copyrights, trade secrets, designs, drawings, know-how or any other intellectual property developed by either Party or jointly developed by the Parties specifically for the Machine Undercarriages shall belong to ASV. Caterpillar agrees to acknowledge and deliver promptly to ASV without charge such written instruments as may be necessary to vest the entire right, title and interest in the same in ASV subject to a grant back to Caterpillar of a royalty-free license to make, use and sell any improvements developed by Caterpillar (either solely or jointly with ASV) and assigned to ASV hereunder in its own non-competing products. 8.3 Intellectual Property Jointly Developed. Any patents, copyrights, trade secrets, designs, drawings, know-how or any other intellectual property jointly developed by the Parties which is not covered by Section 8.1 or 8.2 , shall be jointly owned by the Parties. 8.4 Assistance. From time to time, Caterpillar may make recommendations to ASV or its agents regarding measures ASV might take to protect its intellectual property rights in the Alliance Machine, at its own expense. ASV shall, however, retain its own counsel in such matters, and shall be responsible for all final decisions regarding such protection. 8.5 Copyright License. ASV hereby grants Caterpillar an irrevocable, non-exclusive, paid-up, worldwide license under each ASV copyright applicable to any works of authorship fixed in any tangible medium of expression (including but not limited to drawings, manuals and specifications) furnished to Caterpillar in the course of this Agreement, to reproduce and distribute the copyrighted work, and to prepare derivative works therefrom, all of which may be used by Caterpillar solely for the purposes of this Agreement. 12 ARTICLE IX TERM AND TERMINATION 9.1 Term. (a) This Agreement shall have an initial term of five (5) years, unless earlier terminated pursuant to this Article IX. Thereafter, this Agreement shall automatically be renewed for additional terms of one (1) year each unless either Party gives written notice to terminate at least three (3) months prior to the end of the initial term or any additional term. (b) Notwithstanding the foregoing, neither Party shall terminate this Agreement under Section 9.1(a) due solely to the application of the economics described in Section 6.3(b), unless such Party is experiencing the conditions described in Section 9.5. 9.2 Termination for Default. If either Party fails to perform this Agreement in any material respect (and does not remedy such failure to the reasonable satisfaction of the non-defaulting Party within ninety (90) days after written notice thereof has been sent to the other Party), then the non-defaulting Party may terminate this Agreement. 9.3 Termination for Frustration of Performance. If performance of the Agreement becomes impossible or its purpose is frustrated in any material respect for any reason (and such impossibility or frustration of purpose continues for more than one (1) year following written notice by either Party) in a manner that affects, directly or indirectly, the notifying Party's interests related to this Agreement, the notifying Party may terminate this Agreement upon one hundred eighty (180) days written notice to the other Party. 9.4 Termination for Bankruptcy. Either Party may terminate this Agreement upon written notice to the other Party if any of the following occurs: (a) appointment of a trustee or receiver for all or any part of the assets or property of the other Party; (b) insolvency or bankruptcy of the other Party; (c) the other Party makes a general assignment for the benefit of creditors; or (d) dissolution or liquidation of the other Party. 9.5 Termination for Material Losses. (a) A "Material Loss" occurs when the earnings before interest, taxes, depreciation and amortization that a Party receives attributable solely to the sale of Alliance Products for a fiscal year divided by the revenue that a Party receives attributable solely to the sale of Alliance Products for such fiscal year multiplied by 100 is less than the annualized thirty (30) day Treasury Bill rate of such fiscal year. (b) Beginning January 1, 2004, if either Party suffers a Material Loss for the prior calendar year (including calendar year 2003) and additional Material Losses are foreseeable for the next two (2) upcoming calendar years, then such Party may give the other Party written notice of the terminating Party's desire to terminate this Agreement. Such termination notice must be given no later than April 30th of a given calendar year. Termination of the Agreement under this Section 9.5(b) shall become effective January 1st of the following calendar year. 13 9.6 Effect of Termination or Expiration. (a) Except for termination by Caterpillar in the event of ASV's breach of this Agreement, termination of this Agreement shall not relieve Caterpillar of its obligations with respect to any firm forecasts and accepted purchase orders in effect as of such termination. Promptly after termination or expiration of this Agreement, Caterpillar shall return to ASV all machinery and equipment that ASV purchased pursuant to Section 2.8 and which is in Caterpillar's facilities. The costs associated with the return of the machinery and equipment shall be born equally between Caterpillar and ASV. (b) Termination or expiration of this Agreement shall not affect any rights or obligations accrued prior to the date of such termination or expiration. Upon termination or expiration of this Agreement, the Parties shall promptly return to each other such other Party's Confidential Information. ARTICLE X CONFIDENTIALITY The Parties shall maintain the secrecy of Confidential Information as follows: 10.1 Disclosure of Information. In connection with performance of this Agreement, the Parties may disclose to one another certain Confidential Information. 10.2 Restrictions on Disclosure and Use. The Receiving Party shall hold the Disclosing Party's Confidential Information in strictest confidence and trust and shall use the Confidential Information only in connection with the purposes of this Agreement. The Receiving Party shall not disclose Confidential Information provided by the Disclosing Party and/or its Affiliates, or the fact that it has been made available to the Receiving Party, except that the Receiving Party may disclose Confidential Information and the fact that it has been provided to those employees, officers, directors, agents, consultants and representatives of the Receiving Party and its Affiliates who have a reasonable need to know such information in connection with the purposes of this Agreement. The Receiving Party shall be liable for any breach of the confidentiality obligation hereunder by any of its Affiliates, or by any of the respective employees, officers, directors, agents, consultants and representatives of the Receiving Party and/or its Affiliates. 10.3 Disclosure by Law or Regulation. If the Receiving Party is required by law or legal process to disclose any of the Confidential Information of the Disclosing Party, the Receiving Party shall promptly notify the Disclosing Party in writing so that the Disclosing Party may seek an appropriate protective order or other remedy at the sole cost of the Disclosing Party. If no such protective order or other remedy is obtained, the Receiving Party shall furnish only that portion of such Confidential Information that is legally required and shall exercise its reasonable efforts to obtain reliable assurances from all Parties receiving the designated portions of such Confidential Information that confidential treatment shall be accorded to such Confidential Information. Notwithstanding any such disclosure, any such Confidential 14 Information so disclosed shall, for all other purposes, continue to be treated as Confidential Information under this Agreement. 10.4 No Implied Licenses. The disclosure of Confidential Information pursuant to this Agreement, and any prior or future discussions, evaluations or other communications between the Parties, shall not confer any right nor impose or create any obligation on the Parties other than those expressly agreed to in this Agreement. 10.5 Return of Confidential Information. All reports, notes, data, memoranda, records, or other tangible expressions of Confidential Information of the other Party, including any electronically stored data, shall be returned to the Disclosing Party by the Receiving Party promptly upon request of such Disclosing Party. 10.6 Survival. The confidentiality obligation shall survive expiration or termination of this Agreement for any reason for a period of five (5) years. ARTICLE XI INDEMNIFICATION 11.1 Personal Injury and Property Indemnification by ASV. ASV agrees to indemnify, defend and hold Caterpillar, its subsidiaries, Affiliates, directors, officers, employees and agents harmless from and against all third party claims, demands, liabilities, losses, damages, costs, and expenses, of whatsoever nature, including attorneys' fees, arising from or in any way connected with the injury or death of any person or loss or damage to property as a consequence of, or attributable to, any defect of design, material, or workmanship of Machine Undercarriages or failure of Machine Undercarriages to conform with the Parties' agreed written specifications, drawings and data therefor. 11.2 Personal Injury and Property Indemnification by Caterpillar. Caterpillar agrees to indemnify, defend and hold ASV, its subsidiaries, Affiliates, directors, officers, employees and agents harmless from and against all third party claims, demands, liabilities, losses, damages, costs, and expenses, of whatsoever nature, including attorneys' fees, arising from or in any way connected with the injury or death of any person or loss or damage to property as a consequence of, or attributable to, any defect of design, material, or workmanship of Alliance Machines or failure of Alliance Machines to conform with the Parties' agreed written specifications, drawings and data therefor, except to the extent that the foregoing is covered by ASV's indemnification obligation under Section 11.1. 11.3 Intellectual Property Indemnification by ASV. ASV agrees to indemnify, defend and hold Caterpillar, its dealers, subsidiaries, Affiliates, directors, officers, employees and agents harmless from and against any and all suits, actions, or proceedings brought against all third party claims, demands, liabilities, losses, damages, costs, and expenses, of whatsoever nature, including attorneys' fees, arising from or related to actual or alleged infringement of any third party intellectual property rights arising because or on account of the design, manufacture, use or sale of the Machine Undercarriage. It is expressly understood that this Section does not apply to the extent any suit, action, or proceeding is based upon actual or alleged infringement by 15 improvements developed by Caterpillar, Caterpillar-supplied components or Caterpillar-supplied component parts. 11.4 Intellectual Property Indemnification by Caterpillar. Caterpillar agrees to indemnify, defend and hold ASV, its subsidiaries, Affiliates, directors, officers, employees and agents harmless from and against any and all suits, actions, or proceedings brought against all third party claims, demands, liabilities, losses, damages, costs, and expenses, of whatsoever nature, including attorneys' fees, arising from or related to actual or alleged infringement of any third party intellectual property rights arising because or on account of the design, manufacture, use or sale of the Alliance Machines, except to the extent the foregoing is covered by ASV's indemnification obligation under Section 11.3. 11.5 Indemnification Procedure. Any Party seeking indemnification hereunder shall promptly notify the indemnifying Party of the nature of the claim for which the indemnified Party seeks indemnification. The indemnified Party shall give complete control of, and cooperate with, the defense of such claim to the indemnifying Party and the indemnified Party shall not settle any claim without the prior written approval of the indemnifying Party, such approval not to be unreasonably withheld. ARTICLE XII CHANGE IN CONTROL 12.1 Right to Terminate. In the event of any Change in Control of ASV (as defined below), Caterpillar shall have the right to terminate this Agreement effective immediately upon written notice to ASV. 12.2 Definition of Change in Control. For purposes of this Article XII, "Change in Control" shall mean: (a) The acquisition (directly, indirectly or beneficially) by any third party or group of parties acting in concert of securities reflecting at least thirty percent (30%) of the outstanding voting power of ASV; (b) A change of the majority of the directors of ASV occurring in a period of less than one (1) year, excluding to the extent no solicitation in opposition has theretofore been announced or commenced, changes in directors resulting from the election of directors at the next regularly scheduled annual meeting of ASV's shareholders; or (c) The sale, exchange, transfer or other disposition to a third party of all or substantially all of the assets of ASV. 12.3 Acquisition by Caterpillar. Notwithstanding the foregoing, no termination right shall be given by Caterpillar in the event that Caterpillar acquires (directly, indirectly or beneficially) securities reflecting at least thirty percent (30%) of the outstanding voting power of ASV. 16 ARTICLE XIII MISCELLANEOUS 13.1 Injunctive Relief. It is understood and agreed by the Parties that each may be irreparably injured by a breach of Article X (Confidentiality) and that monetary damages may not be a sufficient remedy for any actual or threatened breach thereof. In addition to any remedies available at law, the non-breaching Party may also be entitled to equitable relief, including injunction and specific performance. 13.2 Force Majeure. No failure or omission by either Party in the performance of any of its obligations under this Agreement shall be deemed a breach of this Agreement, nor create any liability or give rise to any right to terminate this Agreement, if the same shall arise from or as a consequence of a fire, flood, drought, hurricane, severe weather or other act of God, war, insurrection, civil disturbance, labor dispute or any other cause beyond the reasonable control of such Party, whether similar to or different from the causes above enumerated, and any such cause shall absolve the affected Party from responsibility for such failure to perform said obligation. 13.3 Announcement. Neither Party shall make any announcement concerning the nature and details of this Agreement without the express written consent of the other Party, such consent not to be unreasonably withheld. 13.4 Assignment. This Agreement may not be assigned by either Party without the prior written consent of the other Party, except that Caterpillar may assign this Agreement to a wholly-owned subsidiary with the consent of ASV, which consent shall not be unreasonably withheld. 13.5 Applicable Law. The Parties agree that this Agreement shall be construed, interpreted, and applied in accordance with the laws of the State of Illinois, without reference to its conflict of laws provisions. 13.6 Entire Agreement, Amendment. This Agreement, the SPA and the Replacement Warrant including any Exhibits attached thereto or referred to therein, constitutes the entire agreement between the Parties and there are no prior understandings, agreements, representations or warranties between the Parties relating hereto. No modification or amendment to this Agreement or any of its provisions shall be binding unless contained in a writing signed by both Parties. 13.7 Notices. When written notice is required by this Agreement, it shall be sent by registered mail, by courier or by such other method as shall permit the sender to verify delivery, to the addresses set forth below: For Caterpillar: Caterpillar Inc. Attn: Donald M. Ings, Vice President Building Construction Products Division Caterpillar Inc. 17 Suite 300 100 Regency Forest Drive Cary, North Carolina 27511 Telephone: (919) 465 2777 Fax: (919) 465 2868 Copy To: Sean P. Leuba Caterpillar Inc. 100 N.E. Adams Street Peoria, Illinois 61615 Telephone: (309) 675-5654 Fax: (309) 675-1795 For ASV: A.S.V., Inc. Attn: Mr. Gary D. Lemke 840 Lily Lane Grand Rapids, Minnesota 55744 Telephone: (218) 327-3434 Facsimile: (218) 326-5579 Copy To: Amy E. Ayotte Dorsey & Whitney Pillsbury Center South 220 South Sixth Street Minneapolis, Minnesota 55402 Telephone: (612) 340-2600 Fax: (612) 340-8738 Written notice may also be sent by facsimile to the numbers listed above, but such notice shall not be effective unless the sender receives a return facsimile acknowledging receipt of the notice. Notice shall be deemed received when actually delivered to the recipient as demonstrated by postal records. Facsimile notice shall be deemed received upon receipt by the sender of an acknowledgement as described above. The addresses and transmittal numbers set forth above can be changed only by written notice, which complies with the requirements of this Article XIII. 13.8 Independent Contractor. The relationship between the Parties shall be that of independent contractors, and nothing in this Agreement shall be construed to establish a fiduciary, partnership, agency, or joint venture relationship between the Parties, or constitute either Party, its agents and employees as the agents or employees of the other Party or to grant them any power or authority to act for, bind or otherwise create or assume any obligation on behalf of the first Party for any purpose whatsoever. 18 13.9 Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of the remainder hereof. 13.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. 13.11 Headings. The headings to the sections of this Agreement are solely for convenience of reference, and they shall not govern, limit or aid in the interpretation of any terms or provisions of this Agreement. 13.12 Survivability. Section 5.6 and Articles VII, VIII, X, XI and XIII shall survive termination of this Agreement. 13.13 No Waiver. The provisions of this Agreement may be waived, altered, amended, or repealed in whole or in part only upon the written consent of the Parties. The waiver by either Party of any breach of this Agreement shall not be deemed or construed as a waiver of any other breach, whether prior, subsequent or contemporaneous, of this Agreement. SIGNATURES APPEAR ON THE FOLLOWING PAGE - -------------------------------------------------------------------------------- 19 IN WITNESS WHEREOF, the authorized representative of each Party have duly executed this Agreement as of the Effective Date. CATERPILLAR INC. /s/ Donald M. Ings ------------------------------ Donald M. Ings Vice President ASV, INC. /s/ Gary D. Lemke ------------------------------ Gary D. Lemke President List of Exhibits - ---------------- Exhibit A: Alliance Machines, Machine Uppers and Machine Undercarriages Exhibit B: Initial Forecast Exhibit C: Warranty for Machine Undercarriage Rubber Belts 20 EX-11 5 0005.txt COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 A.S.V., Inc. Exhibit 11 - Computation of per Share Earnings
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- Basic Earnings Net earnings $ 220,156 $ 20,898 $ 1,236,225 $ 1,358,540 =========== =========== =========== =========== Shares Weighted average number of common shares outstanding 9,701,541 9,681,249 9,696,413 9,552,556 =========== =========== =========== =========== Basic earnings per common share $ .02 $ .00 $ .13 $ .14 =========== =========== =========== =========== Diluted Earnings Net earnings $ 220,156 $ 20,898 $ 1,236,225 $ 1,358,540 =========== =========== =========== =========== Shares Weighted average number of common shares outstanding 9,701,541 9,681,249 9,696,413 9,552,556 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 193,346 387,848 212,185 390,993 ----------- ----------- ----------- ----------- Weighted average number of common and common equivalent shares outstanding 9,894,887 10,069,097 9,908,598 9,943,549 =========== =========== =========== =========== Diluted earnings per common share $ .02 $ .00 $ .12 $ .14 =========== =========== =========== ===========
EX-27 6 0006.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF EARNINGS FOUND ON PAGES 2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE YEAR TO DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 JAN-01-2000 SEP-30-2000 688,947 999,792 9,730,058 40,000 30,023,728 42,217,084 6,272,905 1,560,273 46,929,716 4,271,654 2,137,353 0 0 97,015 40,423,694 46,929,716 33,840,722 33,840,722 26,414,175 26,414,175 5,311,912 0 229,602 1,965,225 729,000 1,236,225 0 0 0 1,236,225 .13 .12
EX-99 7 0007.txt RISK FACTORS EXHIBIT 99 RISK FACTORS Forward-looking statements made by A.S.V., Inc. (the "Company") constitute the Company's current expectations or beliefs concerning future events. Any forward-looking statements made by the Company are qualified by important factors that could cause actual results to differ materially from those projected in the forward-looking statements. Important factors which may cause actual results to differ from those projected in forward-looking statements include the factors set forth herein. Relationship with Caterpillar Inc. In January 1999, Caterpillar Inc. ("Caterpillar") purchased 1,000,000 shares of the Company's Common Stock and a warrant to purchase an additional 10,267,127 shares of the Company's Common Stock (the "Warrant"). In connection with the purchase of the Common Stock and the Warrant, the Company and Caterpillar entered into several agreements, including a Commercial Alliance Agreement, a Marketing Agreement and a Management Services Agreement. These agreements contemplate that the Company and Caterpillar will also enter into several additional agreements, including a Trademark and Trade Dress License Agreement, Supply Agreements, a Services Agreement, a Technology License Agreement and a Joint Venture Agreement (these agreements, the Commercial Alliance Agreement, the Marketing Agreement and the Management Services Agreement are collectively referred to as the "Commercial Agreements"). On October 31, 2000 Caterpillar Inc. purchased 500,000 newly issued shares of ASV Common Stock at $18 per share pursuant to the terms of a Securities Purchase Agreement. Concurrent with the closing of the Securities Purchase Agreement, the Company cancelled the Warrant and issued in its place, a replacement warrant to purchase 9,767,127 shares of the Company's Common Stock (the "Replacement Warrant"). In connection with the purchase of the Common Stock and the issuance of the Replacement Warrant, the Company and Caterpillar entered into a Multi-Terrain Rubber-Tracked Loader Alliance Agreement (the "Loader Alliance Agreement"). Dependence on New Loader Alliance Agreement with Caterpillar. Under the terms of the Loader Alliance Agreement, the Company and Caterpillar intend to jointly develop and manufacture a five-model line of Caterpillar branded rubber tracked skid steer loaders called Multi-Terrain Loaders (the "Alliance Machines"). These new loaders will utilize Caterpillar's skid steer technology and the Company's rubber track undercarriage technology. The first two models are expected to be introduced to a limited number of North American Caterpillar dealers in the second quarter of 2001. The Alliance Machines will be assembled in Sanford, N.C., at Caterpillar's skid steer loader facility. The undercarriages will be manufactured at ASV's facilities in Grand Rapids, Minnesota. The successful development, manufacturing and marketing of the Alliance Machines entail significant risks as is described below: The Alliance Machines have not yet been fully developed and tested and the risk exists that they may not be able to be fully developed or tested in accordance with anticipated introduction dates of each model. The Alliance Machines have not been manufactured on the scale anticipated and there is no assurance that the necessary raw materials will be able to be obtained in sufficient quantities or the necessary manufacturing processes be developed and on the schedule needed to meet the anticipated production schedule. The development and introduction of the Alliance Machines is being scheduled on an aggressive time table and there exists the possibility that production delays or other delays may prevent this time table from being met, thereby delaying, either temporarily or permanently, the anticipated benefits from the Loader Alliance Agreement. The overall market for rubber track machines is relatively new and the benefits of rubber track machines are not currently widely known. The Company and Caterpillar believe the market potential for rubber track machines justifies the necessary investment in the Alliance Machines. However, there is no assurance the Alliance Machines will attract sufficient demand to warrant their continued production and produce the returns anticipated by the Company and Caterpillar. The Company will be relying significantly on Caterpillar for their continued interest in developing, manufacturing and marketing the Alliance Machines. If Caterpillar stopped developing or manufacturing the Alliance Machines, or stopped marketing the Alliance Machines to its dealers or Caterpillar dealers did not adequately promote the sale of the Alliance Machines, the Company's revenue would be decreased and its business would be harmed. As part of the Loader Alliance Agreement, the Company has agreed not to manufacture machines that are similar to and would compete with the Alliance Machines. Also, the Company may not knowingly sell its undercarriages to any party who shall manufacture, or resell an undercarriage to a party who shall manufacture, a machine that substantially competes with the Alliance Machines. The Company may, however, continue to manufacture its own models that do not substantially compete with the Alliance Machines. The Loader Alliance Agreement calls for the Company to receive a portion of the gross profit on the sale of the Alliance Machines to Caterpillar dealers. Therefore, a portion of the Company's future revenue will be dependent of the success of Caterpillar in selling the Alliance Machines to Caterpillar dealers. Under the terms of the Loader Alliance Agreement, ASV intends to use a portion of the stock sale proceeds to fund development of the new models. Accordingly, during product design and production ramp-up in 2000 and 2001, the Company expects the agreement will have dilutive effect on its earnings. Although a positive impact on earnings is anticipated beginning in 2002, no assurance exists that this positive impact on earnings will occur. Dependence on Caterpillar Dealer Network. In connection with its 1999 transaction with Caterpillar, the Company shifted from an independent dealer network to one selling its products primarily through the Caterpillar dealer network. As a result, many of the Company's independent dealers chose to no longer carry the Posi-Track product. The Company expects that the vast majority of its sales in the future will be to Caterpillar dealers. Therefore, the Company will be dependent upon the cooperation of Caterpillar and the Caterpillar dealers to sell its products. There can be no assurance that the Caterpillar dealers will dedicate adequate resources or attention to the sale of the Company's products or that Caterpillar will continue to encourage its dealers to promote the Company's products. If Caterpillar stopped promoting the Company's products to its dealers or Caterpillar dealers did not adequately promote the sale of the Company's products, the Company's revenue would be decreased and its business would be harmed. Dependence Upon Success of Relationship With Caterpillar. As a result of its transactions with Caterpillar, the Company intends to increasingly rely on services provided by or through Caterpillar for the operation of its business, including marketing, management, financing, development, warranty and parts services. As a result, the Company will become increasingly dependent upon the cooperation of Caterpillar for the operation of its business. Although Caterpillar is obligated under the terms of the Commercial Agreements to provide certain services to the Company, the specific obligations of Caterpillar under those agreements are not explicitly defined. Therefore, if Caterpillar chose not to cooperate with the Company in providing those services, it may be impractical for the Company to require Caterpillar to provide any such services to the extent necessary to be beneficial to the Company. If Caterpillar were to decide not to actively support the Company and to cooperate with the Company to provide it services, the Company's business would be materially harmed. Ability of Caterpillar to Influence or Control the Company. Caterpillar owns approximately 15% of the outstanding shares of Common Stock (approximately 13% assuming the exercise of all outstanding options and warrants), and has the right to acquire up to approximately 51% of the Company's Common Stock (assuming the exercise of all outstanding options and warrants) upon exercise in full of the Replacement Warrant. As a result, Caterpillar has the ability to influence the business and operations of the Company to a significant extent, and has the ability to greatly influence any vote of the shareholders, including votes concerning the election of directors and changes in control. In addition, to the extent Caterpillar acquires a controlling interest in the Company through the exercise of the Replacement Warrant, other purchases of Common Stock, or otherwise, Caterpillar will have the ability to control the outcome of any such shareholder votes regardless of the votes of any other shareholder, including any such vote relating to the acquisition of the remaining interest in the Company by Caterpillar. Therefore, Caterpillar may be in a position to control the timing and the terms upon which any such acquisition or other business combination involving the Company may occur, subject to the fiduciary duties it might have as a majority shareholder to the remaining shareholders. In addition to its rights as a shareholder to influence or control the Company, Caterpillar has certain rights under the Securities Purchase Agreement between the Company and Caterpillar dated October 14, 1998, including the right to designate directors for election to the Board of Directors and a right of first offer with respect to future financings by the Company, which increase Company's ability to influence and control the Company. Management of Growth The Company's management has had limited experience in managing companies experiencing growth like that of the Company. Further growth and expansion of the Company's business will place additional demands upon the Company's current management and other resources. The Company believes that future growth and success depends to a significant extent on the Company's ability to be able to effectively manage growth of the Company in several areas, including, but not limited to: (i) production facility expansion/construction; (ii) entrance to new geographic and use markets; (iii) international sales, service and production; and (iv) employee and management development. No assurance can be given that the Company's business will grow in the future and that the Company will be able to effectively manage such growth. If the Company is unable to manage growth effectively, the Company's business, results of operations and financial condition would be materially adversely affected. Market Acceptance of Rubber Track Vehicles The success of the Company is dependent upon increasing market acceptance of rubber track vehicles in the markets in which the Company's products compete. Most small to medium sized tractor-type vehicles in competition with the Posi-Track are wheeled vehicles and most track-driven vehicles are designed for specific limited tasks. The market for rubber track vehicles is relatively new and there can be no assurance that the Company's products will gain sufficient market acceptance to enable the Company to sustain profitable operations. Development of New Products The Company intends to increase its market penetration by developing and marketing new rubber-tracked vehicles. There can be no assurance that the Company will be able to successfully develop the new products, or that any new products developed by the Company will gain market acceptance. Future Capital Needs; Uncertainty of Additional Funding The Company anticipates that it may require additional financing in order to expand its business, including capital to expand its current marketing efforts, expand its production facilities, purchase capital equipment, increase inventory and accounts receivable and add to its dealer network. Such financing may be obtained through the exercise of the Replacement Warrant held by Caterpillar or through additional equity or debt financings. Such financing may not be available when needed or on terms acceptable to the Company. Moreover, any additional equity financings may be dilutive to existing shareholders, and any debt financing may involve restrictive covenants. An inability to raise expansion funds when needed will likely require the Company to delay or scale back some of its planned market expansion activities. Competition Companies whose products compete in the same markets as the Posi-Track have substantially more financial, production and other resources than the Company, as well as established reputations within the industry and more extensive dealer networks. Also, the growth potential of the markets being pursued by the Company could attract more competitors. There can be no assurance that the Company will be able to compete effectively in the marketplace or that it will be able to establish a significantly dominant position in the marketplace before its potential competitors are able to develop similar products. Dependence on Certain Supplies Certain of the components included in the Company's products are obtained from a limited number of suppliers, including the rubber track component used on the Company's products. Disruption or termination of supplier relationships could have a material adverse effect on the Company's operations. The Company believes that alternative sources could be obtained, if necessary, but the inability to obtain sufficient quantities of the components or the need to develop alternative sources, if and as required in the future, could result in delays or reductions in product shipments which in turn may have an adverse effect on the Company's operating results and customer relationships. Industry Conditions; Cyclicality; Seasonality The construction and farm equipment industries, in which the Posi-Track competes, have historically been cyclical. Sales of construction and agricultural equipment are generally affected by the level of activity in the construction and agricultural industries including farm production and demand, weather conditions, interest rates and construction levels (especially housing starts). In addition, the demand for the Company's products may be affected by the seasonal nature of the activities in which they are used. Dependence on Key Personnel The Company's future success depends to a significant extent upon the continued service of certain key personnel, including its President, Gary Lemke. The loss of the services of any key member of the Company's management could have a material adverse effect on the Company's ability to achieve its objectives. The Company has key-person life insurance on the life of Mr. Lemke. Risk of Product Liability; Product Liability Insurance Like most manufacturing companies, the Company may be subject to significant claims for product liability and may have difficulty in obtaining product liability insurance or be forced to pay high premiums. The Company currently has product liability insurance and has not been subject to material claims for product liability. There can be no assurance that the Company will be able to obtain adequate insurance in the future or that the Company's present or future insurance would prove adequate to cover potential product claims. Intellectual Property and Proprietary Rights The Company currently holds one patent on certain aspects of the steering mechanism used in certain of the Company's products and has filed an additional patent application. There can be no assurance that the patent will be granted or that patents under any future applications will be issued, or that the scope of the current or any future patent will exclude competitors or provide competitive advantages to the Company, that any of the Company's patents will be held valid if subsequently challenged or that others will not claim rights in or ownership to the patents and other proprietary rights held by the Company. Furthermore, there can be no assurance that others have not developed or will not develop similar products, duplicate any of the Company's products or design around such patents. Litigation, which could result in substantial cost to and diversion of effort by the Company, may be necessary to enforce patents issued to the Company, to defend the Company against claimed infringement of the rights of others or to determine the ownership, scope or validity of the proprietary rights of the Company and others. Dependence On Sole Manufacturing Facility The Company's products are manufactured exclusively at its sole manufacturing facility in Grand Rapids, Minnesota. In the event that the manufacturing facility were to be damaged or destroyed or become otherwise inoperable, the Company would be unable to manufacture its products for sale until the facility were either repaired or replaced, either of which could take a considerable period of time. Although the Company maintains business interruption insurance, there can be no assurance that such insurance would adequately compensate the Company for the losses it would sustain in the event that its manufacturing facility were unavailable for any reason. Regulation The operations, products and properties of the Company are subject to environmental and safety regulations by governmental authorities. The Company may be liable under environmental laws for waste disposal and releases into the environment. In addition, the Company's products are subject to regulations regarding emissions and other environmental and safety requirements. While the Company believes that compliance with existing and proposed environmental and safety regulations will not have a material adverse effect on the financial condition or results of operations of the Company, there can be no assurance that future regulations or the cost of complying with existing regulations will not exceed current estimates. -----END PRIVACY-ENHANCED MESSAGE-----