SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: September 30, 1997
Commission file Number: 000-21133
SPURLOCK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Virginia 84-1019856
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
209 W. Main St., Waverly, VA 23890
(Address and zip code of principal executive offices)
(804) 834-8980
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to the filing requirements for
at least the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date:
Number of Shares Outstanding
Class as of September 30, 1997
Common Stock, no par value 6,527,066
<PAGE>
SPURLOCK INDUSTRIES, INC.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPURLOCK INDUSTRIES, INC.
Consolidated Balance Sheets
(Unaudited)
September 30, 1997 December 31, 1996
------------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 420,161 $ 106,072
Accounts receivable - trade 1,449,603 1,446,930
Other accounts receivable 0 8,718
Accounts and notes receivable
- officers current portion 21,625 38,595
Inventories 520,706 541,632
Prepaid income taxes 157,213 72,477
Prepaid expenses 186,876 74,490
----------- -----------
Total current assets 2,756,184 2,288,914
Property, plant and equipment, net
of accumulated depreciation of
$4,459,997 and $4,430,833 10,777,036 9,444,057
Other assets:
Accounts and notes receivable -
officers 87,401 101,044
Investments 150,000 150,000
Other 213,560 259,736
----------- -----------
450,961 510,780
----------- -----------
Total assets $13,984,181 $12,243,751
=========== ===========
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable - line of credit $ 1,424,717 $ 1,420,801
Current portion of long-term debt 1,009,716 1,029,090
Accounts payable 1,832,260 1,678,442
Accrued expenses 437,078 260,527
------------ ------------
Total current liabilities 4,703,771 4,388,860
Long-term debt 4,197,977 3,402,621
Deferred tax liability 143,476 143,476
Income tax liability 210,088 0
Post retirement benefit liability 124,155 42,667
Stockholders' equity
Common stock, no par value, 50,000,000 shares
authorized, 6,572,066 shares issued and
outstanding 4,808,814 4,808,814
Retained earnings (204,100) (542,687)
------------ ------------
Total equity 4,604,714 4,266,127
------------ ------------
Total liabilities and stockholders' equity $ 13,984,181 $ 12,243,751
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Statements of Operations
For the Three and Nine Months Ended
September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 5,559,514 $ 6,693,069 $ 18,805,463 $ 22,080,512
Cost of sales 4,065,501 4,995,558 13,977,598 16,163,482
------------ ------------ ------------ ------------
Gross profit 1,494,013 1,697,511 4,827,865 5,917,030
Selling, general and
administrative expenses 1,238,988 1,166,518 3,707,063 3,192,337
------------ ------------ ------------ ------------
Income(loss) from operations 255,025 530,993 1,120,802 2,724,693
Other income and (expense):
Other income 2,290 15,959 11,626 50,779
Other expense (77,859) (9,412) (152,064) (14,412)
Interest expense (171,502) (202,793) (431,689) (457,911)
------------ ------------ ------------ ------------
Net income before income
taxes 7,954 334,747 548,675 2,303,149
Provision for income taxes 3,046 128,175 210,088 881,876
------------ ------------ ------------ ------------
Net income (loss) $ 4,908 $ 206,572 $ 338,587 $ 1,421,273
============ ============ ============ ============
Net income (loss) per share 0.001 0.031 0.052 0.211
============ ============ ============ ============
Average shares outstanding 6,572,066 6,725,066 6,572,066 6,725,066
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Net income (loss) $ 338,587 $ 1,421,273
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 735,000 492,720
(Increase) decrease in accounts receivable 6,045 148,653
(Increase) decrease in inventories 20,926 (66,584)
(Increase) decrease in prepaid expenses (112,386) (192,535)
(Increase) decrease in other assets (38,560) (665,673)
Increase (decrease) in accounts payable
and accrued expenses 330,369 (134,403)
Increase (decrease) in deferred tax liability 210,088 771,976
Increase (decrease) in other liabilities 81,488 0
----------- -----------
Total adjustments 1,232,970 354,154
----------- -----------
Net cash provided by (used in) operating
activities 1,571,557 1,775,427
Investing Activities:
Purchase of fixed assets (2,067,979) (4,115,711)
Repayment of officer advances 30,613 0
----------- -----------
Net cash provided by (used in) investing
activities (2,037,366) (4,115,711)
Financing activies:
Proceeds of new borrowings 1,603,910 3,600,000
Repayment of notes and loans (824,018) (1,650,512)
----------- -----------
Net cash provided by (used in) financing
activities 779,898 1,949,488
Net increase in cash and cash equivalents 314,089 (390,796)
Beginning Cash 106,072 450,751
----------- -----------
Ending cash $ 420,161 $ 59,955
----------- -----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
September 30, 1997
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
Income taxes were computed using a statutory rate of 34% net of the effects of
federal surtax exemptions and deductions for state income taxes.
Income (loss) per share was computed using the weighted average number of common
shares outstanding of 6,572,066 shares.
As of September 30, 1997 and December 31, 1996, inventories consisted of the
following:
September 30, 1997 December 31, 1996
------------------ -----------------
Raw materials $ 411,962 $ 397,511
Work in process 8,165 9,493
Finished goods 100,579 134,628
--------- ---------
$ 520,706 $ 541,632
<PAGE>
SPURLOCK INDUSTRIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
The following discussion contains certain forward-looking statements,
generally identified by phrases such as "the Registrant expects" or "Management
believes" or words of similar effect. The Registrant wishes to caution readers
that certain important factors set forth within such discussion, among others,
in some cases have affected, and in the future could affect, the Registrant's
actual results and could cause the Registrant's actual results for 1997 and
beyond to differ materially from those expressed in any forward-looking
statements made herein.
Also, certain factors which could cause actual results to differ from
those contained in any such forward-looking statements are contained in the
Registrant's annual report on Form 10-K for the fiscal year ended December 31,
1996 under the heading "Forward-Looking and Cautionary Statements," and are
hereby incorporated herein by reference.
Results of Operations
For the nine months ended September 30, 1997, the Company generated net income
after tax of $338,587 or $0.052 per share ($0.049 on a fully diluted basis) as
compared to net income of $1,421,273 or $0.211 per share ($0.203 on a fully
diluted basis), for the same period last year. Net income for the third quarter
was $4,908 or $0.001 per share ($0.001 on a fully diluted basis) as compared to
net income of $206,572 or $0.031 per share ($0.029 on a fully diluted basis),
for the same period last year.
The Company's net sales for the quarter ended September 30, 1997 totalled
$5,559,514 as compared to $6,693,069 for the same period for 1996, a decrease of
16.9%. Net sales for the nine months ended September 30, 1997 were $18,805,463
or 14.8% lower as compared to $22,080,512 for the same period for 1996. All the
sales were from shipments of resin and formaldehyde by the Registrant's wholly
owned subsidiary, Spurlock Adhesives, Inc. ("Spurlock Adhesives"). The
aforementioned decreases in sales from the comparable 1996 periods resulted in
part from lower average selling prices and reduced product volume shipments of
7.2% for the three month period and 10.4% for the nine month period due to price
cutting by certain competitors in the face of reduced market demand generally.
Management believes this situation will continue through the end of the year.
<PAGE>
Cost of sales for the third quarter was $4,065,501 or 73.1% of net sales as
compared to $4,995,558 or 74.6% for the same period in 1996. Cost of sales for
the nine month period was $13,977,598 or 74.3% as compared to $16,163,482 or
73.2% for the same period in 1996. The decrease in cost of sales as a percentage
of net sales is primarily a result of lower raw material prices. The gross
margin increased to 26.9% from 25.4% for the third quarter compared to 1996 and
decreased to 25.7% from 26.8% for the nine month period compared to the same
prior year period, reflecting the above-described competitive pressures in the
marketplace and decreases in raw material prices.
Operating expenses (sales, general & administrative expenses) for the third
quarter were $1,238,988 or 22.3% of net sales as compared to $1,166,518 or 17.4%
of net sales for the same period in 1996. The operating expenses for the nine
month period were $3,707,063 or 19.7% as compared to $3,192,337 or 14.5% for the
same period in 1996. These increases are attributable to higher depreciation and
personal property taxes due to the purchase by the Registrant of the
formaldehyde plant located in Waverly, Virginia, which plant was subject to an
operating lease during the nine month period of 1996. Also, wages paid to
employees in general were higher due to salary and wage increases effective July
1996, and benefits paid on behalf of the employees were higher. The large
percentage change is due to lower sales.
Interest expense was $171,502 or 3.1% of net sales in the third quarter of 1997
as compared to $202,793 or 3.0% of net sales in third quarter 1996. Interest
expense was $431,689 or 2.3% of net sales for the nine months ended September
30, 1997, as compared to $457,911 or 2.1% for the comparable 1996 period.
Although average borrowings under the Registrant's line of credit were somewhat
lower in the third quarter of 1997 versus the comparable period in 1996, total
average outstandings were approximately $3,500,000 higher due to additional term
borrowings relating to the Registrant's purchase of the Waverly, Virginia
formaldehyde plant and Spurlock's new New York facility discussd under
"Liquidity and Capital Revenues - Liquidity" below. However, significantly
reduced borrowing rates under the new credit facilities entered into by the
Registrant in July 1996 resulted in lower interest expense overall.
Other expense was $77,859 or 1.4% of net sales in the 1997 third quarter as
compared to $9,412 or 0.1% of net sales in third quarter 1996. For the first
nine months of 1997, other expense was $152,064 or 0.8% of net sales as compared
to $14,412 or 0.06% of net sales for the 1996 nine month period. This increase
was due primarily to the write off of costs relating to the first manufacturing
site selected in New York. These expenses, which include legal and environmental
expenses, are being written off due to the selection of an alternate site in New
York.
The Company accrues for income taxes at an effective rate of 34% inclusive of
the deduction for state income tax. The tax accrual for the third quarter of
1997 was $3,046 as compared to $128,175 for the third quarter of 1996. The tax
accrual for the nine month period ending September 30, 1997 was $210,088 as
compared to $881,876 for the comparable 1996 period. In both cases, the
reduction was due to reduced taxable income.
<PAGE>
Liquidity and Capital Resources
Working Capital
At September 30, 1997, working capital was ($1,947,587), an increase of $152,359
from December 31, 1996. Higher balances in the cash account and prepaid expense
accounts, primarily as a result of increases in long term debt, caused the
increase in working capital.
Cash Flow
Net cash provided by operating activities was $1,571,557 and $1,775,427 for the
nine months ended September 30, 1997 and 1996, respectively. The decreased cash
flow from operations during the 1997 period resulted from lower net income.
Depreciation accounted for $735,000 of such 1997 cash flow, a substantial
increase from the $492,720 in the 1996 period, as a result of increased
depreciation expense relating to the purchase of the Waverly formaldehyde plant.
Prepaid expenses increased by $112,386, which is comprised of prepayment of
health insurance claims funds, as well as fire, liability and workmen's
compensation insurance premiums. Accounts payable increased at month end due to
timing of bills and normal payment procedures.
Cash from operations was supplemented by a net increase in financing activities
of $779,898, comprised primarily of increases in new loans of approximately
$1,600,000. Cash was invested in fixed assets of $2,067,979. The increase in
fixed assets was attributable to payments made for the New York facility.
Liquidity
As previously reported, in July 1996 the Registrant entered into a new
$3,500,000 revolving credit facility with a new lender, which facility matures
in July 1999. On September 30, 1997, outstanding loans under the facility
totalled $1,424,717, which amount represented 99% of the total amount available
at such time based on the levels of accounts receivable and inventory on which
borrowing availability is based. The credit facility provides the Registrant
with an important source of liquidity in addition to cash generated from
operations. Management believes that cash generated from operations, together
with amounts available under the revolving credit facility, will be sufficient
to meet the Registrant's anticipated working capital and liquidity requirements
during 1997 and 1998.
As previously reported, the Registrant located a site to construct manufacturing
facilities for the production of formaldehyde and resins in the Moreau
Industrial Park in the town of Moreau, Saratoga County, New York. The Registrant
has obtained the necessary approvals for the New York project and for on-site
construction of the project to be initiated. Subsequent to the end of the
quarter, the Registrant closed on a $6,000,000 Industrial Revenue Bond repayable
over 10 years at 4.74% interest as well as a $1,500,000 term loan repayable over
10 years at prime plus 0.5% or LIBOR plus 2.75% interest to finance the project.
Assuming construction proceeds on a timely basis, management believes the
complex can begin operations in early 1998.
<PAGE>
The Registrant estimates that the costs of the New York project will total
$8,300,000. Additional amounts necessary to complete the project will be funded
through operations.
<PAGE>
SPURLOCK INDUSTRIES, INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The Registrant has included the following exhibits pursuant to
Item 601 of Regulation S-K.
Exhibit No. Description
10.1 Letter agreement between Spurlock
Adhesives, Inc. ("Spurlock
Adhesives") and KeyBank of New
York ("KeyBank") dated August 4,
1997.
10.2 Promissory Note dated August 13,
1997 from Spurlock Adhesives
payable to KeyBank of New York.
10.3 HCHO/UFC Turnkey Plant "B" Sale
Contract - Design, Engineer,
Equipment Supply, Construct, and
Install Contract dated September
30, 1997 between Spurlock
Adhesives and D.B. Western, Inc.
10.4 HCHO/UFC Plant "A" - Lease dated
September 30, 1997 between
Spurlock Adhesives and D.B.
Western, Inc.
10.5 Guaranty dated September 1, 1997
of Spurlock Industries, Inc. in
favor of D.B. Western, Inc.
10.6 Guaranty dated September 1, 1997
of Spurlock Industries, Inc. in
favor of D.B. Western, Inc.
10.7 Guaranty of Payment dated
September 30, 1997 of Irvine R.
Spurlock for the benefit of D.B.
Western, Inc.
10.8 Indenture dated August 13, 1997
between Town of Moreau, New York
as grantor and Spurlock Adhesives
as grantee.
<PAGE>
10.9 Indenture dated August 13, 1997
between Town of Moreau, New York,
as grantor and Spurlock Adhesives
as grantee.
11 Statement re: Computation of Per
Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K: None
<PAGE>
SPURLOCK INDUSTRIES, INC.
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.
SPURLOCK INDUSTRIES, INC.
(Registrant)
Dated: November 14 , 1997 By: /s/ Irvine R. Spurlock.
------------------ -----------------------------
Irvine R. Spurlock.
President and Chairman
Chief Executive Officer
Dated: November 14 , 1997 By: /s/ Phillip S. Sumpter
------------------ -----------------------------
Phillip S. Sumpter
Executive Vice-President
Chief Financial Officer
Dated: November 14 , 1997 By: /s/ Warren E. Beam, Jr.
------------------ -----------------------------
Warren E. Beam, Jr.
Treasurer and Controller
Chief Accounting Officer
<PAGE>
SPURLOCK INDUSTRIES, INC.
Exhibit Index
Exhibit No. Description
10.1 Letter agreement between Spurlock Adhesives,
Inc. ("Spurlock Adhesives") and KeyBank of
New York ("KeyBank") dated August 4, 1997.
10.2 Promissory Note dated August 13, 1997 from
Spurlock Adhesives payable to KeyBank of New
York.
10.3 HCHO/UFC Turnkey Plant "B" Sale Contract -
Design, Engineer, Equipment Supply,
Construct, and Install Contract dated
September 30, 1997 between Spurlock
Adhesives and D.B. Western, Inc.
10.4 HCHO/UFC Plant "A" - Lease dated September
30, 1997 between Spurlock Adhesives and D.B.
Western, Inc.
10.5 Guaranty dated September 1, 1997 of Spurlock
Industries, Inc. in favor of D.B. Western,
Inc.
10.6 Guaranty dated September 1, 1997 of Spurlock
Industries, Inc. in favor of D.B. Western,
Inc.
10.7 Guaranty of Payment dated September 30, 1997
of Irvine R. Spurlock for the benefit of
D.B. Western, Inc.
10.8 Indenture dated August 13, 1997 between Town
of Moreau, New York as grantor and Spurlock
Adhesives as grantee.
10.9 Indenture dated August 13, 1997 between Town
of Moreau, New York, as grantor and Spurlock
Adhesives.
11 Statement re: Computation of Per Share
Earnings.
27 Financial Data Schedule
Exhibit 10.1
[KEYBANK LETTERHEAD]
KeyBank
66 South Pearl Street
Albany, New York 12207-1501
August 4, 1997
Mr. Irvine Spurlock, Chairman
Spurlock Adhesives, Incorporated
P.O. Box 8
Waverly, Virginia 23890
Dear Mr. Spurlock:
The purpose of this letter is to set forth our agreement with regard to a
$254,250.00 short term loan made by KeyBank N.A. to Spurlock Adhesives, Inc.
It is agreed that:
The purpose of this loan is to provide Spurlock with funds to purchase that
certain piece of property located in the Moreau, NY on which it intends to
construct, own and operate formaldehyde and resin manufacturing plants, and
The short term loan will be repaid at the earlier of 30 days from the effective
date of the Note or the Closing of the Industrial Revenue Bonds or other long
term financing associated with the Moreau, NY project.
If this is your understanding of our agreement, please sign below and return
this letter, along with the other required paperwork, to my attention.
Very truly yours,
/s/ Richard VanAuken
Richard VanAuken
Senior Banker
Corporate Banking
Agreed and Accepted:
SPURLOCK ADHESIVES, INC. SPURLOCK INDUSTRIES, INC.
(as Guarantor)
By: /s/ Phillip S. Sumpter By: /s/ H. Norman Spurlock, Jr.
--------------------------------- ---------------------------------
Title: Exec. VP Date:_______ Title: Exec. VP, Date:_______
Secretary
Exhibit 10.2
PROMISSORY NOTE
$ 254,250.00 Date August 13 , 1997
----------------------------------- --------------------- ----
Office 512
-----------------------------
Spurlock Adhesives, Inc. (the "Borrower"), for value received, promises to pay
to the order of KEYBANK OF NEW YORK (the "Bank") the sum of Two Hundred
Fifty-Four Thousand Two Hundred Fifty Dollars ($254,250.00) (the "Principal") at
the Bank's main office or at any branch office at the rate and according to the
terms indicated below (check applicable payment arrangement):
1. Rate. The Borrower shall pay interest at the rate indicated below (the
"Interest Rate"). Interest shall be computed on the basis of a 360 day year.
This means that each day a periodic rate is calculated by dividing the Interest
Rate by 360; this daily rate is then applied to the outstanding balance to
determine each day's interest.
a. | | A fixed Interest Rate of ___ percent per year.
b. |X| A variable Interest Rate equal to the Base Rate (the
"Index") plus a margin of 0.00 percent per year. THE
INDEX IS DEFINED ON THE BACK OF THIS NOTE. The Interest
Rate will change without notice to the Borrower:
|X| each time the Index changes.
| | _______________ starting ________________.
At the present time, the Index is 8.50 percent and the
Interest Rate is 8.50 percent.
2. Repayment Terms. The Borrower will repay this Note in accordance with the
schedule checked as follows:
a. |_| Demand. On Demand, the Borrower will pay the Principal with interest
from this date until the Principal is fully repaid. Although the
Principal and interest continue to be payable on Demand, the Borrower
agrees to pay accrued interest on the ______ day of each ____________
hereafter until this Note is paid in full.
b. |X| Time. On September 12, 1997, (the "Due Date"), the Borrower will pay
the Principal plus accrued interest. After the Due Date, the Borrower
will pay additional interest on any unpaid Principal at the interest
rate.
c. | | Discount. On ________, 19___, (the "Due Date"), the Borrower will pay
the Principal. If this repayment option is selected, the Bank is
taking interest in advance by deducting it from the Principal. For
Discount loans "Principal" includes the loan proceeds plus the
interest taken in advance. After the Due Date, the Borrower will pay
additional interest on any unpaid amount at ________.
d. | | Term Payments. The Borrower will pay the Principal with interest from
today until payment in full of all amounts due according to the
schedule indicated below. If the following box is checked |_|, the
Borrower will pay a late charge of _____% of any payment that is more
than ______ days late.
i. _________ consecutive ___________ payments of accrued interest
commencing on ________, 19___ and payable on the same date of
each successive calendar ___________ thereafter plus
__________ consecutive ________ Principal payments of
$________ each, commencing on ________, 19___, and payable on
the same date of each successive ________ thereafter and a
final Principal payment of $________ due on ________, 19___,
when all unpaid interest and principal shall be due and
payable.
ii. ______ consecutive ___________ Principal and interest payments
of $________ each, commencing on ________, 19___, and payable
on the same date of each successive _____________ thereafter
until ________, 19___, when the remaining unpaid Principal and
interest shall be due and payable. Additionally, an
interest-only payment shall be due on ________, 19___. If this
is a variable Interest Rate note and any ____ payment is
insufficient to pay all accrued interest, the Borrower will
pay any such insufficiency on demand. If the Interest Rate is
variable, the Bank will adjust the payment schedule each ____
starting ________, 19___, to an amount that would amortize the
Principal balance due on this Note in equal ________ payments
over the remaining term at the Interest Rate then in effect.
iii. ______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
3. Security. To protect the Bank if the Borrower defaults on this Note, the
Borrower hereby pledges and grants the Bank a security interest in the following
property (the "Collateral"):
________________________________________________________________________________
________________________________________________________________________________
The security interest granted above is subject to and includes all the
provisions of a Security Agreement dated ________ and/or, in the event real
property is being used as security, a mortgage dated ________.
4. Term Loan Agreement. If the following box is checked |_|, this Note is
executed under the terms of a Term Loan Agreement or Line of Credit Agreement
dated ________ 19___.
5. General. If the following box is checked |X|, the Borrower represents and
warrants that this Note evidences a loan for business or commercial purposes.
The Borrower agrees that the provisions on the reverse side of this document
constitute a part of this Note. By signing this Note, the Borrower agrees to be
legally bound to all the terms, promises, and provisions contained in it.
Spurlock Adhesives, Inc.
- ------------------------------------- -------------------------------------
Name (please print) Name (please print)
/s/ Phillip S. Sumpter
- ------------------------------------- -------------------------------------
Signature Signature
P.O. Box 8, Waverly, VA 23890
- ------------------------------------- -------------------------------------
Address Address
Exhibit 10.3
HCHO/UFC TURNKEY PLANT "B" SALE CONTRACT
DESIGN, ENGINEER, EQUIPMENT SUPPLY,
CONSTRUCT, AND INSTALL CONTRACT
THIS CONTRACT (this "Contract" or this "Agreement") is made as of the
30th day of September, 1997 by and between SPURLOCK ADHESIVES, INC., a Virginia
corporation (hereinafter called "OWNER"), and D. B. WESTERN, INC., an Oregon
corporation (hereinafter called "DBW"), each of whom agrees as follows:
ARTICLE I
GENERAL
1.1 DBW and OWNER executed a certain HCHO/UFC Turnkey Plant "B"
Sale Contract dated October 1, 1996 (the "Old Contract") with respect to DBW
building and providing to OWNER certain manufacturing facilities to be located
at or near Albany, New York. OWNER has decided to modify such project and
relocate such manufacturing facility from Albany to Moreau, New York.
Accordingly, the parties hereby terminate the Old Contract, which shall be void
and have no further force or effect.
1.2 DBW shall perform all of the design, engineering and
construction services, procure the equipment and other materials shown in the
"Main Contract - Part A", and provide start-up for a turnkey HCHO Plant "B",
Urea Formaldehyde resin plant, Urea storage, Offsites, and Tank Farm at 64
Farnan Rd., S. Glen Falls, NY (address), Moreau, Saratoga County, New York (the
"Site") (all of the foregoing hereinafter called the "Work" or the "Project"),
and meet the Guarantees (as defined in Article X) and warranties all in
accordance with the terms and conditions shown in "Main Contract - Part A-IX"
attached hereto ("Exhibit Part A"). Support specifications for the Work are
shown in "Contract Specifications - Part B" attached hereto ("Exhibit Part B").
Exhibit Part A and Exhibit Part B are hereby incorporated into this Contract and
shall constitute a part hereof.
1.3 Concurrently herewith, the parties have entered into a certain
HCHO/UFC Plant "A" - Equipment, Property and Facilities Lease (the "Plant A
Lease"), whereby DBW shall construct and then lease to OWNER a certain
manufacturing facility described therein ("Plant A"). Although the construction
of Plant A and the Work hereunder are to be prosecuted simultaneously, it is the
intent of the parties, and DBW shall use its good faith best efforts to
accomplish, the completion of the Work prior to the completion of the
construction of Plant A.
<PAGE>
ARTICLE II
COMPENSATION
PAYMENT AND LIEN PROTECTION
2.1 OWNER shall pay and DBW agrees to accept as full compensation
for doing the Work contemplated by and embraced in this Contract, the sum of US
$7,871,758.00, hereinafter called the "Contract Price". The Contract Price shall
be payable as follows:
(a) $1,566,000 of the Contract Price has been paid prior to
execution of this Contract, and will be credited against below payments as they
become due.
(b) $787,175.80 (10%) of the Contract Price shall be due
upon the execution of this contract.
(The Contract Price has been divided into a cost breakdown as
provided in Table I of Exhibit I to the Main Contract Part A
entitled "Proposal for HCHO/UFC and UF Resin Plant")
(c) 30% of the price for each individual division of the
cost breakdown will be due when DBW has issued all of the Purchase Orders for
that division, provided; however, that the aggregate balance outstanding under
subsections (b) and (c) for which related goods have not been delivered to the
project site and for which payment has not been received pursuant to Subsection
(d), shall not exceed $2,566,000.00; the balance, if any, payable by OWNER under
this Subsection (c) shall be paid in accordance with Subsection (d) hereof.
(d) 35% of the price for each individual division of the
cost breakdown, plus the amount, if any, still owing to DBW under subsection (c)
above for such division of the cost breakdown, will be due when DBW has caused
all of the equipment for that division to be delivered to the project site
located at Lot 3 of the Moreau Industrial Park.
(e) 15% of the price for each individual division of the
cost breakdown will be due when DBW has caused all of the equipment for that
division to be mechanically installed on the project site located at Lot 3 of
the Moreau Industrial Park.
(f) The final $787,175.80 (10.0%) of the Contract Price
shall be payable as provided in Article 2.6.
2.2 DBW shall, on or before the 30th day following this signed
Contract, and on the same day for each successive month thereafter, furnish
OWNER a monthly progress report updating the Schedule (as hereinafter defined)
for the Project from the date of the report to completion of the project. The
Schedule shall include critical path items including, without limitation, dates
critical for OWNER to complete items on which DBW's schedule depends. The report
shall state the percentage of completion and comment on Project status.
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<PAGE>
2.3 Upon completion of each item specified in Article 2.1, DBW
shall submit to OWNER an invoice, which shall include a specification of the
item for which payment is due and any documents as required hereby.
2.4 Invoices shall be due and payable within thirty (30) days from
the date of invoice, provided that the latest required monthly progress report
has been submitted. In the event an invoice requires corrections, then the
invoice date will remain the same, but the due date will be extended (1) day for
each day it takes DBW to correct and send corrected invoices via fax to the
OWNER. Any progress payment required to be paid and not paid within the terms of
this Contract shall bear interest at a rate of 1.5% per month or any portion
thereof. The completion date set forth in the Schedule will be extended one (1)
day for each day payment is not received in accordance with the terms of this
Contract.
2.5 DBW warrants that all Work performed under the Contract shall
be free from any lien claims from suppliers, subcontractors, creditors, laborers
or agents of DBW. DBW shall hold OWNER harmless and indemnify OWNER against any
such liens or claims. DBW and OWNER shall provide copies of any lien notices or
claims to each other within (10) days of receipt.
2.6 OWNER will pay the final Contract Payment when DBW:
(a) Furnishes to OWNER a statement that the Work under the
Contract has been completed;
(b) Successfully completes the HCHO and UFC Acceptance
Tests under Article IX and the guaranties in Exhibit Part A-IX;
(c) Provides Maintenance and Operation manuals for the
facility. The number of manuals are shown in the enclosed equipment list.
(d) Provides two (2) sets of engineering drawings to OWNER
recognizing that:
o There may be incidental changes that are not
reflected,
o Final P & ID revisions will not be completed
until 30 days after startup of the Project or
changes indicated by OWNER, whichever is later.
(e) Provides a verified affidavit that all bills and claims
have been satisfied and that there are no liens on the Work or rights to liens
arising out of the activities of DBW on the premises wherein the Work or any
part thereof was performed;
2.7 To secure the obligations of DBW hereunder and the advances
made by OWNER pursuant to the terms hereof, DBW hereby assigns, conveys,
transfers, grants and pledges to
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<PAGE>
OWNER a security interest in all of DBW's right, title and interest in, to and
under the Work, whether now owned or hereafter acquired, and all proceeds and
products thereof and accessions thereto. Without limitation, the "Work" shall
include all of the following, whether now owned or hereafter acquired, which are
or will be components or form a part of, the Work or are necessary for the
completion thereof, and any other assets which are to be sold by DBW to OWNER
pursuant to the terms of this Contract: all inventory, equipment, fixtures,
accounts, materials, supplies and general intangibles, and all products and
proceeds thereof and accessions thereto. All property from time to time subject
to the security interest granted hereby is sometimes hereinafter referred to as
the "Collateral." At no time shall DBW permit to exist any other security
interest, lien, assignment, interest or encumbrance whatsoever with respect to
the Collateral other than in favor of OWNER or in favor of DBW as stated in
Article XXII. OWNER may exercise any and all rights hereunder or of a secured
party under the Uniform Commercial Code, as enacted in the state of Oregon (or
such other jurisdiction if the rights of a secured party in a particular item of
Collateral are determined by the laws of such jurisdiction; as so defined, the
"UCC") or any other rights the OWNER may have at law or in equity with respect
to the Collateral upon the occurrence of a default by DBW hereunder.
ARTICLE III
TIME FOR PERFORMANCE
3.1 Time is of the essence. DBW shall provide to OWNER within
thirty (30) days of execution of this Contract a construction schedule showing
the Project's key elements and a critical time schedule (the "Schedule"). DBW
shall meet the times specified in the Schedule. The Major Equipment as defined
in Exhibit Part A-XXVI shall be ready for final inspection at DBW's facilities
in North Bend, Oregon ("DBW's HQ") on December 30, 1997, provided that there are
no delays that justify an extension as allowed under the terms of this Contract.
3.2 DBW shall not be responsible for failure to meet the time for
performance due to wars, riots, strikes, disturbances, acts of God and delays
caused by OWNER in obtaining permits, or other catastrophic events. If any delay
occurs or is anticipated, both parties shall immediately and in no case later
than ten (10) days of obtaining knowledge, notify the other party of actual or
anticipated delay and the reasonable time the time for performance of the
Contract needs to be extended. Work shall continue on the Project regardless of
a dispute over the need for a time extension. Any such dispute is to be resolved
or litigated upon Project completion or termination of this Contract.
3.3 Notwithstanding anything contained herein, no extension of the
time for performance shall be granted unless (a) it is allowed under the terms
of this Contract or (b) the parties agree to a change to the Schedule.
3.4 "Ready for start up" is defined as mechanically complete,
including installation, pressure testing piping systems, and ready for loading
of catalyst. Miscellaneous touch up painting and other punch list items that do
not affect Project operations will not constitute failure to be ready for start
up. An uncompleted item shall not be considered a punch list item if it is
safety related or impacts the operating of the plant for the Acceptance Test.
Permit inspections
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<PAGE>
and approvals necessary for start up shall have been obtained by OWNER, in a
timely manner to prevent delays in startup.
ARTICLE IV
ADDITIONS AND DELETIONS TO THE WORK
4.1 Any change to the Work described in Article VI of this Contract
shall constitute a change to the Contract. A change order shall be issued for
any such change, which affects the cost or performance of the Work. The time for
performance shall be extended for any such change which delays completion of the
Work. The change may be initiated by written request from OWNER or it may be
recommended in writing by DBW. DBW will respond to the requested change, or
initiate a recommended change, by providing the following information to OWNER:
(a) Cost of engineering the change.
(b) Cost to supply the additional item.
(c) Any delay in the completion pursuant to the Schedule
that DBW claims will result because of the change.
(d) The time by which OWNER must approve the addition to
avoid delays in construction.
(e) Any impact the proposed change may have on plant
performance standards, the Guarantees, and related changes that may result in
other areas of the plant because of the change and any additional cost resulting
therefrom. OWNER shall respond within 3 business days via Fax and mailed
response.
4.2 In the event of a deletion from the Contract, DBW will provide
OWNER the amount of the deduction from the Contract Price and any improvement in
the time for completion that will result. The deduction will be based on DBW's
cost.
4.3 DBW will not proceed with the change until the change order
proposal is approved in writing by OWNER or in the event of a disputed change,
until OWNER notifies DBW in writing as provided in Articles 4.4 or 4.5. If the
change order is not approved within the time frame specified on the change order
proposal, the change order proposal and OWNER's request for a change order, will
no longer be valid. DBW shall not be entitled to compensation for changes not
reduced to writing and signed by OWNER and DBW. DBW will not be responsible for
changes not approved by DBW or their impact on other areas.
4.4 If OWNER and DBW cannot agree that any proposed change is or
shall be an addition to the Contract, OWNER, at its option, may give written
notice to DBW and pay the cost specified by DBW upon the terms of the change
order and require Work under the Contract to continue without waiving OWNER'S
right to assert that the proposed change did not
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<PAGE>
constitute an addition to the Contract. Any such payment shall not constitute an
admission by OWNER that the change was an addition to the Contract. OWNER cannot
deduct any disputed change from any other payment required in the Contract.
4.5 OWNER reserves the right to perform any Work required by a
change order request. If OWNER elects to perform such Work required by the
change order request itself or through contractors other than DBW, OWNER will
notify DBW in writing. No Work shall be done by OWNER in the process battery
limits without approval by DBW in writing, provided such approval shall not be
unreasonably refused. Such approval shall not be refused or delayed if the Work
does not affect DBW's performance of its obligations as determined by DBW. OWNER
accepts full responsibility for any Work done by itself or its agents or
subcontractors including any impact it may have on warranties, plant operations,
or construction completion.
ARTICLE V
INSURANCE
5.1 DBW will procure, at its own expense, and maintain in full
force and effect during the performance of the Work and shall require its labor
subcontractors to have the following insurance through financially responsible
insurance carriers as rated by A.M. Best Co. with a rating of A-X or better:
(a) Workmen's Compensation insurance covering injury to or
occupational disease or death of all employees engaged in the Work in accordance
with the statutory requirements of the state or states in which the Work is to
be performed, including Employer's Liability insurance, with a limit of
liability under the Employer's Liability portion of at least for bodily injury
by accident of $1,000,000 each accident, bodily injury by disease with a
$1,000,000 policy limit and bodily injury by disease of $1,000,000 per each
employee.
(b) A policy of Motor Vehicle Liability insurance covering
owned, leased, and non-owned vehicles with bodily injury limits of at least
$1,000,000 per accident and property damage limits of at least $1,000,000 per
accident.
(c) A policy of General Liability insurance including
contractor's protective, with limits of liability of at least $1,000,000 per
person and $1,000,000 per accident for bodily injury and $1,000,000 per accident
for property damage.
(d) Employee liability insurance with a limit of $1,000,000
5.2 OWNER shall maintain and pay for Fire and Extended Coverage
(Builders Risk) insurance (fire, lightening, wind, hail, limited explosion,
riot, civil commotion, aircraft, vehicles, smoke), covering the full insurable
replacement value of all items comprising the Project including all supplies,
materials and equipment and other items of the Project to be incorporated into
the Work, from and after such items are delivered to the Site. Such insurance
shall include the interests of OWNER, DBW, Equipment Suppliers, and
subcontractors on the Project. The losses, if any, under such insurance shall be
adjusted with OWNER, with DBW and OWNER
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<PAGE>
being the named insured as their interests may appear. A copy of this policy
would be sent to DBW within sixty (60) days of Contract signing. A thirty (30)
day notice of cancellation would be required.
5.3 Each party shall not be held responsible for any losses,
expenses, claims, actions, costs, judgments, or other damages, directly and
proximately caused by the act, omission or negligence of the other party or its
co-owners, other contractors or suppliers and their respective agents and
employees. DBW shall not be obligated for any loss, damage, claim, action,
liability or demand arising out of an incident not DBW's fault or a cause of
DBW, occurring on the plant site.
ARTICLE VI
DESIGN, EQUIPMENT
6.1 DBW is responsible for the design and engineering of the plant
and performance of the Work to meet the specifications set out in Exhibit Part A
and Exhibit Part B of the Contract. DBW represents that it has the
qualifications and knowledge to perform the Work to completion in accordance
with the Contract. Materials and services provided in Exhibit Part A and Exhibit
Part B shall constitute the basis of the Contract. Unless otherwise specified by
OWNER, all equipment shall be new and of good quality.
6.2 DBW shall submit specifications prior to ordering equipment or
fabricating equipment. OWNER shall provide a request for change to DBW within
five (5) working days from receipt of specifications. This request for change
must be sent by fax and mail. DBW shall submit copies of drawings provided by
DBW and other manufactures to OWNER. OWNER shall provide a request for change to
DBW within three (3) working days from receipt of drawings. All such additional
specifications shall become a part of Exhibit Part A or Exhibit Part B of this
Contract, as applicable. This request for change must be faxed and mailed to
DBW. If OWNER wants a change to drawings or specifications within this Contract
or a change to drawings or specifications developed during the course of this
Project, then OWNER has the right to request a change; provided, however, the
design and engineering remains the responsibility of DBW and nothing herein
shall be construed to relieve DBW of that responsibility. All requests for
change shall be handled in accordance with Article IV.
ARTICLE VII
RESPONSIBILITIES OF OWNER
7.1 OWNER shall provide the following information and/or offsite
services ("Offsites"). All Offsites and process battery limits installations
shall be ready for startup based on DBW's Schedule approved by DBW and OWNER in
Exhibit Part A-VI. If there is a change in DBW's Schedule, notification shall be
delivered to OWNER with sufficient time for OWNER to perform and complete the
scheduled item on time. If notice of change in a scheduled item is not given
timely, no extension for performance will be allowed for that item.
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<PAGE>
7.2 OWNER shall provide the legal description of the Site where the
plant is to be installed and a title report dated within sixty (60) days from
the date of this Contract.
7.3 OWNER shall provide the soil tests requested by DBW. If any
chemical contamination, unstable soil condition, buried lines or other obstacle
is found, OWNER is responsible for any additional cost or delay. This Contract
is based upon 2000 PSF loading capacity.
7.4 OWNER shall provide a drawing showing the Site location for
process battery limits and reference stakes for the exact location of the
process building foundation, utility building foundation, office building
foundation, tank farm foundation, centerline of roads and power pole locations.
OWNER will sign an approval drawing from DBW for the location in reference to
existing installations.
7.5 OWNER shall provide offsite utilities per the requirements of
the process. DBW shall provide the requirements to OWNER within three weeks of
the Contract signing.
7.6 OWNER shall provide all Offsites not specified in the Exhibit
Part A-I & XIV.
7.7 OWNER shall provide the following personnel and training
support: operations and supervisory personnel for training at OWNER'S facilities
in Virginia for a minimum of two weeks, and mechanical maintenance, instrument
and Honeywell trained personnel for maintenance support of the plant during
startup on six (6) warranty runs. DBW will further train personnel with on-site
personnel during final stages of construction and start-up.
7.8 OWNER shall obtain water, air and noise environmental permits
required to complete the Work per Article 8.3. Information for those permits is
based on technical information supplied by DBW. If permitted values are
different than information provided by DBW in Exhibit Part A-VII, VIII, XVII,
XVIII,XIX, XX, XXI, & XXII, then OWNER should request a change order per Article
IV.
7.9 OWNER shall provide temporary power and water and sewer
facilities to the process battery limits area of the Site, and temporary permits
for these facilities from the appropriate governmental agencies.
7.10 OWNER shall provide access for DBW personnel to the Project
Site 24 hours/day until the Project is accepted and final payments are made.
7.11 OWNER will grant DBW the right of continuing access to the
Project for the purpose of demonstrating DBW technology to prospective clients.
DBW will obtain OWNER'S prior approval for the visit and provide OWNER with
appropriate confidentiality agreements signed by all visitors.
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<PAGE>
ARTICLE VIII
COMPLIANCE WITH LAWS, TAXES AND PERMITS
8.1 DBW will design the Project and equipment to meet appropriate
Federal, state, county, city and public authority requirements including the
requirements of the Occupational Safety and Health Act of 1970, both state and
Federal, the NEPA, the NEC for Class I, Division II and the Uniform Building
Code. The requirements of this paragraph do not apply to whether the Project can
be built on the Site, suitability of the Site for its intended use or Site
environmental requirements and Project permits, including noise consideration.
Any special local regulations that are more stringent than those above, shall be
handled under Article IV, unless defined in writing by OWNER prior to Contract
signing.
8.2 OWNER shall indemnify and hold DBW harmless from any claim or
action arising out of operation of the Project or any products manufactured by
OWNER, but this indemnification and hold harmless agreement does not apply to
any claim or action arising out of DBW negligence, errors or omissions or
failure to comply with the terms of this Contract. If DBW is requested to
proceed on the Project prior to OWNER having all permits in place, this
indemnification shall apply.
8.3 OWNER is responsible for obtaining all permits including, but
not limited to environmental, construction, and zoning permits by August 30,
1997.
8.4 OWNER is responsible for all sales, VAT and use taxes imposed
by any state or local government. All such taxes will be billed separately at
the time they are imposed.
8.5 OWNER is responsible for all duties into country of shipments.
ARTICLE IX
COMPLETION OF CONTRACT AND ACCEPTANCE TEST
9.1 This Contract shall be considered complete, with the exception
of the Warranties (as hereinafter defined), once DBW has successfully completed
the requirements set forth herein of the tests for acceptance of the Project
(the "Acceptance Test"). OWNER will schedule and run the Acceptance Test within
twenty days of notice from DBW that the Project is ready for start up and ready
for the Acceptance Test. Within five days after receipt of the Acceptance Test
results, OWNER shall signify in writing its acceptance of the Project including
the performance Guarantees or specify in what respect the Guarantees have not
been met. In the event DBW has not received a letter of acceptance or rejection
within 10 days after receipt of the Acceptance Test results, all Guarantees will
be deemed to have been met.
9.2 The Acceptance Test will be based on the following conditions:
(a) OWNER will provide qualified mechanical, maintenance,
instrument, electrical, lab, and operating personnel to enable the Project to
operate satisfactorily and permit evaluation of the Acceptance Test results. If
OWNER does not have employees who can provide
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<PAGE>
responsible support in these areas, then OWNER shall employee sub-contractors or
other agents to provide this support during startup and continuing support after
startup.
(b) OWNER shall provide all bulk feedstock chemicals.
(c) OWNER is responsible for providing an acceptable
accounting method to monitor bulk feedstock chemicals coming into the Project
and the finished product leaving the Project in order to assist in establishing
yields and capacities. Metering shall be based on certified scales and/or
calibrated meters. DBW will initially calibrate all meter and truck scales;
however, OWNER shall recalibrate product transfer meters or scales in the event
there is any doubt as to the accuracy of any such meter or scale.
(d) Official samples of feedstock and finished products
shall be collected during the Acceptance Test period. Each sample shall be
divided into two equal portions, one for OWNER and one for DBW for the purpose
of analytical testing. Analytical procedures for testing product quality are
provided in Exhibit Part B.
9.3 The HCHO Acceptance Test will be conducted by OWNER'S operating
personnel at design methanol feed rates shown in the Guarantees according to the
instructions set forth by DBW and under the supervision of DBW's start-up
representative. Acceptance Test of the Project shall be conducted in a test run
of four (4) consecutive days, out of which DBW shall select any continuous
seventy-two (72) hour period as representative of the performance of the
Project, using the average daily rates for the period selected.
9.4 The UFC Acceptance Test will be conducted by OWNER'S operating
personnel at design methanol feed rates in the Guarantees according to the
instructions set forth by DBW and under the supervision of DBW's start-up
representative. DBW will determine Project readiness for the UFC Acceptance
Test. The UFC Acceptance Test of the Project shall be conducted in a test run of
four (4) consecutive days, out of which DBW shall select any continuous
seventy-two (72) hour period as representative of the performance of the
Project, using the average daily rates for the period selected.
9.5 If OWNER, for any reason, does not run the Acceptance Test
during such 20 day period, and DBW considers Project to be ready for the
Acceptance Test, and the Project is ready for startup as defined in Article 3.4,
and all other conditions for final payment have been met, then final payment
will be due and payable at the end of the 20 day period. OWNER can reschedule
the Acceptance Test within the next 60 days for purpose of satisfying the
Guarantees. If the Acceptance Test has not been rescheduled during such 60 day
period all Guarantees will be deemed to have been met. DBW's costs for
rescheduling Acceptance Test are shown in the Exhibit Part A-X.
9.6 In the event the initial Acceptance Test on the Project is not
completed successfully, DBW will be further obligated to carry out additional
Acceptance Tests. If the test fails to demonstrate that the product and Project
meet the process Guarantees, then DBW shall conduct a reasonable number of tests
within thirty (30) days to determine whether the process
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Guarantees can be met. If DBW fails to demonstrate that the process Guarantees
are met, then unless it is determined that the cause of such failure is not an
error or deficiency in the technology and/or equipment furnished by DBW, then
DBW shall initiate necessary actions to correct the deficiencies causing such
failure. DBW commits to building a new vessel or supply major equipment in the
event of a major failure. DBW will first try to repair definceny on site. If the
repair doesn't work OWNER commits to allowing DBW to produce or supply the new
vessel or major component. DBW will make a reasonable effort to get the plant
operating at full design capacity in a reasonable time. Upon completion of such
corrections, tests shall again be made and shall be repeated together with
needed corrections until the process Guarantees are met or it is established
that such Guarantees cannot be met. If the Guarantees cannot be met the Contract
Price shall be reduced by the amount shown in Guarantees in the Exhibit Part
A-IX, which shall be the limit of DBW's liability for failure to meet such
Guarantees.
9.7 If any test shall be interrupted by power failure, the
existence of a safety hazard, interruptions of Work schedule, interruption of
feed supply, or any other circumstances beyond the control of DBW and/or OWNER,
the test shall be recommenced promptly after correction of the interruption. If
any test is interrupted by causes within the control of DBW, then the test shall
be recommenced promptly after correction of the interruption by DBW.
9.8 Before the start of an Acceptance Test, DBW will specify
operating data to be recorded and the manner in which data are to be taken. DBW
shall have complete access to the Project and operating logs to observe
operations, review data and make recommendations through completion of the
Acceptance Test.
9.9 All other provisions of this Contract identified as offsites
and to the contrary notwithstanding, completion and acceptance of those
components of the Project identified as offsites and listed on Exhibit Part A-I
attached hereto and made a part hereof (the "Offsite Components") shall not
delay the acceptance of and payment for the other components of the Project, so
long as the absence of completion of the Offsite Components or the conditions
preventing acceptance thereof do not render the Project as a whole impracticable
for commercial operation. In such an event when the Offsite Components are
completed and accepted after all other Project components, acceptance and
payment for the Offsite Components and all other components of the Project shall
be treated separately pursuant to all other terms and conditions of this
Contract.
ARTICLE X
GUARANTEES AND WARRANTIES
10.1 DBW warrants all equipment, whether fabricated by DBW or
procured from third parties against all defects for one (1) year from the
earlier of (a) the completion date, or (b) the date the Work is terminated by
OWNER pursuant to the provisions of Article XI. The warranties granted by DBW in
this Agreement are hereafter referred to collectively as the "Warranties."
10.2 DBW does not warrant the Work, the design and engineering Work
or the equipment against failure due to faulty operation or which results from
service under conditions
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more severe that those contemplated by the specifications shown in Exhibit Part
A-VII & VIII and specification sheets provided by DBW within 60 days and
reasonably approved by OWNER and shown in Exhibit Part B. If any warranty
provided by an equipment supplier exceeds one year from completion date, DBW
shall assign such rights to OWNER.
10.3 If the equipment fails or the Project does not produce at the
guaranteed rate and efficiency, and DBW is responsible for the deficiency, DBW
shall immediately initiate work to correct the deficiency by repairing the
equipment or furnishing replacement equipment or by adjusting Project
operations. In the event 45 days after DBW first asserts the Project is ready
for start up and the deficiency has not been corrected, the start up date will
be redefined. If after six (6) months the start up Guarantees have not been met,
DBW's Contract Price shall be reduced by the amount specified in Guarantees in
Exhibit Part A-IX. Defective items must be held for DBW's inspection for a
reasonable period of time. If DBW is not responsible for the deficiency, DBW
shall adjust the Guarantees or, at OWNER'S request, DBW will provide a bid to
correct the deficiency and OWNER will pay the reasonable cost of evaluation.
10.4 Except as set forth in this Agreement, DBW MAKES NO WARRANTY,
EXPRESS OR IMPLIED, REGARDING THE EQUIPMENT OR THE PRODUCT TO BE MADE BY THE
EQUIPMENT, OR THE MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE OF EITHER.
In no event shall DBW or OWNER be liable for incidental or consequential damages
to the other including any claims for lost profits, delay, disruption or
acceleration damages.
10.5 The performance guarantees contained in Exhibit Part A-IX (the
"Guarantees") are the only such guarantees offered by DBW. Once the Guarantees
have been met by successful completion of the Acceptance Test, such Guarantees
shall be deemed to have been fulfilled and DBW's obligations with respect to the
Guarantees shall have been terminated.
10.6 DBW is not responsible for the validity and accuracy of any
written engineering data furnished by or through OWNER and used by DBW in the
design of the Project. If DBW is aware of any errors or inaccuracies in such
data, DBW shall immediately notify OWNER and DBW shall be relieved of its
obligations to the extent so affected. DBW is not responsible for the
performance of any process equipment furnished by or through OWNER and used by
DBW in the Project. DBW will be relieved of its obligations to the extent that
operation or performance of the Project is affected by the equipment supplied by
OWNER
ARTICLE XI
TERMINATION AND SUSPENSION
11.1 If DBW shall at any time be in default in performance of any of
the obligations contained in this Contract, and shall fail to provide a written
plan to OWNER to correct default within forty-five (45) days after receiving
written notice thereof from OWNER, OWNER may, at its option, take over and
perform all or any part of the Work then remaining unperformed or may terminate
all Work by DBW under the Contract and employ any other party to finish the
Work, or OWNER may finish the Work itself.
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11.2 OWNER may, before completion of the Work, terminate the
Contract by providing DBW written notification of its intent to terminate. In
such event OWNER shall pay to DBW in full settlement of all claims by DBW
hereunder an amount equal to the full Contract Price, less that part of such
Contract Price which is equal to DBW's costs of equipment not yet ordered by DBW
or DBW's cost of installation services not yet performed. All equipment or
material paid for by OWNER under this section shall become OWNER'S property.
11.3 OWNER shall have the right to suspend operations on this
Contract for a period not greater than six months by giving to DBW written
notice of OWNER's desire to initiate such suspension. OWNER may request DBW to
provide to OWNER the amount it will charge OWNER for suspension cost and the
estimated time that will be required to mobilize. The period of suspension, if
written notice is given, shall begin ten days after DBW receives written notice
from OWNER informing DBW that operations have been suspended by OWNER. DBW may,
however, continue after such suspension date to perform those things necessary
to properly complete the suspension process, including, but not limited to,
those steps necessary to suspend operations, protect completed Work, remove any
of DBW's equipment which may be on OWNER's Site and other like procedures.
Equipment that has been ordered will not be canceled due to a suspension. DBW
shall be compensated for all reasonable additional costs incurred by it as a
result of such suspension including, but not limited to, the costs incurred by
DBW in closing down the operation, protecting the Work, and removing its
equipment. Further, DBW shall be paid by OWNER the Contract Price for all
equipment ordered by DBW prior to receiving written notice of the suspension and
for that proportion of the total Work contemplated by the Contract which DBW has
completed through the date when an orderly suspension has been achieved, but
which had not yet been paid for by OWNER. OWNER shall pay all costs related to
the suspension and the sums due for the proportion of Work completed within 10
days after receiving DBW's invoice for the same. All equipment or materials paid
for by OWNER under this paragraph shall become OWNER'S property.
11.4 In the event OWNER suspends performance as provided by the
preceding paragraph, all performance requirements applicable hereunder to DBW
shall be suspended, for the duration of the delay or interruption resulting from
such suspension, and any time periods imposed upon DBW by this Contract shall be
extended for a period equivalent to the duration of such suspension, plus
reasonable additional time allowances for re-starting, including preparations
and mobilization by DBW.
11.5 If OWNER does not, within six months after giving the original
notice of suspension, give to DBW a further notice that the suspension period
has ended and that DBW is to re-commence operations, then the suspension shall
become a termination by OWNER under the provisions of Article 11.2 hereinabove.
If, however, within such six months' period, OWNER gives DBW notice that the
suspension has ended and that DBW is to re-commence operations, then DBW shall
re-commence operations hereunder unless prevented from doing so by expirations
of permits, changes in governmental regulations or other like outside causes not
within the control of DBW. Further, in the event operations hereunder are
re-commenced after a period of suspension, the Contract Price payable hereunder
shall be adjusted for any escalation or
Page 13 of 18
<PAGE>
other increase in cost resulting from the suspension including costs to mobilize
and restart and any costs of extending warranties which may be extended.
Further, in such event, warranties given by DBW hereunder shall not be extended
by the period of suspension unless DBW is able to procure a similar such
extension from its suppliers and sub-contractors.
11.6 In the event OWNER should default in making any payments
required of OWNER hereunder for a period of ten days after receiving notice of
default from DBW or should default in performing any other term or provision of
this agreement for a period of thirty (30) days after receiving notice of
default from DBW, then DBW may suspend all Work on the Contract until the
default has been satisfied, and any time requirements within which the Contract
is to be performed shall be extended by a period of time equal to the period of
such suspension plus ten (10) days. Further, if OWNER remains in breach of the
Contract for a period in excess of thirty (30) days after having received
written notice of default from DBW, DBW shall have the right to terminate the
Contract and OWNER shall compensate DBW in accordance with the provisions of
Article 11.2 hereof. If DBW suspends Work under this paragraph when OWNER is not
in default hereunder, no extension of time shall be allowed.
ARTICLE XII
INDEPENDENT CONTRACTOR
12.1 DBW agrees that it is acting as an independent contractor in
the performance of the Work under the Contract, and not as an agent of OWNER.
12.2 DBW shall accept full responsibility for and pay all
withholdings to be made from the wages of its employees, payroll taxes, and
contributions such as, without limitation, social security and unemployment
taxes and contributions required by the laws of the United States and any
applicable state, territory, or political subdivision, in respect of its
employees.
ARTICLE XIII
PATENT FEES AND ROYALTIES
13.1 DBW shall pay all license fees and assumes all costs incident
to its use of any invention, design, process, or device supplied by DBW
hereunder which is the subject of patent rights or copyrights held by others.
13.2 DBW represents to OWNER that all design and technical
information which it is providing hereunder is its own proprietary information
which it has independently developed and has full right to use in connection
with the Work. DBW agrees to be responsible for and to defend OWNER against
liability of any nature or kind for or on account of any design information,
patented or unpatented process, invention, article, or appliance manufactured or
used in the performance of the Contract, which DBW has supplied, and DBW shall,
at its own expense, defend any and all actions based thereon, but OWNER shall
have the right, at its option, to participate at its own expense in the defense
of any such suit.
Page 14 of 18
<PAGE>
ARTICLE XIV
CONFIDENTIALITY
14.1 As used herein the term "Proprietary Information" shall
include but shall be limited to, DBW's confidential information and trade
secrets. Trade secrets, with respect to DBW, mean the whole or any portion of
any scientific or technical information, design, process, procedure, formula,
pattern, compilation, program, method, technique, or improvement, which is
secret, and of value to DBW. DBW's formaldehyde/UFC trade secrets include, but
are not limited to the supply, use or application of equipment by DBW for the
formaldehyde/UFC process, emission and effluent systems, control of the plant
and product storage to accomplish a process or economic objective or advantage.
Trade secrets also include related drawings, prints, manuals or other
documentation provided by DBW to explain or communicate DBW process technology
or equipment.
Equipment designed and built by DBW or to DBW's specifications are
proprietary trade secrets in their design, application and ability to achieve a
process or economic objective or advantage. Generic type equipment that can be
purchased "off the shelf" are proprietary trade secrets in their application or
ability to achieve a process or economic objective or advantage. The combination
of components or features in DBW's plant design are proprietary trade secrets
even though the individual components or features are in the public domain, in
the possession of OWNER or received from a third party unless the combination
itself and the process or economic objectives or advantages achieved by the
features or the combinations of features are in the public domain, in the
possession of OWNER or received from a third party.
14.2 Information shall be deemed to be treated as confidential if
it:
(a) has been reduced to writing and marked clearly and
conspicuously with a legend identifying its confidential nature; or
(b) with respect to any oral presentation or communication,
is described as being confidential immediately before the oral presentation or
communication; or
(c) is known by the receiving party as being treated by the
disclosing party as confidential, whether or not it is written form and whether
or not it is designated as confidential.
14.3 OWNER agrees to exercise reasonable care to prevent disclosure
to a third party of DBW's proprietary information and will not use for its own
benefit, except in the operation of the Project supplied under this Contract, or
that of others, such information except as may be authorized in writing, except
to the extent of that portion thereof which:
(a) at the time of disclosure is in the public domain;
(b) after disclosure under this Contract becomes part of
the public domain by publication or otherwise through no fault of OWNER;
Page 15 of 18
<PAGE>
(c) OWNER can show was in its possession at the time of
disclosure and was not acquired in confidence, directly or indirectly, from DBW;
(d) is independently disclosed without obligation of
confidentiality to OWNER by a third party which third party did not obtain such
information directly or indirectly from DBW;
14.4 OWNER agrees to limit disclosure of proprietary information
within its own organization to those necessary to carry out the purpose of this
Contract. Furthermore, OWNER agrees that all such personnel have executed or
will be required to execute confidentiality and nonuse agreements with
obligations at least as coextensive in scope as those in this Contract.
14.5 OWNER shall not, under any conditions, allow competitors of
DBW: into the process area, to review drawings or to review any of DBW's
information labeled "Proprietary information".
ARTICLE XV
ASSIGNMENT
15.1 Neither OWNER nor DBW shall assign or transfer this Contract
during the term of this Contract; provided, however, that OWNER may assign its
rights under this contract to KeyBank National Association in connection with
the financing of the Project.
ARTICLE XVI
MODIFICATION
16.1 No modification of this Contract shall be enforceable unless in
writing signed by an officer of both parties.
ARTICLE XVII
NONWAIVER
17.1 Waiver of a default by either party shall not affect or alter
any provision hereof and shall not constitute a waiver of any further default of
the same or any other provision. The failure by OWNER to insist on strict
performance by DBW of any of the covenants, conditions and agreements of this
Contract shall not be deemed a waiver of any of OWNER's rights or remedies.
Payment by OWNER shall not constitute acceptance of the Work or a waiver of any
rights provided under this Contract or by law.
ARTICLE XVIII
NOTICES
18.1 Written notice shall be deemed to have been fully served if
delivered at or sent by registered or certified mail to OWNER at 209 West Main
Street, Waverly, Virginia 23890, or to DBW at 1360 Airport Lane, North Bend,
Oregon 97459.
Page 16 of 18
<PAGE>
ARTICLE XIX
GOVERNING LAW
19.1 The Contract shall be governed by the law of the State of
Oregon.
ARTICLE XX
CONTRAVENTION OF LOCAL LAW
20.1 This is a general form of Contract and if any provision herein
is held by the courts to be illegal or in conflict with the laws of the state or
province where made or to be performed, the validity of the remaining provisions
shall not be affected, and the Contract shall be enforced as if the illegal or
unenforceable provision were not a part of this Contract.
ARTICLE XXI
21.1 DBW hereby agrees that, in consideration of the additional sum
of $43,500.00 to be paid promptly upon the execution of this agreement, DBW will
obtain and furnish to OWNER a standard Contractor's Performance Bond in the
amount of the Contract Price set forth in Article 2.1 above, which bond shall be
executed by a corporate surety company licensed to do business in the State of
New York and which bond shall contain the standard provisions included in such
surety bonds as they are commonly used in the contracting industry in the United
States. The surety bonds shall not, however, extend to any guarantees set forth
in this agreement (or any amendments or supplements thereto) with respect to the
efficiency of the plant, the production capacity of the plant, or other items
relating to the performance of the plant. Such bond shall be furnished not later
than 30 days after the execution of this agreement.
ARTICLE XXII
22.1 Until delivery to the project site and payment pursuant to
Section 2.1 (d), DBW reserves and retains title to and a security interest in
all items of equipment and materials and other goods comprising the Work,
whether now owned or hereafter acquired, and all proceeds and products thereof
and accessions thereto. The "Work" shall include all items described in
Paragraph 2.7 of this Agreement. So long as DBW retains possession of the Work,
DBW's security interest shall be perfected without filing as provided in Chapter
2 of the Uniform Commercial Code (Chapter 72 of Oregon Revised Statutes). In the
event of default by owner hereunder DBW may exercise any and all rights under
this contract or those of a secured party under the Uniform Commercial Code as
enacted in the State of Oregon (or any other jurisdiction if the rights of a
secured party in any particular item comprising a part of the Work are to be
determined by the laws of such other jurisdiction).
Page 17 if 18
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Contract in
duplicate as of the day and year first above written.
SPURLOCK ADHESIVES, INC.
By: /s/ Phillip S. Sumpter
------------------------------
Phillip S. Sumpter
Title: Executive Vice President
D. B. WESTERN, INC.
By: /s/ Dennis C. Beetham
-------------------------------
Dennis C. Beetham
Title: President
Page 18 of 18
Exhibit 10.4
HCHO/UFC PLANT "A"- LEASE
This lease made this 30th day of September, 1997, by and between D.B.
WESTERN, INC., hereinafter called "LESSOR" (and sometimes lessor), and SPURLOCK
ADHESIVES INC., hereinafter called "LESSEE" (and sometimes lessee). This lease
shall herein be called "Plant "A" Lease". This lease is a part of a transaction
involving other work as identified in a separate documents contained in the
volume entitled Main contract Part A which includes exhibits and specifications
referred to at places herein.
WITNESSETH:
For and in consideration of the mutual covenants and promises
hereinafter set forth, the parties hereto agree as follows:
1. LEASE. LESSOR hereby leases plant equipment and facilities to
LESSEE as follows:
(a) The process equipment and facilities installed and supplied
by LESSOR for LESSEE listed in Plant "A" - Equipment List-for Process
Battery Limit (Exhibit XIV) and shown in Drawings No. 4-2-1 plot Plan
Site Layout and Drawing No. 41110 Process PID - Plant "A" (PID)
(sometimes hereinafter referred to as the Equipment, or Plant).
(b) The equipment and facilities are located on property owned
and controlled by LESSEE. Said property is located at and described as
follows (sometimes hereinafter referred to as the Property):
All that tract or parcel of land situate in the Town of
Moreau, County of Saratoga and State of New York more
fully described as Lot Numbers 2 & 3 as shown on
subdivision maps of Moreau Industrial Park prepared by
the Saratoga Associates and filed in the Saratoga
County Clerk's Office on March 18, 1992 in drawer
#M-348 A-Z and AA-DD; and as modified by revised
subdivision maps of Moreau Industrial Park prepared by
the Saratoga Associates and filed in the Saratoga
County Clerk's Office on February 16, 1994 and drawer
#M-398, A-S.
2. TERM. The term of this lease shall be a period of ten (10)
years which shall commence, without regard to any other provisions of this
lease, upon the tenth day after the date the plant is mechanically complete and
ready for start up, in accordance with a notification to that effect to be given
to LESSEE by LESSOR. As used in this paragraph, "ready for start up" means ready
to load catalyst. The lease shall end at midnight on a date the day before the
tenth anniversary date of the commencement of the lease, subject to renewal of
this lease as hereinafter provided.
3. RENT. The rent for the "Plant "A" Lease" shall be a monthly
rent payable in advance on the first day of each month during the lease term, as
follows:
The lease payment for Plant A-Equipment and facilities, per month is
... US $46,139.00
If the lease commences on any day of the month other than the first day
of a month, LESSEE shall pay to LESSOR, as the rent for the portion of the first
month, an amount equal to
<PAGE>
US $ 1,55082.00 per day for each day remaining between the date of commencement
of the lease and the first day of the next month.
The lease payment above is based on the purchase option price, as set
forth herein below, which is subject to adjustment for change orders and
otherwise as expressly set forth herein and in Main contract part "A." In the
event of a change or adjustment to the purchase option price all future rents
shall be proportionately increased or decreased, as the case may be, to reflect
such change or adjustment in the purchase option price.
4. USE. LESSEE shall use the items in "Plant "A" Lease" in a
careful and proper manner and shall in all material respects comply with and
conform to all national, state, municipal, police and other laws, ordinances and
regulations in any way relating to the possession, use or maintenance of the
Plant A- Equipment, including without limitation, the Environmental Protection
Act, the Clean Air Act, the Clean Water Act, the Occupational, Safety & Health
Act, and any state laws of the State of New York, relating to protection of the
environment and worker safety. Any upgrade of items in "Plant "A" Lease" to meet
new regulations shall be at LESSEE's expense.
5. LESSEE'S INSPECTION; CONCLUSIVE PRESUMPTIONS. LESSEE shall
inspect the HCHO/UFC Plant A-Equipment throughout the plant construction and
acceptance test period, and shall exercise good faith in notifying LESSOR of any
defects or problems observed.. LESSOR shall notify LESSEE when the Plant is
mechanically complete and ready for start-up. Unless LESSEE gives written notice
during construction or pursuant to section 16 during the acceptance test period
to LESSOR specifying any defect in or other objection to HCHO/UFC Plant
A-Equipment LESSEE agrees that it shall be conclusively presumed, as between
LESSOR and LESSEE, that LESSEE has fully inspected and acknowledged that the
HCHO/UFC Plant A-Equipment is in good condition and repair, and that LESSEE is
satisfied with and has accepted the HCHO/UFC Plant A- Equipment in such good
condition and repair.
6. COMPLETION OF LESSOR'S SUPPLY OBLIGATIONS. The plant shall be
considered complete when items listed in 16. Acceptance Test and 17. Guarantees
and Warranties are completed.
7. LESSOR'S INSPECTION - LOCATION OF EQUIPMENT. LESSOR shall,
upon giving not less than forty-eight (48) hours notice, have the right to enter
upon the premises where the HCHO/UFC Plant A- Equipment may be located for the
purpose of inspecting the same, observing its use, and for the purpose of
showing or displaying the Plant to prospective customers of LESSOR who may be
interested in purchasing or leasing similar Equipment. LESSEE shall give LESSOR
immediate notice of any attachment or other judicial process affecting the
HCHO/UFC Plant A-Equipment. LESSEE shall not remove any part of the Equipment
from the Property without the prior written consent of LESSOR.
8. ALTERATIONS. Without the prior written consent of LESSOR,
LESSEE shall not make any alterations, additions or improvements to the HCHO/UFC
Plant A-Equipment. Such permitted alterations, additions or improvements shall
become a part of the plant and shall be deemed owned by LESSOR unless otherwise
agreed in writing by LESSOR and LESSEE at the time LESSOR consents to the
installation of such alterations, additions or improvements.
9. REPAIRS. LESSEE, at its own cost and expense, shall keep the
Equipment in good repair, condition and working order and shall furnish any and
all parts, mechanisms and devices required to keep the Equipment in good
mechanical and working order and to see to it that the Equipment at all times
complies in all material respects with the requirements of the
Page 2 of 14
<PAGE>
Environmental Protection Agency, the Occupational, Safety & Health Act, and all
other federal and state environmental and workers safety standards.
10. LOSS AND DAMAGES; STIPULATED LOSS VALUE. From the date of
commencement of this lease until its delivery of any equipment to the Property,
until termination of this lease, LESSEE hereby assumes and shall bear the entire
risk of loss and damage to the HCHO/ UFC Plant A- Equipment from any and every
cause whatsoever. No loss or damage to the Property or the Equipment or any part
thereof shall impair any obligation of LESSEE under this lease, which shall
continue in full force and effect.
In the event of loss or damage of any kind whatsoever to any item of
Equipment, LESSEE shall:
(a) Place the Equipment in good repair, condition and working
order, or replace the same with like Equipment in good repair,
condition and working order; or
(b) If in the reasonable judgment of LESSOR equipment is
determined by LESSOR to be lost, stolen, destroyed or damaged beyond
repair and it is not economically feasible to repair or replace the
equipment, pay LESSOR therefore in cash the full replacement value
thereof which sums may be paid by the insurer as set forth in paragraph
12 below, but in no event less than the purchase price as set forth in
paragraph 343 below.
11. SURRENDER. Upon the expiration or earlier termination of this
lease, LESSEE shall surrender the HCHO the HCHO/UFC Plant A-Equipment to LESSOR
in good repair, condition and working order, ordinary wear and tear resulting
from proper use thereof alone excepted, which Equipment shall be delivered to
LESSOR at the location installed by LESSOR.
12. INSURANCE. LESSEE shall keep the Equipment insured against all
risks of loss or damage by fire and such other risks as are covered by an
endorsement commonly known as supplemental or extended coverage for not less
than the full insurable value on a replacement cost basis; and shall carry
public liability and property damage insurance covering the HCHO/UFC Plant
A-Equipment in amounts of not less than $1,000,000.00 in respect of bodily
injury or death to any one person, not less than $1,000,000.00 in respect of any
one accident, and not less than $1,000,000.00 in respect of property damage, and
products liability insurance of not less than $1,000,000.00. All such insurance
shall insure both LESSOR and LESSEE. The LESSEE may effect such coverage under
its blanket policies. All such policies shall be written by companies presently
insuring the LESSEE or other companies reasonably satisfactory to the LESSOR and
certificates showing such coverage to be in effect shall be furnished to the
LESSOR within ninety (90) days from Lease Contract being signed. Each insurer
shall agree, by endorsement upon the certificate or certificates issued by it or
by independent instrument furnished to LESSOR, that it will give LESSOR thirty
(30) days written notice before the policy in question shall be altered or
canceled and that any proceeds shall be paid jointly to the LESSOR and LESSEE as
their interests may appear. The proceeds of such insurance, at the option of
LESSOR, shall be applied (a) toward the replacement, restoration or repair of
the Equipment or (b) if the replacement, restoration, or repair of the Equipment
is not economical(b) toward payment of the obligations of LESSEE hereunder.
13. TAXES. LESSOR shall pay the personal property taxes on the
Equipment covered by this lease, promptly when such taxes are due and payable.
LESSEE shall reimburse LESSOR for all taxes on Equipment that LESSOR is required
to pay within thirty (30) days of invoice by LESSOR. LESSEE shall keep the
HCHO/UFC Plant A-Equipment free and clear of
Page 3 of 14
<PAGE>
all other levies, liens and encumbrances (other than those being contested which
as a result of such contest do not adversely threaten LESSOR's title to the
Equipment) and shall pay when due all other license fees, registration fees,
assessments, charges and taxes (municipal, state and federal) which may now or
hereafter be imposed upon the lesseeship, leasing, renting, sale, possession or
use of the Equipment, excluding, however, all taxes on or measured by LESSOR's
income.
14. LESSOR'S PAYMENT. In case of failure of LESSEE to procure or
maintain said insurance or to pay said fees, assessments, charges and taxes, all
as herein before specified, LESSOR shall have the right; but shall not be
obligated, to effect such insurance, or pay said fees, assessments, charges and
taxes, as the case may be. In that event, the cost thereof shall be repayable to
LESSOR with the next installment of rent, and failure to repay the same shall
carry with it the same consequence, including interest at twelve percent (12%)
per annum, as failure to pay any installment of rent.
15. COMPLIANCE WITH LAWS AND PERMITS.
15.1 LESSOR will design the Plant and Equipment to meet the
requirements as of the date of this lease, of the
Occupational Safety and Health Act of 1970, the NAPA, the
NEC for Class 1, Division II, the uniform building code,
and the rules and regulations which have been adopted by
the Environmental Protection Agency. Any costs incurred
because of modifications of the Plant or Equipment
required because of any requirements adopted or enacted
by any of such agencies after the date of this lease
shall be the responsibility of LESSEE.
15.2 LESSEE is responsible for obtaining all environmental
permits and other permits required to complete the work.
LESSEE shall bear the cost of all permits and shall
reimburse LESSOR for the cost of any such permits that it
may be required to pay.
16. ACCEPTANCE TEST.
16.1 LESSOR shall have completed its duties with respect to
the furnishing of the Equipment under this contract, with
the exception of the warranties, once LESSOR has
successfully completed the Acceptance Test as defined
herein. LESSEE will schedule and run the Acceptance Test
within Twenty days of notice from LESSOR that the plant
is ready for the Acceptance test. Within five days after
receipt of the Acceptance Test results, LESSEE shall
signify in writing its acceptance of the "HCHO and UFC
Plant guarantees Plant "A" along with Footnotes in
Exhibit IX" or specify in what respect the guarantees
have not been met. In the event LESSOR has not received a
letter of acceptance or rejection within 10 days after
receipt of the Acceptance Test results, all guarantees
shall be considered to have been met.
16.2 The Acceptance Test will be based on the following
conditions:
(a) LESSEE will provide qualified mechanical,
maintenance, instrument, electrical, lab, and operating
personnel to enable the Plant to operate satisfactorily and
permit evaluation of the Acceptance Test results. If LESSEE does
not have employees who can provide responsible support in these
areas, then
Page 4 of 14
<PAGE>
LESSEE shall employee sub-contractors or other agencies to
provide this support during startup and continuing support after
startup.
(b) LESSEE shall provide all bulk feedstock chemicals.
(c) LESSEE is responsible to provide an acceptable
accounting method to monitor bulk feedstock chemicals coming
into the plant and the finished product leaving the plant in
order to assist in establishing yields and capacities. Metering
shall be based on certified scales and/or calibrated meters.
LESSOR will initially calibrate all meters, scales and truck
scales; however, LESSEE shall recalibrate product transfer
meters or scales in the event there is any doubt as to the
accuracy of any such meter or scale.
(d) Official samples of feedstock and finished
products shall be collected during the Acceptance Test period.
Each sample shall be divided into two equal portions, one for
LESSEE and one for LESSOR for purpose of analytical testing.
Analytical procedures for testing product quality are provided
in Contract Specification Part B Exhibits.
16.3 The HCHO Acceptance Test will be conducted by LESSEE'S
operating personnel at design methanol feed rates shown
in Guarantees (Exhibit IX) according to the instructions
set forth by LESSOR and under the supervision of LESSOR's
Start-Up representative. Acceptance Test of the plant
shall be conducted in a test run of four (4) consecutive
days, out of which LESSOR shall select any continuous
seventy-two (72) hour period as representative of the
performance of the Plant, using the average daily rates
for the period selected.
16.4 The UFC Acceptance Test will be conducted by LESSEE'S
operating personnel at design methanol feed rates in the
Guarantees (Exhibit IX) according to the instructions set
forth by LESSOR and under the supervision of LESSOR's
Start-Up representative. LESSOR will determine plant
readiness for the Acceptance Test. The Acceptance Test of
the plant shall be conducted in a test run of four (4)
consecutive days, out of which LESSOR shall select any
continuous seventy-two (72) hour period as representative
of the performance of the Plant, using the average daily
rates for the period selected.
16.5 If LESSEE, for any reason, does not run the Acceptance
Tests during such 20 day period, and LESSOR considers
Plant to be ready for the test and provided the Plant is
ready for startup, which is defined as mechanically
complete including installation, pressure testing piping
systems, and ready for loading of catalyst (miscellaneous
tough up painting and other punch list items that do not
affect plant operations will not constitute failure to be
ready for start up), and provided all other conditions
for the lease to commence have been met, the initial term
of the lease will begin at the end of the 20 day period.
If LESSEE, for any reason, does not run the Acceptance
Tests during such 20 day period, LESSEE can reschedule
the Acceptance Test within the next 60 days for purpose
of satisfying the guarantees. If the Acceptance Test has
not been rescheduled during such 60 day period all
guarantees will be deemed to have been met. LESSOR's
Page 5 of 14
<PAGE>
cost for rescheduling Acceptance run is shown in the Main
Contract Part A under Labor & Material Rates (Exhibit X).
16.6 In the event the initial Acceptance Test on the Plant is
not completed successfully, LESSOR will be further
obligated to carry out additional Acceptance Tests. If
the test fails to demonstrate that the product and Plant
meet the process guarantees, then LESSOR shall conduct a
reasonable number of tests within thirty (30) days, to
determine whether the process guarantees can be met. If
LESSOR fails to demonstrate that the process guarantees
are met, then unless it is determined that the cause of
such failure is not an error or deficiency in the
technology and/or equipment furnished by LESSOR, then
LESSOR shall initiate necessary actions to correct the
deficiencies causing such failure. Upon completion of
such corrections, tests shall again be made and shall be
repeated together with needed corrections until the
process guarantees are met or it is established that such
guarantees cannot be met. If the guarantees cannot be
met, the purchase option price as set forth in section
3334 shall be reduced by the amount shown in Guarantees
(Exhibit IX) in the Main Contract Part A, and the rent
shall be proportionately decreased to reflect such change
or adjustment in the purchase option price, both of which
shall be the limit of LESSOR liability for failure to
meet such guarantees.
16.7 If any test shall be interrupted by power failure, the
existence of a safety hazard, interruptions of work
schedule, interruption of feed supply, or any other
circumstances beyond the control of LESSOR and/or LESSEE,
the test shall be recommenced promptly after correction
of the interruption. If any test is interrupted by causes
within the control of LESSOR, then the test shall be
recommenced promptly after correction of the interruption
by LESSOR.
16.8 Before the start of an Acceptance Test, LESSOR will
specify operating data to be recorded and the manner in
which data are to be taken. LESSOR shall have complete
access to the Plant and operating log to observe
operations, review data and make recommendations through
completion of the Acceptance Test.
17. GUARANTEES AND WARRANTIES.
17.1 LESSOR warranties all equipment whether fabricated by
LESSOR or procured from third parties, against all
defects for one (1) year from the earlier of (a) the
completion date, except where such warranty is not
furnished by supplier, or (b) the date the Work is first
suspended or terminated by LESSEE pursuant to the
provisions of Article XI of a separate agreement between
the parties identified as HCHO/UFC Turnkey Plant "B" Sale
Contract.
17.2 LESSOR does not warrant the Work, the design and
engineering work or the Equipment against failure due to
faulty operation or which results from service under
conditions more severe that those contemplated by the
specifications shown in Main Contract Part A and
specification sheets provided by LESSOR. If any warranty
provided by an equipment supplier
Page 6 of 14
<PAGE>
exceeds one year from completion date, LESSOR shall
assign such rights to LESSEE.
17.3 If the equipment fails or the Plant does not produce at
the guaranteed rate and efficiency, and LESSOR is
responsible for the deficiency, LESSOR shall immediately
initiate work to correct the deficiency by repairing the
equipment or furnishing replacement equipment or by
adjusting plant operations. In the event 45 days after
LESSOR first asserts the plant is ready for start up the
deficiency has not been corrected, the start up date will
be redefined. If after six (6) months the start up
guarantees have not been met, LESSOR's Purchase Option
Contract Price shall be reduced by the amount specified
in Guarantees (Exhibit IX) in Main Contract Part A.
Defective items must be held for LESSOR's inspection for
a reasonable period of time. If LESSOR is not responsible
for the deficiency, LESSOR shall adjust the guarantees
or, at LESSEE'S request, LESSOR will provide a bid to
correct the deficiency and LESSEE will pay the reasonable
cost of evaluation and correction.
17.4 Except as set forth in this Agreement, LESSOR MAKES NO
WARRANTY, EXPRESS OR IMPLIED, REGARDING THE EQUIPMENT OR
THE PRODUCT TO BE MADE BY THE EQUIPMENT, OR THE
MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE OF
EITHER. In no event shall LESSOR or LESSEE be liable for
incidental or consequential damages to the other
including any claims for lost profits, delay, or
disruption damages.
17.5 The Guarantees contained in Main Contract Part A Exhibit
IX are the only guarantees offered by LESSOR. Once the
guarantees have been met by successful completion of the
Acceptance Test, such guarantees shall be deemed to have
been fulfilled and LESSOR's obligations with respect to
the guarantees shall have been terminated.
17.6 LESSOR is not responsible for the validity and accuracy
of any written engineering data furnished by or through
LESSEE and used by LESSOR in the design of the Plant. If
LESSOR is aware of any errors or inaccuracies in such
data, LESSOR shall immediately notify LESSEE and LESSOR
is relieved of its obligations to the extent so affected.
LESSOR is not responsible for the performance of any
process equipment furnished by or through LESSEE and used
by LESSOR in the Plant. LESSOR will be relieved of its
obligations to the extent that operation or performance
of the Plant is affected by the equipment supplied by
LESSEE
18. DEFAULT. The following events shall be events of default:
(a) If LESSEE fails to pay any rent or other amount due herein
provided within ten thirty (1030) days after LESSOR makes written demand for
such payment, or within ten (10) days after LESSOR makes written demand for such
payment if LESSOR has made written demand for any delinquent payment within the
preceding 12 months; or if LESSEE fails to observe, keep or perform any other
provision of this lease required to be observed, kept or performed by LESSEE,
and if LESSEE fails to remedy, cure or remove such failure in payment or such
other failure in observing, keeping or performing the provisions of this lease
within thirty
Page 7 of 14
<PAGE>
(30) days after receipt of written notice thereof from LESSOR, or to commence
within thirty (30) days.
(b) Failure by LESSEE to make any payment or material failure to
render any performance owed by LESSEE under the provisions of a separate
agreement between the parties entitled HCHO/UFC Turnkey Plant "B" Sale Contract
(the "Sale Plant Agreement") dated October 1, 1996, as amended by a subsequent
agreement dealing with the same subject dated September 30, 1997.
(c) The exercise by LESSEE of its rights under sections 11.2 and
11.3 of the Sale Plant Agreement to suspend or terminate the contract under the
provisions of sections 11.2 and 11.3 of the original agreement dated October 1,
1996, including any similar provisions in any amended form of said agreement.
19. REMEDIES. In the event of any default of any provision of
section 18 above, LESSOR, at it option, may pursue any one or more of the
following actions:
(a) To Declare immediately due and payable all of the rent and
other obligations then unpaid for the full remaining term of this lease
agreement with or without terminating the lease or LESSOR'S right to recover
possession of the Equipment.
(b) To sue for and recover all rents, and other payments, then
accrued or thereafter accruing, or to enforce any other obligation of LESSEE.
(c) To take peaceful possession of the items in "Plant "A"
Lease", and any product and raw material in process therein, without demand or
notice, wherever same may be located, without any court order or other process
of law. In so doing, LESSOR shall have all rights to enter and have full right
of access to Plant A-Equipment and LESSEE'S Property and to dismantle disconnect
and remove all such items. LESSEE EXPRESSLY WAIVES ANY RIGHT IT HAS TO NOTICE OR
A JUDICIAL HEARING PRIOR TO LESSOR'S RETAKING POSSESSION OF THE EQUIPMENT OR
RENDERING IT UNUSABLE, AND SPECIFICALLY ACKNOWLEDGES THAT ITS AGREEMENT TO WAIVE
SUCH RIGHTS, IF ANY, IS MADE IN CONSIDERATION OF LESSOR'S AGREEMENT TO ENTER
INTO THIS LEASE AGREEMENT. Unless LESSOR gives written notice to the contrary,
this lease agreement shall not be terminated by LESSOR's taking possession of,
or rendering unusable, the Equipment, and LESSEE shall remain liable for the
performance of all of its obligations under this agreement. On retaking
possession of the Equipment, LESSOR may retain possession of the Equipment, may
lease the equipment for any period (including a period beyond the expiration
term of this lease agreement) on such terms and conditions as LESSOR selects, or
may sell the equipment at public or private sale on such notice and after
solicitation of such bids as LESSOR deems commercially reasonable. LESSOR may be
the purchaser at any such sale.
LESSOR shall apply the net proceeds (the proceeds of any renting
or sale pursuant to this section, minus all costs and expenses incurred with the
recovery, repair, storage, renting, or sale) of any such rental or sale to the
payment of LESSEE's obligations, LESSEE remaining liable for any deficiency.
LESSEE hereby waives any and all damages occasioned by such
taking of possession unless caused by LESSOR's gross negligence or willful
misconduct. Any said taking of possession shall not constitute a termination of
this lease as to any or all items of Equipment unless LESSOR expressly so
notifies LESSEE in writing.
Page 8 of 14
<PAGE>
(d) To terminate this lease agreement and recover from LESSEE
the excess, if any, of the amount of rent and value of other obligations of
LESSEE, valued at the time of termination, for the balance of the term or any
shorter period of time, over the then reasonable rental value of the equipment
for the same period.
(e) To pursue any other remedy at law or in equity that LESSOR
may have
No right or remedy conferred on or reserved by LESSOR in this agreement
is exclusive, and each remedy is cumulative and may be enforced separately or
concurrently. Regardless of the remedy or remedies pursued by LESSOR, LESSEE
agrees to be liable for, and, on demand, to pay to LESSOR, in addition to all
other sums due, the full amount of any costs or expenses, including attorney
fees, incurred by LESSOR in connection with any default by LESSEE.
Notwithstanding any said repossession, or any other action which LESSOR
may take, LESSEE shall be and remain liable for the full performance of all
obligations on the part of LESSEE to be performed under this lease.
20. BANKRUPTCY. Neither this lease nor any interest therein is
assignable or transferable by operation of law. If any proceeding under the
Bankruptcy Act, as amended, is commenced by LESSEE, or such an action is
commenced against LESSEE and is not dismissed within sixty (60) days after the
commencement thereof, or if the LESSEE is adjudged insolvent, or if the LESSEE
makes any assignment for the benefit of his creditors, or if a writ of
attachment or execution is levied on any item or items of the Equipment and is
not released or satisfied within ten (10) days thereafter, or if a receiver is
appointed in any proceeding or action to which the LESSEE is a party with
authority to take possession or control of any item or items of the Equipment,
LESSOR shall have and may exercise any one or more of the remedies upon default
as set forth in this agreement; and this lease shall, at the option of LESSOR on
notice to LESSEE, immediately terminate and shall not be treated as an asset of
LESSEE after the exercise of said option.
21. CONCURRENT REMEDIES. No right or remedy herein conferred upon
or reserve to LESSOR is exclusive of any other right or remedy herein or by law
or equity provided or permitted; but each shall be cumulative of every other
right or remedy given hereunder or now or hereafter existing at law or in equity
or by statute or otherwise, and may be enforced concurrently therewith or from
time to time.
22. LESSOR'S EXPENSES. LESSEE shall pay LESSOR all costs and
expenses, including reasonable attorney's fees, incurred by LESSOR in exercising
any of its rights or remedies hereunder of enforcing any of the terms,
conditions, or provisions hereof.
23. ASSIGNMENT.
23.1 Without the prior written consent of LESSOR, LESSEE shall
not:
(a) assign, transfer, pledge or hypothecate this lease,
the Property, the Equipment, or any part thereof, or any
interest therein, or
(b) sublet or lend the Property or the Equipment or any
part thereof, or permit the Property or the Equipment or any
part thereof to be used by anyone other than LESSEE or LESSEE's
employees. Consent to any of the foregoing prohibited acts
applies only in the given instance; and is not a consent to any
subsequent like act by LESSEE or any other person.
Page 9 of 14
<PAGE>
23.2 So long as no default pursuant to Section 18 has occurred
and is continuing LESSOR shall not, without the prior
written consent of LESSEE, assign, or transfer this lease
to any entity other than an entity affiliated with,
related to, or managed by D. B. Western or Dennis
Beetham.
Subject always to the foregoing, this lease inures to the benefit of,
and is binding upon, the heirs, legatees, personal representatives, successors
and assigns of the parties hereto.
The foregoing of this Section 23 notwithstanding, LESSOR understands
that the LESSEE shall transfer and encumber the Property pursuant to financing
arrangements with the county of Saratoga Industrial Development Agency, Key Bank
National Association, and National Canada Finance Corporation, to which
transaction (including the transfer and encumbrance of the Property) the LESSOR
hereby consents. Any such transfer or encumbrance shall be subject to LESSOR's
prior rights hereunder.
24. LESSEESHIP. The Equipment is, and shall at all times be and
remain, the sole and exclusive property of LESSOR; and the LESSEE shall have no
right, title or interest therein or thereto except as expressly set forth in
this lease.
25. PERSONAL PROPERTY. The Equipment is, and shall at all times be
and remain, personal property notwithstanding that the Equipment or any part
thereof may now be, or hereafter become, in any manner affixed or attached to,
or imbedded in, or permanently resting upon, real property or any building
thereon, or attached in any manner to what is permanent as by means of cement,
plaster, nails, bolts, screws or otherwise.
26. INTEREST. Should LESSEE fail to pay any part of the rent herein
reserved or any other sum required by LESSEE to be paid to LESSOR, within ten
(10) days after the due date thereof, LESSEE shall pay unto the LESSOR interest
on such delinquent payment from the expiration of said due date until paid at
the rate of twelve percent (12%) per annum.
27. OFFSET. LESSEE hereby waives any and all existing and future
claims, and offsets, against any rent or other payment due hereunder and agrees
to pay the rent and other amounts hereunder regardless of any offset or claim
which may be asserted by LESSEE or on its behalf.
28. NONWAIVER. No covenant or condition of this lease can be waived
except by the written consent of LESSOR. Forbearance or indulgence by LESSOR in
any regard whatsoever shall not constitute a waiver of the covenant or condition
to be performed by LESSEE to which the same may apply, and, until complete
performance by LESSEE of said covenant or condition, LESSOR shall be entitled to
invoke any remedy available to LESSOR under lease or by law or in equity despite
said forbearance or indulgence.
29. ENTIRE AGREEMENT. This instrument constitutes the entire
agreement between LESSOR and LESSEE; and it shall not be amended, altered or
changed except by a written agreement signed by the parties hereto.
30. NOTICES. Service of all notices under this agreement shall be
sufficient if given personally, or mailed via certified mail, or sent by
overnight mail (which may include a non-government carrier, such as Federal
Express), to the party involved at its respective address hereinafter set forth,
or at such address as such party may provide in writing from time to time.
Page 10 of 14
<PAGE>
Any such notice mailed to such address shall be effective as of when (i) the
date delivered if delivered in person, (ii) the day after deposited in overnight
mail, if mailed by overnight mail, or (iii) four days after the deposit in
certified mail, if mailed by certified mail, so long as such notice is duly and
properly adressed and with postage prepaid. deposited in the United States mail,
duly addressed and with postage prepaid.
Any notices to be sent by either party to the other shall be sent to
the following addresses as indicated:
LESSOR: D.B. Western, Inc.
1360 Airport Lane
North Bend, Oregon 97459
LESSEE: Spurlock Adhesives, Inc.
Post Office Box 8
Waverly VA 23890
31. TITLES. The titles to the paragraphs of this lease are solely
for the convenience of the parties, and are not an aid in the interpretation of
the instrument.
32. TIME. Time is of the essence to this lease and each and all of
its provisions.
33. RENEWAL OPTION. LESSEE shall have the option to renew this lease
at the expiration of the first 10-year period of this lease at a rental to be
negotiated by the parties which shall take into account the then "fair market
value" of the Equipment in place as defined in paragraph 343, and the fair
rental value thereof. LESSEE shall exercise such option by giving notice to
LESSOR of LESSEE's desire to exercise the same which notice shall be given not
later than six (6) months prior to the expiration of the first 10-year term of
the lease. The renewal shall be for such term as the parties shall agree.
34. PURCHASE OPTION. Provided that LESSEE is not at such time in
default in performing any term or provision of this lease, LESSEE shall have the
right during the initial 10-year period of this lease to purchase the Equipment
covered hereby , all on an AS-IS, WHERE-IS basis, for cash at a price equal to
the greater of US $ 3,603,660.00 or the "fair market value" as hereinafter
defined of the Equipment. Further, at any time after the expiration of the
initial 10-year period of this lease provided that LESSEE is not at such time in
default in performing any term or provision of this lease, LESSEE shall have the
right to purchase the Equipment and to acquire LESSOR's rights under the
aforesaid ground lease, on an AS-IS WHERE-IS basis, for cash at a price equal to
the "fair market value" of the Equipment in place.
The "fair market value" of the Equipment in place shall be such amount
as is mutually agreed upon by LESSOR and LESSEE; provided, however, if LESSOR
and LESSEE are unable to agree upon the fair market value of the Equipment
within thirty (30) days after receipt by LESSOR of the notice of LESSEE's
election to exercise the purchase option, the fair market value shall be
determined by an appraiser selected by mutual agreement of LESSOR and LESSEE.
The Machinery and Equipment Committee of The American Society of Appraisers has
adopted the term "fair market value-in-place" (in use) as being the "fair market
value" of an item, including installation and the contribution of the item to
the operating facility and presupposes the continued utilization of the item in
conjunction with all other installed items, which shall be the definition for
valuation. This definition represents the value of an asset that is installed,
operating, and contributing to the business in which it is employed. The
valuation of the equipment will not take into account LESSEE's business
profitability, but may take into account
Page 11 of 14
<PAGE>
the business profitability that could be developed by a new LESSEE or owner of
the plant. If LESSOR and LESSEE are not able to agree upon an appraiser, the
fair market value shall be determined by American Appraisal Company. LESSEE
shall, within sixty (60) days after such fair market value has been determined,
pay the full purchase price to LESSOR in cash. All rights of LESSEE under this
paragraph shall terminate upon the expiration or earlier termination of this
lease.
LESSOR agrees that upon exercise of the above purchase option and upon
full payment therefor, LESSOR shall deliver marketable title, free of
encumbrances for the said Equipment.
35. LESSOR'S CONSENT. Whenever the consent or approval of the LESSOR
is required hereunder, LESSOR agrees that same will not be unreasonably
withheld.
36. CONFIDENTIALITY OF LESSOR'S PROPRIETARY INFORMATION. As used
herein the term "proprietary information" shall include, but shall not be
limited to, LESSOR's confidential information and trade secrets. Trade secrets,
with respect to LESSOR, mean the whole or any portion of any scientific or
technical information, design, process, procedure, formula, pattern,
compilation, program, method, technique, or improvement which is secret and of
value to LESSOR. LESSOR's formaldehyde/UFC trade secrets include, but are not
limited to the supply, use or application of Equipment by LESSOR for the
formaldehyde/UFC process, emission and effluent systems, control of the plant
and product storage to accomplish a process or economic objective or advantage.
Trade secrets also include related drawings, prints, manuals or other
documentation provided by LESSOR to explain or communicate LESSOR's process
technology or Equipment.
Equipment designed and built by LESSOR or to LESSOR's specifications
are proprietary trade secrets in their design, application and ability to
achieve a process or economic objective or advantage. Generic type Equipment
that can be purchased "off the shelf" are proprietary trade secrets in their
application or ability to achieve a process or economic objective or advantage.
The combination of components or features in LESSOR's plant design are
proprietary trade secrets even though the individual components or features are
in the public domain, in the possession of LESSEE or received from a third party
unless the combination itself and the process or economic objectives or
advantages achieved by the features or the combinations of features are in the
public domain, in the possession of LESSEE or received from a third party.
Information shall be deemed to be treated as confidential if it:
(a) has been reduced to writing and marked clearly and
conspicuously with a legend identifying its confidential nature; or
(b) with respect to any oral presentation or communication, is
described as being confidential immediately before the oral
presentation or communication; or
(c) is known by the receiving party as being treated by the
disclosing party as confidential, whether or not it is in written form
and whether or not it is designated as confidential.
LESSEE agrees to exercise reasonable care to prevent disclosure to a
third party of LESSOR's proprietary information and will not use for its own
benefit or that of others such information except as may be authorized in
writing, except to the extent of that portion thereof which:
Page 12 of 14
<PAGE>
(a) at the time of disclosure is in the public domain;
(b) after disclosure under this lease become part of the public
domain by publication or otherwise through no fault of LESSEE;
(c) LESSEE can show LESSOR's proprietary information was in its
possession at the time of disclosure and was not acquired in
confidence, directly or indirectly, from LESSOR;
(d) is independently disclosed without obligation of
confidentiality to LESSEE by a third party which third party did not
obtain such information directly or indirectly from LESSOR. LESSEE
agrees to limit disclosure of proprietary information within its own
organization to those necessary to carry out the purpose of this lease.
Furthermore, LESSEE agrees that all such personnel have executed or
will be required to execute confidentiality and non-use agreements with
obligations at least as coextensive in scope as those in this lease.
37. PATENT FEES AND ROYALTIES
37.1 LESSOR shall pay all license fees and assumes all costs
incident to its use of any invention, design, process, or device
supplied by LESSOR hereunder which is the subject of patent rights or
copyrights held by others.
37.2 LESSOR represents to LESSEE that all design and
technical information which it is providing hereunder is its own
proprietary information which it has independently developed and has
full right to use in connection with the Equipment. LESSOR agrees to be
responsible for and to defend LESSEE against liability of any nature or
kind for or on account of any design information, patented or
unpatented process, invention, article, or appliance manufactured or
used in the performance of the Lease, which LESSOR has supplied, and
LESSOR shall, at its own expense, defend any and all actions based
thereon, but LESSEE shall have the right, at its option, to participate
at its own expense in the defense of any such suit.
38. INDEMNITY. LESSEE shall indemnify, defend and hold harmless
LESSOR from and against any claim, demand, suit, proceeding, liability, damage,
fine or loss and all related costs (including the cost of complying with any
judicial or governmental order) or expense (including reasonable attorneys fees
at trial, on appeal and in connection with any petition for review) arising in
any manner out of (i) LESSEE's breach of any representation, warranty or
covenant in this lease, (ii) the possession, use or condition of the HCHO/ UFC
Plant A-Equipment, Property and Facilities during the term of this lease, (iii)
the operations of LESSEE, (iv) any products produced by or at the Property, (v)
the Equipment during the term of the lease, and the Property and the Equipment,
including without limitation the LESSEEship, possession, use of operation
thereof, or (vi) the migration or other release of hazardous substances onto or
under the Property from any other property owned, leased or controlled by LESSEE
or any of its affiliates. LESSOR shall have no liability to LESSEE for any
condition of the Property or any acts by third parties. The covenants and
indemnities set forth in this paragraph and the next preceding paragraph shall
survive the expiration or termination of this lease for any reason, but shall
not apply to any claim, demand, suit, proceeding, liability, damage, fine, loss
or costs caused by LESSOR or its subcontractors during the period prior to the
date the plant is mechanically complete, or caused by LESSOR's own negligence,
or misconduct.
Page 13 of 14
<PAGE>
39. GOVERNING LAW. This lease agreement shall be interpreted and
applied in accordance with the laws of the State of Oregon.
40. LEASE INTENDED AS TRUE LEASE. This lease is intended as a "true
lease" between the parties. The provisions hereof are not intended to constitute
a sale of the Equipment from the LESSOR to LESSEE; and LESSEE has no rights to
use or acquire the Equipment or any part thereof except as set forth herein. The
parties agree that each of them, will report that the LESSOR is the owner of the
Equipment for federal income tax purposes (unless and until the LESSEE completes
a purchase of the Equipment in accordance with the option to purchase set forth
in paragraph 343) and that neither of the parties will ever take an inconsistent
position.
41. FILING AND RECORDING OF NOTICES AND MEMORANDUMS. LESSEE agrees
to join with LESSOR in executing and recording and filling all notices,
financing statements, memorandums and other instruments and documents that
LESSOR deems necessary to give notice of LESSOR's rights hereunder, in the
appropriate offices of any county or state where any part of the Equipment be
located.
IN WITNESS WHEREOF the parties hereto have executed these presents the
day and year first above written.
D.B. WESTERN, INC. SPURLOCK ADHESIVES, INC.
By: /s/ Dennis C. Beetham By: /s/ Irvine R. Spurlock
------------------------------ ------------------------------
President President
By: /s/ Phillip S. Sumpter, Jr.
------------------------------
Exec. V.P.
Page 14 of 14
Exhibit 10.5
GUARANTY
THIS GUARANTY dated as of SEPTEMBER 1, 1997 (the "Guaranty") from
SPURLOCK INDUSTRIES, INC., a business corporation organized and existing under
the laws of the State of Virginia and having an address of 5090 General Mahone
Highway, Waverly, Virginia 23890 (the "Guarantor") to D.B. WESTERN, INC., a
business corporation organized and existing under the laws of the State of
Oregon and having an office at 1360 Airport Lane, North Bend, Oregon 97459 (the
"Seller");
WITNESETH:
WHEREAS, Spurlock Adhesives, Inc. (the "Company") and the Seller have
agreed to enter into an agreement for the design, engineering, equipment supply,
construction, and installation of plant equipment and facilities dated as of the
30th day of September, 1997 (the "Sale Agreement"); and
WHEREAS, the Guarantor is willing to enter into this Guaranty in order
to induce the Seller to enter into the Sale Agreement;
NOW, THEREFORE, in consideration of the premises herein contained, the
Guarantor does hereby covenant and agree with the Seller as follows:
The Guarantor unconditionally guarantees prompt payment of all
obligations set forth in Article 2.1(d) and Article 2.1(e) of the Sale Agreement
when due. The Guarantor shall pay all costs and expenses, including attorneys'
fees, incurred in the collection of the money due under said Article 2.1(d) and
Article 2.1(e) of the Sale Agreement. Neither the renewal or extension of the
Sale Agreement, nor the acceptance, release, or surrender of any security
therefor, nor the release of the Company, nor any delay in the enforcement of
payments under the Sale Agreement, nor any other delay or omission in the
exercise of any right or power under the Sale Agreement, shall affect the
liability of the Guarantor. The liability of the Guarantor on this guaranty
shall be direct, and not conditional or contingent on the pursuit of any
remedies against the Company. The Guarantor expressly waives presentment,
protest, demand, notice of dishonor or default, notice of acceptance of this
guaranty, and notice of any kind with respect to the Sale Agreement. The
Guarantor consents to be bound by all the terms and provisions of the Sale
Agreement.
This Guaranty is binding upon the Guarantor, its successors and
assigns.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered in its name by its duly Authorized Representative all as
of the day and year first above written.
SPURLOCK INDUSTRIES, INC.
By: /s/ Irvine R. Spurlock
-------------------------------
Name: Irvine R. Spurlock
Title: President
Accepted September ___, 1997:
D.B. WESTERN, INC.
By: /s/ Dennis C. Beetham
-------------------------------
Name: Dennis C. Beetham
Title: President
STATE OF Virginia )
)SS.:
CITY OF Richmond )
On this 30th day of September, 1997, before me personally came Irvine
R. Spurlock, to me known, who being by me duly sworn, did depose and say that he
resides at , that he is the President of SPURLOCK INDUSTRIES, INC. the
corporation described in and which executed the foregoing instrument, and that
he signed his name thereto by order of the Board of Directors of said
corporation.
/s/ Bonnie O. Cross
-------------------------------
Notary Public
My commission expires: Feb. 28, 1998
Exhibit 10.6
GUARANTY
THIS GUARANTY dated as of SEPTEMBER 1, 1997 (the "Guaranty") from
SPURLOCK INDUSTRIES, INC., a business corporation organized and existing under
the laws of the State of Virginia and having an address of 5090 General Mahone
Highway, Waverly, Virginia 23890 (the "Guarantor") to D.B. WESTERN, INC., a
business corporation organized and existing under the laws of the State of
Oregon and having an office at 1360 Airport Lane, North Bend, Oregon 97459 (the
"Lessor");
WITNESETH:
WHEREAS, Spurlock Adhesives, Inc. (the "Company") and the Lessor have
agreed to enter into a lease of plant equipment and facilities dated as of the
30th day of September, 1997 (the "Lease Agreement"); and
WHEREAS, the Guarantor is willing to enter into this Guaranty in order
to induce the Lessor to enter into the Lease Agreement;
NOW, THEREFORE, in consideration of the premises herein contained, the
Guarantor does hereby covenant and agree with the Lessor as follows:
The Guarantor unconditionally guarantees prompt performance and payment
of all obligations set forth in the Lease Agreement when due. The Guarantor
shall pay all costs and expenses, including attorneys' fees, incurred in the
collection of the money due under said Lease Agreement. Neither the renewal or
extension of the Lease Agreement, nor the acceptance, release, or surrender of
any security therefor, nor the release of the Company, nor any delay in the
enforcement of payments under the Lease Agreement, nor any other delay or
omission in the exercise of any right or power under the Lease Agreement, shall
affect the liability of the Guarantor. The liability of the Guarantor on this
guaranty shall be direct, and not conditional or contingent on the pursuit of
any remedies against the Company. The Guarantor expressly waives presentment,
protest, demand, notice of dishonor or default, notice of acceptance of this
guaranty, and notice of any kind with respect to the Lease Agreement. The
Guarantor consents to be bound by all the terms and provisions of the Lease
Agreement.
This Guaranty is binding upon the Guarantor, its successors and
assigns.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed and delivered in its name by its duly Authorized Representative all as
of the day and year first above written.
SPURLOCK INDUSTRIES, INC.
By: /s/ Irvine R. Spurlock
-------------------------------
Name: Irvine R. Spurlock
Title: President
Accepted September ___, 1997:
D.B. WESTERN, INC.
By: /s/ Dennis C. Beetham
-------------------------------
Name: Dennis C. Beetham
Title: President
STATE OF Virginia )
)SS.:
CITY OF Richmond )
On this 30th day of September, 1997, before me personally came Irvine
R. Spurlock, to me known, who being by me duly sworn, did depose and say that he
resides at , that he is the President of SPURLOCK INDUSTRIES, INC. the
corporation described in and which executed the foregoing instrument, and that
he signed his name thereto by order of the Board of Directors of said
corporation.
/s/ Bonnie O. Cross
-------------------------------
Notary Public
My commission expires: Feb. 28, 1998
Exhibit 10.7
GUARANTY OF PAYMENT
For value received, the undersigned, Irvine R. Spurlock,
unconditionally guarantees prompt payment of all obligations set forth in the
lease agreement between Spurlock Adhesives, Inc. (the "Company") and D.B.
Western (the "Lessor") dated as of the 30th day of September, 1997 (the "Lease
Agreement"), when due, for a period of twelve (12) months from the date on which
the term of the Lease Agreement begins (the "Guaranty Period"). The undersigned
shall pay all costs and expenses, including attorneys' fees, incurred in the
collection of the money due under said Lease Agreement. During the Guaranty
Period, neither the renewal or extension of the Lease Agreement, nor the
acceptance, release or surrender of any security therefor, nor the release of
the Company, nor any delay in the enforcement of payments under the Lease
Agreement, nor any other delay or omission in the exercise of any right or power
under the Lease Agreement, shall affect the liability of the undersigned. During
the Guaranty Period the liability of the undersigned on this guaranty shall be
direct, and not conditional or contingent on the pursuit of any remedies against
the Company. The undersigned expressly waives presentment, protest, demand,
notice of dishonor or default, notice of acceptance of this guaranty, and notice
of any kind with respect to the Lease Agreement. The undersigned consents to be
bound by all the terms and provisions of the Lease agreement during the Guaranty
Period.
This agreement is binding upon the undersigned, Irvine R. Spurlock, his heirs,
assigns and executors.
Dated: September 30, 1997 /s/ Irvine R. Spurlock
---------------------------
STATE OF Virginia )
)SS.:
CITY OF Richmond )
On this 30th day of September, 1997, before me personally came Irvine
R. Spurlock, to me known to be the individual described in and who executed the
foregoing instrument, and he acknowledged that he executed the same.
/s/ Bonnie O. Cross
---------------------------
Notary Public
My commission expires: Feb. 28, 1998
Exhibit 10.8
THIS INDENTURE, made the 13th day of August, 1997 between TOWN OF
MOREAU, grantor, a municipal corporation organized under the laws of the State
of New York having its offices at Town Office Building, Box 1349, South Glens
Falls, New York 12803, (hereafter referred to as Grantor) and Spurlock Adhesives
Incorporated, a Virginia corporation with an address of P.O. Box 8 Waverly,
Virginia 23890, grantee.
WITNESSETH, that the grantor, in consideration of One Dollars, lawful
money of the United States, paid by the grantee, does hereby grant and release
unto the grantee, its successors, and assigns forever,
ALL that tract or parcel of land situate in the Town of Moreau, County
of Saratoga and State of New York more fully described as Lot Number 2 as shown
on subdivision maps of Moreau Industrial Park prepared by The Saratoga
Associates and filed in the Saratoga County Clerk's Office on March 18, 1992 in
drawer #M-348 A-Z and AA-DD; and as modified by revised subdivision maps of
Moreau Industrial Park prepared by The Saratoga Associates and filed in the
Saratoga County Clerk's Office on February 16, 1994 and drawer #M-398, A-S.
SUBJECT to all other easements, restrictions and reservation of record.
ALSO SUBJECT to a requirement that should the premises herein contain
waters of the United States, which includes wetlands, the Grantee herein shall
be required to contact the U.S. Army Corps of Engineers to determine if any
additional authorization is required prior to Grantee undertaking any
jurisdictional activities. Said requirement is made pursuant to a special
condition of a U.S. Army Corps of Engineers Permit, Application No.
92-08860-YN issued New York District on March 1, 1993.
TOGETHER with the appurtenances and all the estate and rights of the
grantor in and to said premises.
TO HAVE AND TO HOLD the premises herein granted unto the grantee, its
successors and assigns forever.
This deed is subject to the trust provisions of Section 13 of the Lien
Law.
AND the said grantor covenants that it has not done or suffered any
thing whereby the said premises have been encumbered in any way whatever.
<PAGE>
IN WITNESS WHEREOF, the grantor has caused its corporate seal to be
hereunto affixed, and these presents to be signed by its duly authorized officer
the day and year first above written.
TOWN OF MOREAU
By: /s/ Harry G. Gutheil, Jr.
-------------------------
Its: Town Supervisor
STATE OF NEW YORK )
) ss.:
COUNTY OF SARATOGA)
On this 13 day of August, 1997, before me personally came Harry G.
Gutheil, Jr. to me known, who being by me duly sworn, did depose and say that he
resides at 21 Spring Street, South Glens Falls, ____________, New York; that he
is the Supervisor of the Town of Moreau, the municipal corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the members of such municipal corporation.
/s/ Jeanne M. Fleury
--------------------------------
Notary Public, State of New York
Jeanne M. Fleury
Notary Public, State of New York
#4688448
Qualified in Saratoga County
Commission Expires 4/30/98
Exhibit 10.9
THIS INDENTURE, made the 13th day of August, 1997 between TOWN OF
MOREAU, grantor, a municipal corporation organized under the laws of the State
of New York having its offices at Town Office Building, Box 1349, South Glens
Falls, New York 12803, (hereafter referred to as Grantor) and Spurlock Adhesives
Incorporated, a Virginia corporation with an address of P.O. Box 8 Waverly,
Virginia 23890, grantee.
WITNESSETH, that the grantor, in consideration of One Dollars, lawful
money of the United States, paid by the grantee, does hereby grant and release
unto the grantee, its successors, and assigns forever,
ALL that tract or parcel of land situate in the Town of Moreau, County
of Saratoga and State of New York more fully described as Lot Number 3 as shown
on subdivision maps of Moreau Industrial Park prepared by The Saratoga
Associates and filed in the Saratoga County Clerk's Office on March 18, 1992 in
drawer #M-348 A-Z and AA-DD; and as modified by revised subdivision maps of
Moreau Industrial Park prepared by The Saratoga Associates and filed in the
Saratoga County Clerk's Office on February 16, 1994 and drawer #M-398, A-S.
SUBJECT to an easement for utility purposes as described in Schedule
"A" attached hereto and to all other easements, restrictions and reservation of
record.
ALSO SUBJECT to a requirement that should the premises herein contain
waters of the United States, which includes wetlands, the Grantee herein shall
be required to contact the U.S. Army Corps of Engineers to determine if any
additional authorization is required prior to Grantee undertaking any
jurisdictional activities. Said requirement is made pursuant to a special
condition of a U.S. Army Corps of Engineers Permit, Application No.
92-08860-YN issued New York District on March 1, 1993.
TOGETHER with the appurtenances and all the estate and rights of the
grantor in and to said premises.
TO HAVE AND TO HOLD the premises herein granted unto the grantee, its
successors and assigns forever.
This deed is subject to the trust provisions of Section 13 of the Lien
Law.
AND the said grantor covenants that it has not done or suffered any
thing whereby the said premises have been incumbered in any way whatever.
<PAGE>
IN WITNESS WHEREOF, the grantor has caused its corporate seal to be
hereunto affixed, and these presents to be signed by its duly authorized officer
the day and year first above written.
TOWN OF MOREAU
By: /s/ Harry G. Gutheil, Jr.
--------------------------
Its: Town Supervisor
STATE OF NEW YORK )
) ss.:
COUNTY OF SARATOGA)
On this 13 day of August, 1997, before me personally came Harry G.
Gutheil, Jr. to me known, who being by me duly sworn, did depose and say that he
resides at 21 Spring Street, South Glens Falls, ____________, New York; that he
is the Supervisor of the Town of Moreau, the municipal corporation described in
and which executed the foregoing instrument; and that he signed his name thereto
by order of the members of such municipal corporation.
/s/ Jeanne M. Fleury
--------------------------------
Notary Public, State of New York
Jeanne M. Fleury
Notary Public, State of New York
#4688448
Qualified in Saratoga County
Commission Expires 4/30/98
<PAGE>
SCHEDULE "A"
UTILITY EASEMENT THROUGH
A PORTION OF LOT NO. 3
REVISED SUBDIVISION OF MOREAU INDUSTRIAL PARK
UTILITY EASEMENT THROUGH ALL THAT CERTAIN TRACT, PIECE OR PARCEL OF LAND SITUATE
in The Town of Moreau, County of Saratoga, State of New York lying east of the
easterly line of a proposed right-of-way to be known as Farnan Road as shown on
a map entitled "Revised Subdivision of Moreau Industrial Park", as prepared by
The Saratoga Associates and filed in the Saratoga County Clerk's Office of
February 16, 1994 in Drawer "M" as Map No. 398, A-S and being further bounded
and described as follows:
Commencing at a point marked with a capped iron rod found at the point of
intersection of the easterly line of Farnan Road with the common division line
of Lot No. 4 to the north and Lot No. 3 to the south as shown on said map;
thence from said point of commencement along said common division line the
following three (3) courses and distances:
1) North 90 deg. 00 min. 00 sec. East, 347.86 feet to a point marked with a
capped iron rod found;
2) South 00 deg. 00 min. 00 sec. West, 32.63 feet to a point marked with a
capped iron rod found;
3) North 90 deg. 00 min. 00 sec. East, 50.00 feet to the point of beginning
of the hereinafter described Utility Easement; thence from said point of
beginning continuing along said common division line the following three (3)
courses and distances:
1) North 90 deg. 00 min. 00 sec. East, 141.52 feet to a point marked with a
capped iron rod found;
2) North 00 deg. 00 min. 00 sec. East, 32.63 feet to a point marked with a
capped iron rod found;
3) North 90 deg. 00 min. 00 sec. East 680.17 feet to the point of
intersection of the westerly line of Lot No. 5 with the common division line of
Lot No. 4 to the north and Lot No. 3 to the south as shown on said map; thence
along said westerly line, South 16 deg. 10 min. 56 sec. West, 102.04 feet to a
point in the northwesterly line of lands of The State of New York as shown on
said map, said point also being at the 145 foot elevation; thence along said
northwesterly and the westerly line of lands of The State of New York as it
winds and turns along the 145 foot elevation in a southerly direction 320 +/-
feet to the point, the last course having a tie-line of South 37 deg. 14 min. 30
sec. West, 311.35 feet; thence through Lot No. 3 the following two (2) courses
and distances:
1) North 88 deg. 04 min. 00 sec. West, 470 +/- feet to a point;
<PAGE>
2) North 24 deg. 28 min. 50 sec. West, 326.62 feet to the point or place of
beginning of said Utility Easement containing 5.0 +/- acres.
Said easement subject to a 50 foot Access and Utility Easement to General
Electric Corp. in common with others as shown on said map.
Said easement made subject to a Conservation and Utility Easement as shown on
said map.
Said easement made subject to any and all enforceable covenants, conditions,
restrictions and easements of record as they may appear.
EXHIBIT 11
SPURLOCK INDUSTRIES, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings:
Net Income $4,908 $206,572 $338,587 $1,421,273
Shares:
Weighted Average number of shares
used in computing primary and fully
diluted earnings per share 6,572,066 6,725,066 6,572,066 6,725,066
Weighted Average number of shares
used in computing fully diluted
earnings per share 6,857,066 7,010,066 6,857,066 7,010,066
Earnings per share:
Primary 0.001 0.031 0.052 0.211
========= ========= ========= =========
Fully Diluted 0.001 0.029 0.049 0.203
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> SEP-30-1997 DEC-31-1996
<CASH> 420,161 106,072
<SECURITIES> 0 0
<RECEIVABLES> 1,449,603 1,446,930
<ALLOWANCES> 0 0
<INVENTORY> 520,706 541,632
<CURRENT-ASSETS> 2,756,184 2,288,914
<PP&E> 15,480,034 13,874,890
<DEPRECIATION> 4,702,998 4,430,833
<TOTAL-ASSETS> 13,984,181 12,243,751
<CURRENT-LIABILITIES> 4,703,771 4,388,860
<BONDS> 0 0
0 0
0 0
<COMMON> 4,808,814 4,808,814
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 13,984,181 12,243,751
<SALES> 18,805,463 28,643,415
<TOTAL-REVENUES> 18,805,463 28,643,415
<CGS> 13,977,598 21,129,265
<TOTAL-COSTS> 3,707,063 4,429,906
<OTHER-EXPENSES> 152,064 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 431,689 667,942
<INCOME-PRETAX> 548,675 2,488,506
<INCOME-TAX> 210,088 1,021,487
<INCOME-CONTINUING> 338,587 1,467,019
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 338,587 1,467,019
<EPS-PRIMARY> .052 .223
<EPS-DILUTED> .049 .219
</TABLE>
