<PAGE> 1
FORM 20-F REGISTRATION OF SECURITIES OF FOREIGN PRIVATE
ISSUERS PURSUANT TO SECTION 12(B) OR (G) AND ANNUAL AND
TRANSITION REPORTS PURSUANT TO SECTION 13 AND 15(D)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark one)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to _________________________
Commission file number ________________________________________________________
DURA PRODUCTS INTERNATIONAL INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DURA PRODUCTS INTERNATIONAL INC.
- --------------------------------------------------------------------------------
(Translation of Registrant's name into English)
Ontario, Canada
- --------------------------------------------------------------------------------
(Jurisdiction of incorporation or organization)
60 Carrier Drive, Etobicoke, Ontario, Canada, M9W 5R1
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares
-------------
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
Not applicable
--------------
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report. 21,983,764
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark which financial statement item the registrant has elected
to follow:
Item 17 X Item 18
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS) Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes No
<PAGE> 2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Part I
Item 1. Description of Business ....................................................
Item 2. Description of Property ....................................................
Item 3. Legal Proceedings ..........................................................
Item 4. Control of Registrant ......................................................
Item 5. Nature of Trading Market ...................................................
Item 6. Exchange Controls and Other Limitations Affecting Securities Holders .......
Item 7. Taxation ...................................................................
Item 8. Selected Financial Data ....................................................
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations ..............................................................
Item 10. Directors and Officers of Registrant .......................................
Item 11. Compensation of Directors and Officers .....................................
Item 12. Options to Purchase Securities from Registrant or Subsidiaries .............
Item 13. Interest of Management in Certain Transactions .............................
Part II
Item 14. Description of Securities to be Registered .................................
Part III
Item 15. Defaults Upon Senior Securities ............................................
Item 16. Changes in Securities and Changes in Security for Registered Securities.....
Part IV
Item 17. Financial Statements .......................................................
Item 18. Financial Statements .......................................................
Item 19. Financial Statements and Exhibits ..........................................
Signatures .................................................................
</TABLE>
<PAGE> 3
CURRENCY TRANSLATION
The Company publishes its financial statements in Canadian dollars. Unless
otherwise specified, all references to "Cdn dollars", "dollars", "$", or Cdn $"
are to Canadian dollars and references to "US$" are to United States dollars. As
of March 31, 1998, the US dollar equivalent for Canadian dollars as based on
the Noon Buying Rate in New York City for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of New York was US
$1.4195 per Cdn$1.00. No representation is made that the Canadian dollar or US$
amounts shown in this registration statement could have been or could be
converted into US$, as the case may be, at any particular rate or at all.
Fluctuations in the exchange rate between the Canadian dollar and the U.S.
dollar may affect the Company's earnings, the book value of its assets and
shareholders' equity as expressed in Canadian dollars and U.S. dollars.
The following table sets forth, for each period indicated, the high and low
exchange rates for one Canadian dollar expressed in United States dollars, based
on the inverse of the noon buying rate in New York City for cable transfers in
foreign currencies, the average of such exchange rates on the last Saturday of
each month during such period, and the exchange rate at the end of such period,
as certified for custom purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate"):
<TABLE>
<CAPTION>
- ---------------------- -------------------- --------------------- --------------------- --------------------
Average High Low Period end
- ---------------------- -------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Y/E Dec 31/93 0.7729 0.8046 0.7439 0.7544
- ---------------------- -------------------- --------------------- --------------------- --------------------
Y/E Dec 31/94 0.7300 0.7632 0.7103 0.7128
- ---------------------- -------------------- --------------------- --------------------- --------------------
Y/E Dec 31/95 0.7305 0.7527 0.7023 0.7323
- ---------------------- -------------------- --------------------- --------------------- --------------------
Y/E Dec 31/96 0.7332 0.7513 0.7235 0.7301
- ---------------------- -------------------- --------------------- --------------------- --------------------
Y/E Dec 31/97 0.7220 0.6945 0.7487 0.6999
- ---------------------- -------------------- --------------------- --------------------- --------------------
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.
<PAGE> 4
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
Dura Products International Inc. ("DPI" or the "Company") is a public
company, with 21,983,764 issued and outstanding common shares, as of December
31, 1997, trading over-the-counter on the Canadian Dealing Network under the
symbol "DURP." DPI was incorporated on August 19, 1983 under the laws of the
Province of Ontario, Canada as Transway Exploration Inc. On July 7, 1993 the
name was changed to Transway Capital Inc. and on February 6, 1997 the Company
changed its name to Dura Products International Inc. DPI has two wholly-owned
subsidiaries, Dura Skid Inc. and Duraskid and Products, Inc. Dura Skid Inc.
("Duraskid") was incorporated on July 13, 1995 under the laws of the Province
of Ontario, Canada as CanTech Investments Inc. On January 15, 1996 the name was
changed to CanTech Composites Inc. ("CanTech"), the date on which the Company
concluded its acquisition of CanTech for $400,000. The purchase price was
settled by the issuance of 1,000,000 common shares of the Company and the
issuance of warrants exercisable for 500,000 common shares at $0.40 per share
(see Business Overview and Outlook below and Management's Discussion and
Analysis of Financial Condition and Results of Operations). On February 7, 1997,
Cantech changed its name to Dura Skid Inc. On September 19, 1997 the Company
incorporated in Delaware a wholly-owned subsidiary, Duraskid and Products, Inc.
Duraskid and Products, Inc. owns 51% of Duraskid (New England) L.L.C. which was
formed September 23, 1997. DPI is currently engaged in the manufacture of a
composite material which is further manufactured into pallets. No significant
revenues have been generated to date from operations.
From August 31, 1983 to December 31, 1995, the Company was involved in the
natural resource and investment industries. In 1983 the Company purchased 22
unpatented mining claims in the Klotz Lake area, Thunder Bay Mining Division,
Ontario, Canada. The Company purchased the claims for $62,332 and from 1983 to
1993 incurred $136,633 of exploration expenditures. In 1993 the claims were
allowed to lapse as no economically recoverable ore reserves were found. In
March 1994, DPI acquired 100% of the outstanding shares of 155433
Canada Ltd. ("155433"). 155433 owned a mining property in south Lorraine
Township, Timiskaming Mining Division Ontario, Canada. The Company spent
$512,416 on the acquisition of the mining claims and on exploration expenditures
from March 1994 to the end of 1995. In December 1995, 155433 wrote down the
carrying value of the Lorraine property to $1.00, as it did not intend to pursue
development of the property. In September 1996, DPI sold its entire
interest in 155433 for nominal consideration. Beginning in 1987, the Company
began to invest in marketable securities. These investments were generally in
junior mining companies and did not result in control or significant influence
of these companies. From 1987 to 1995, the Company invested approximately $1.5
million in marketable securities. All investments were disposed of by the end of
1995 and generally the disposition resulted in a loss. Of the net-capital loss
carry forward of approximately $2 million, as noted in the consolidated
financial statements, $1.5 million resulted from these investing activities. The
Company believes that there are no contingent liabilities as a result of the
disposition of these assets. During the prior one year period there have been no
changes in management or control of the Company.
In the discussion that follows, DPI or the Company refers to the operations of
Dura Products International Inc. and its subsidiaries, Dura Skid
Inc. and Duraskid and Products, Inc. as well as Duraskid (New England) L.L.C.
Duraskid refers to the operations of Dura Skid Inc.
<PAGE> 5
DURA PRODUCTS INTERNATIONAL INC.
DPI has developed a proprietary process that produces a composite material made
from a combination of post industrial cellulose fibre and post consumer
plastics. The use of fibre gives the composite material its strength and the use
of high-density plastic provides durability to the material. The development of
the composite material focused on the suitability of recycled plastics, use of
different cellulose fibres, use of different bonding agents, morphology of
mixing and extrusion, and enhancing stiffness and toughness of the materials.
The result is a material whose mechanical properties are comparable to that of
hardwood.
The manufacturing process of the composite material is as follows: post-consumer
plastics are received into the plant, either flaked or baled. If baled, the
plastic is then ground into a flake. The fibre material is similar to a flour
mixture. The plastics and fibre are then fed into a weighting machine. This
machine automatically weighs the amount of plastics and fibre according to a
specified formula for feeding into a high intensity mixer. The compound is then
dumped onto a conveyor for cooling and grinding into a uniform size. The
material is then ready to be extruded into a product. At this point the compound
material is subjected to quality control procedures.
Currently the Company relies upon trade secrets to protect its proprietary
technology. However, the Company has initiated procedures for patenting the
process.
The Company intends to develop, manufacture, and sell a number of commercially
viable products incorporating its proprietary composite material based on
"green" design principles. Currently, management has specifically targeted the
pallet market for the first commercial introduction of its technology. The
pallet the Company has designed and developed is the Duraskid(R). Duraskid has
been trademarked in Canada and the United States.
The Company believes that its proprietary composite material may also be used
to make door frames, window frames, and sofit and facia for housing as well as
construction forms, baseboards, house siding, and house framing.
During 1997 and 1996, the Company focused its efforts primarily on research and
development and spent approximately $1,240,000 and $669,000, respectively,
pursuing these efforts. The Company intends to continue to develop additional
products and devote significant resources to its research and development
efforts.
<PAGE> 6
DPI's primary functions are the development of corporate strategy, research and
development of new products, ongoing process and product improvement, securing
investment capital and partner development. Each new product or product group
will be organized into a separate subsidiary with its own management. This
will enable management to focus on its distribution channel and customer base.
DURASKID
The Product
Duraskid pallets are manufactured in the following manner. The composite
material is loaded into the extruder hopper that allows the material to be drawn
into the extruder barrel as the extruder screw turns. At the end of the barrel,
the extrusion profile die shapes the molten compound into the specific profile
shape, then cools it down and delivers it into a cooling water tank. The
extruded profile emerges from the water tank as a solid and strong profile,
which is then automatically cut to length by a traveling cut-off saw. The
Company's extrusion system is a state-of-the-art system with fully computerized
control and monitoring systems. Processing temperature, pressure, speed, and
load, are all automatically controlled and monitored with automatic shutdown if
preset safety thresholds are exceeded.
Manufactured profiles are subjected to strict quality control procedures.
Rejected profiles are reground and reprocessed. The stringer profiles are then
"notched" providing for four-way access. The top board, stringer, and bottom
board profiles are then loaded into an assembly jig, which automatically drills
all the screw holes and semi-automatically tightens the screws. The assembled
pallets are then sandblasted to rough up the surfaces, a bar code is then laser
etched onto the pallet, and finally the completed pallet is shipped to the
customer.
The Benefits
The Duraskid pallet is manufactured to engineered designs and material
specifications. It is heat tested at 45(degree)C (113(degree)F) and cold tested
at -25(degree)C (-13(degree)F). The standard 48"x40" Duraskid pallet has a
static load of 12,000 lbs., dynamic load of 5,000 lbs., and a rackable load of
3,000+ lbs. The following table reflects the Company's comparison of the
Duraskid pallet to wood and plastic pallets.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Duraskid Wood Plastic
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost per use Lowest High Lower
- ------------------------------------------------------------------------------------------------------------
Dimensional stability High Limited High
- ------------------------------------------------------------------------------------------------------------
Durability High Limited High
- ------------------------------------------------------------------------------------------------------------
Strength High High Low
- ------------------------------------------------------------------------------------------------------------
Rackable High High None
- ------------------------------------------------------------------------------------------------------------
Disposal DPI buys Customer pays Customer pays
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Water absorption None High None
- ------------------------------------------------------------------------------------------------------------
Contamination None High None
- ------------------------------------------------------------------------------------------------------------
Recyclability Total Low Low
- ------------------------------------------------------------------------------------------------------------
Safety (nails/splinters) High Low High
- ------------------------------------------------------------------------------------------------------------
Repair required Low High Unavailable
- ------------------------------------------------------------------------------------------------------------
Customization High High None
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The Marketing Strategy
During 1997, DPI began building market awareness of the Duraskid pallet through
a beta test program established with a number of potential customers. In
conjunction with this, the Company started building its sales and customer
service department. The marketing of the Duraskid pallet is currently focused on
creating brand name awareness. Sales of the Duraskid pallet will be generated by
the Company's own sales force and through a network of independent sales agents.
A national and regional marketing program is being implemented in North America.
The Company has targeted the food and retail, beverage, warehousing, and
manufacturing industries where the benefits of the Duraskid pallet are readily
apparent.
The Company has implemented strict quality control guidelines to ensure each
Duraskid pallet will meet the customers' needs. In addition, the Company plans
to institute a customer satisfaction program.
The Industry
The pallet industry is considered part of the overall transportation packaging
industry and is critical to global commerce. The Company views this industry as
fragmented, substantially free from government regulation and with no one
company dominating the market. Considered a "staple" industry, pallets are an
integral part of industrial production. Nearly every item manufactured or
processed is shipped and/or stored on pallets. According to the National Wood
Pallet and Container Association, in North America the annual demand for pallets
is estimated at approximately US$7 billion in the United States and US$700
million in Canada. Currently, over 90% of the pallet market uses wood pallets.
The Company believes that the fragmentation of the industry, together with
widespread dissatisfaction regarding performance, quality and handling
difficulties associated with wood pallets has become increasingly frustrating to
pallet users. Customers are recognizing the significant benefits of returnable
packaging and are demanding an integrated system approach to meet their needs.
Manufacturing and Distribution
Duraskid's first facility is located in Etobicoke, Ontario, Canada. This
facility consists of 14 operating lines of equipment and based on the Company's
capacity projections is capable of producing approximately 600,000 Duraskid
pallets
<PAGE> 8
per year. Each operating line of equipment consists of a material feeding
system, state-of-the-art extrusion machine, profile die, water-cooling table,
and traveling cut-off saw.
As of December 31, 1997, the Company had 42 full-time employees, 30 of whom were
in manufacturing, five in research and development, three in sales and
marketing, and four in finance and administration. It is expected that by the
end of the second quarter of 1998 there will be approximately 60 full-time
employees, of whom 45 will be in manufacturing, five in research and
development, four in sales and marketing, and six in finance and administration.
In addition to the Etobicoke facility, the Company has completed a partnership
arrangement with Environmental Composite Products L.L.C. The Massachusetts based
joint venture will manufacture Duraskid pallets for sale in New England and
upper New York state. The joint venture will operate under the name Duraskid
(New England) L.L.C., a Massachusetts limited liability company owned 51% by
Duraskid and Products, Inc. Duraskid (New England) L.L.C. has leased a 135,000
square foot facility located in Andover, Massachusetts, which has the capacity
for 30 lines of equipment. Management expects installation of equipment to begin
in the second quarter of 1998, with operations commencing late in the third
quarter of 1998.
Duraskid has plans to establish a network of manufacturing and distribution
facilities throughout North America over the next three years. After this has
been implemented, it is the Company's intent to then expand the program to
Europe and Southeast Asia.
Duraskid also intends to establish a pallet rental service provider prior to the
end of 1998. The plan is to provide pallet rental capability through a network
of service centers providing coverage to customers throughout North America. The
service centers, customers and suppliers will be linked through an integrated
computer/communications network. The goal is to provide reliable, high quality
durable pallets at the right time, to the right place, in the right quantity, at
the right price.
The Company believes that a pallet rental program will be quickly accepted by
customers for the following reasons: pallet management is typically not a core
competency of users; users are becoming more and more focused on "cost per use";
users are recognizing the need for high quality returnable pallets which provide
for enhanced material handling capabilities, minimizing of product damage, and
reduction of waste; pallet rental eliminates the need for a large investment in
a pallet inventory and warehouse space, and it eliminates the need for users to
expend financial and human resources managing pallet inventories.
ENVIRONMENTAL CONSIDERATIONS
Corporate responsibility for the environment exists throughout the product life
cycle. DPI is committed to the goal of being an eco-efficient manufacturer of
products that incorporate the principles of "green" design, satisfying customer
requirements at competitive prices and creating substantial shareholder value.
<PAGE> 9
In 1990 more than 40% of all hardwood was used in the manufacture of wood
pallets. This equates to an average of six pallets made per tree. In 1995 it was
estimated that 223 million pallets went into landfills in the US, in excess of
six million tons of wood. It is expected that by the year 2000 government
legislation will ban the disposal of wooden pallets in landfill sites. Many
countries have already imposed strict regulations regarding the shipping of
product on wooden pallets.
In order to prevent pollution, eco-efficient manufacturing requires efficient
use of materials, substitution of recycled materials for virgin materials
whenever possible, and minimal production of waste through internal reuse. The
Company's production processes are designed to meet these requirements. For
example, in the Company's manufacturing process, cooling water is continuously
recycled and particulate generated by cutting and notching is returned to feed
stock.
"Green" design principles require that the Company's products be reusable,
repairable and recyclable. The fundamental building block that supports all of
our product development efforts is our proprietary composite technology.
Ninety-eight percent of the Company's composite material is made from recycled
materials, post industrial cellulose fibre and post consumer plastics.
Additionally, at the end of a Duraskid pallet's useful life, the Company will
offer a customer credit towards the purchase of a new Duraskid pallet. The old
Duraskid pallet will be ground up and made into a new Duraskid.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate offices and initial manufacturing facility are located
at 60 Carrier Drive, Etobicoke, Ontario, Canada M9W 5R1, a 65,000 square foot
facility. Approximately 5,000 square feet is being used for executive and
administrative offices and the balance for manufacturing. The facility is leased
for a five-year term expiring in October 2000 and the Company has the option to
renew for an additional five year period. The Company also has an option to
acquire the property for approximately $2.1 million.
Subsequent to December 31, 1997, Duraskid (New England), L.L.C. entered into a
lease agreement to lease a 135,000 square foot manufacturing facility located in
Andover, Massachusetts. The lease is for a six-year term, with one six-year
renewal option. DPI has guaranteed unconditionally the full performance of
Duraskid (New England), L.L.C. under the lease.
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings
a) In 1996, through its acquisition of Dura Skid, the Company acquired a license
agreement with SRP Industries Ltd. ("SRP") to utilize certain SRP technologies.
During 1997, the Company determined that SRP's technology was not commercially
viable because of its incompatibility with the production process used by the
Company. In addition, SRP was unable to provide any of the required technical
support services required under the terms of the agreement. Management thereby
concluded that SRP was in breach of this agreement. Accordingly, in April, 1997,
management filed a statement of claim in Ontario for damages of approximately
$5.0 million for additional research and development costs that would not
otherwise have been incurred and for a declaration that the agreement was
terminated as a result of SRP's fundamental breach of the agreement. SRP
counterclaimed in October, 1997 for approximately $10 million, stating that the
Company inappropriately terminated the agreement, enriched itself with SRP's
technology with no compensation to SRP, and induced key employees of SRP to
accept employment with the Company.
b) In November 1996, the Company entered into a consulting agreement with Coby
Capital Corporation to provide assistance in raising investment capital and
related services. During 1997, the Company terminated this agreement. However,
Coby Capital Corporation has filed an action claiming it is owed various fees
aggregating approximately US$720,000 pursuant to the agreement.
With respect to a) and b) above, management is of the opinion that it has acted
appropriately and that the claims are without merit. The final outcome of both
of these matters is uncertain and the potential effect, whether material or not,
on the Company's consolidated financial position is not reasonably determinable
at this time, and, accordingly, no provision has been recorded in the accounts
as of December 31, 1997.
ITEM 4. CONTROL OF REGISTRANT
(a) Direct or Indirect Control by Another
To the best of the Company's knowledge, the Company is not directly or
indirectly owned or controlled by a single person, a group of persons or by
another corporation or by any foreign government.
(b) Ownership of Voting Securities
As of December 31, 1997, 21,983,764 common shares of the Company were issued
<PAGE> 10
and outstanding. At such date, the persons or groups known to the Company to own
more than 10% of the Company's issued and outstanding shares and the number of
common shares owned by officers and directors of the Registrant as a group are
as follows:
<TABLE>
<CAPTION>
- --------------------------- -------------------------- -------------------------- --------------------------
Identity of Person or
Title of Class Group Amount owned Percent of Class
- --------------------------- -------------------------- -------------------------- --------------------------
<S> <C> <C> <C>
- --------------------------- -------------------------- -------------------------- --------------------------
Common shares Officers and directors
as a group 3,206,512 (1) 13.6% (2)
- --------------------------- -------------------------- -------------------------- --------------------------
- --------------------------- -------------------------- -------------------------- --------------------------
</TABLE>
(1) Shares owned by officers and directors include currently exercisable
options to purchase up to 1,596,000 shares of Common Stock held by
directors and officers of the Company. Options to purchase up to 496,000
shares are exercisable at $0.70 per share until June 2001, options to
purchase up to 350,000 shares are exercisable at $1.10 per share until
January 2002 and options to purchase up to 750,000 shares are exercisable
at $2.00 per share until July 2002.
(2) The percentage of class is calculated based on a total number of shares
of 23,597,764 which includes the 21,983,764 common shares issued and
outstanding as of December 31, 1997 and the 1,596,000 currently
exercisable options held by the directors and officers of the Company.
(3) Change of Control Arrangements
There are no arrangements known to the Company, the operation of which
may, at a date subsequent to the date of this Registration Statement,
result in a change in control of the Company.
ITEM 5. NATURE OF TRADING MARKET
The common shares of the Company are quoted on the Canadian Dealing Network Inc.
under the symbol "DURP", CUSIP number 265904102. The Company has no other class
of securities which are publicly traded.
As of March 31, 1998, approximately 51% of the issued and outstanding common
shares were held in the United States by approximately 77 record holders.
The U.S. Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. The Company's
securities are covered by the penny stock rules, which impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse). For transactions covered by the rule, the broker-dealers
must make a special suitability determination for the purchase and receive the
purchaser's written agreement of the transaction prior to the sale.
Consequently, the rule may affect the ability of purchasers to sell their shares
in the secondary market.
<PAGE> 11
The trading history of the Company's Common Stock on the Canadian Dealing
Network, Inc. is as follows:
<TABLE>
<CAPTION>
- ------------------------------------ ----------------------------------- -----------------------------------
Quarter ended High sales prices Low sales prices
<S> <C> <C>
- ------------------------------------ ----------------------------------- -----------------------------------
03/31/96 $0.75 $0.35
- ------------------------------------ ----------------------------------- -----------------------------------
06/30/96 $1.19 $0.50
- ------------------------------------ ----------------------------------- -----------------------------------
09/30/96 $1.10 $0.65
- ------------------------------------ ----------------------------------- -----------------------------------
12/31/96 $1.10 $0.75
- ------------------------------------ ----------------------------------- -----------------------------------
03/31/97 $4.40 $0.75
- ------------------------------------ ----------------------------------- -----------------------------------
06/30/97 $2.45 $1.75
- ------------------------------------ ----------------------------------- -----------------------------------
09/30/97 $3.15 $1.80
- ------------------------------------ ----------------------------------- -----------------------------------
12/31/97 $4.20 $2.25
- ------------------------------------ ----------------------------------- -----------------------------------
03/31/98 $5.50 $3.50
- ------------------------------------ ----------------------------------- -----------------------------------
</TABLE>
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
(a) Governmental Laws or Decrees
There is no law, governmental decree or regulation in Canada that restricts the
export or import of capital, including foreign exchange controls, or that
affects the remittance of dividends, interest or other payments to non-resident
holders of common shares, other than withholding tax requirements and potential
capital gains on the disposition of the common shares under certain
circumstances. See Item 7. Taxation.
(b) Limitation on Voting Rights
There is no limitation imposed by Canadian law or by the charter or other
constituent documents of the Company on the right of a non-resident to hold or
vote common shares of the Company, other than as provided in the Investment
Canada Act (Canada) (the "Investment Act"). The following discussion summarizes
the principal features of the Investment Act for a non-resident who proposes to
acquire common shares of the Company. It is general only, it is not a substitute
for independent advice from an investor's own advisor, and it does not
anticipate statutory or regulatory amendments. To the Company's knowledge, no
amendments are pending or contemplated at this time.
The Investment Act generally prohibits implementation of a reviewable investment
by an individual, government or agency thereof, corporation, partnership, trust
or joint venture that is not a "Canadian" as defined in the Investment Act (a
"non-Canadian"), unless after review the minister responsible for the Investment
Act (the "Minister") is satisfied that the investment is likely to be of net
benefit to Canada.
An investment in common shares of a company by a non-Canadian other than an
"American" (as that term is defined in the Investment Act and used in this
discussion) when a company was not controlled by an American, would be
reviewable under the Investment Act if it was an investment to acquire control
of a company and the value of the assets of a company was $5,000,000 or more, or
if an order for review was made by the federal cabinet on the grounds that the
investment related to Canada's cultural heritage or national identity.
An investment in common shares of a company by an American, or by a non-Canadian
<PAGE> 12
when a company is controlled by an American, would be reviewable under the
Investment Act if it were an investment to acquire control of a company and the
value of the assets of a company was not less than a specified amount which for
1994 is $150,000,000, and for subsequent years is $153,000,000 in terms of
"constant 1992 dollars". A non-Canadian would acquire control of a company for
the purposes of the Investment Act if he acquired a majority of the common
shares of that company. The acquisition of less than a majority but one third or
more of the common shares of a company would be presumed to be an acquisition of
control of that company unless it could be established that, on the acquisition,
a company was not controlled in fact by the acquiror through the ownership of
common shares.
Certain transactions relating to common shares of a company would be exempt from
the Investment Act, including:
(a) acquisition of common shares of a company by a person in the ordinary
course of that person's business as a trader or dealer in securities,
(b) acquisition of control of a company in connection with the realization of
security granted for a loan or other financial assistance and not for a
purpose related to the provisions of the Investment Act, and
(c) acquisition of control of a company by reason of an amalgamation, merger,
consolidation or corporate reorganization following the ultimate direct or
indirect control in fact of a company.
ITEM 7. TAXATION
The following is a summary of certain material Canadian federal income tax
provisions applicable to United States corporations, citizens and resident alien
individuals purchasing, holding and disposing of common shares. The discussion
is only a general summary and does not purport to deal with all aspects of
Canadian federal taxation that may be relevant to shareholders, including those
subject to special treatment under the income tax laws. Shareholders are advised
to consult their own tax advisors regarding the Canadian federal income tax
consequences of holding and disposing of the Company's common shares, as well as
any consequences arising under U.S. federal, state or local tax laws of other
jurisdictions outside the United States. The summary is based on the assumption
that, for Canadian tax purposes, the purchasers or shareholders (i) deal at
arm's length with the Company, (ii) are not residents of Canada, (iii) hold the
common shares as capital property, and (iv) do not use or hold common shares in,
or in the course of, carrying on business in Canada (a "Non-Resident Holder").
This summary is not exhaustive of all possible income tax considerations and
shareholders and prospective purchasers of the Company's shares of Common Stock
are advised to consult with their own tax advisors with respect to their
particular circumstances.
Dividends paid to U.S. residents by the Company on the common shares generally
will be subject to Canadian non-resident withholding taxes. For this purpose,
dividends will include amounts paid by the Company in excess of the paid-up
capital of the common shares on a redemption or a purchase for cancellation of
such shares by the Company (other than purchases on the open market). For U.S.
corporations owning at least 10% of the voting stock of the Company, the
dividends paid by the Company are subject to a withholding tax of 5% under the
Canada-U.S. Income Tax Convention (1980), as amended by Protocol signed on March
17, 1995 (the "Treaty"). For all other U.S. shareholders, the Treaty reduces the
withholding tax rate from 25% to 15% of the gross dividend. Other applicable tax
treaties may reduce the Canadian tax rate for other Non-Resident Holders. Any
amounts paid for Canadian withholding taxes may be taken as a credit against
U.S. taxes.
<PAGE> 13
A Non-Resident Holder will generally not be subject to tax in Canada on capital
gains realized from disposition of common shares, unless such shares are
"taxable Canadian property" within the meaning of the Income Tax Act (Canada).
Generally, the common shares would not be taxable Canadian property unless the
Non-Resident Holder, together with related parties, at any time during the five
years prior to the disposition of the common shares owned not less than 25% of
the issued shares of any class of the capital stock of the Company. Under the
Treaty, a resident of the United States will not be subject to tax under the
Income Tax Act (Canada) in respect of gains realized on the sale of common
shares which constitute "taxable Canadian property", provided that the value of
the common shares at the time of disposition is not derived principally from
real property located in Canada.
ITEM 8. SELECTED FINANCIAL DATA
The selected financial data set forth in the following table is expressed in
Canadian dollars. For a history of the exchange rates for Canadian dollars in
terms of U.S. Dollars see Item 1, "Description of Business", above. The
financial information set forth in the following table includes the accounts of
the Company and subsidiaries on a consolidated basis. This financial information
was prepared in accordance with accounting principles generally accepted in
Canada, the application of which conforms in all material respects for the
periods presented with accounting principles generally accepted in the United
States, except to the extent noted in Note 10 to the Consolidated Financial
Statements appearing elsewhere in this Registration Statement. The selected
financial data should be read in conjunction with and is qualified by such
Consolidated Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
- --------------- ------------- ------------ ------------ ------------ ------------
Year
ended Year ended Year ended Year ended Year ended
December Dec 31, Dec 31, Dec 31, Dec 31,
31, 1997 1996 (1) 1995 1994 1993
-------- -------- ---- ---- ----
$ $ $ $ $
- - - - -
- --------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue 60,362 Nil Nil Nil Nil
- --------------- ------------- ------------ ------------ ------------ ------------
Net (loss)/income (2,995,559) (1,314,126) (615,315) (813,610) 32,115
Net (loss)/income
per share (0.17) (0.14) (0.11) (0.14) 0.04
- --------------- ------------- ------------ ------------ ------------ ------------
Total assets
9,553,852 1,877,391 31,496 611,123 182,400
- --------------- ------------- ------------ ------------ ------------ ------------
Capital stock
14,247,987 4,901,150 2,372,154 2,372,154 1,372,154
- --------------- ------------- ------------ ------------ ------------ ------------
</TABLE>
(1) Effective January 15, 1996, the Company purchased Dura Skid Inc. and changed
its business focus. Reference should be made to Item 1. Description of
Business and to Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
<PAGE> 14
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements.
GENERAL
The following discussion and analysis of the financial condition of the Company
and the results of its operations for the years ended December 31, 1997 and 1996
should be read in conjunction with the Company's consolidated financial
statements. These financial statements have been prepared in accordance with
accounting principles generally accepted in Canada. For an explanation of the
differences between Canadian and US GAAP, reference should be made to note 10 of
the consolidated financial statements. The financial statements are prepared in
Canadian dollars.
DPI is engaged in the research and development of a proprietary composite
material using recycled plastics and cellulose, and the development of
commercially viable products made from the composite material. To date, DPI has
invested all of its financial and human resources in the research and
development of the composite material. The Company intends to develop,
manufacture, and sell a number of commercially viable products incorporating its
proprietary composite material. Currently, management has specifically targeted
the pallet market for the first commercial introduction of its technology. The
pallet designed and developed by the Company has been trademarked in Canada and
the United States as the "Duraskid".
1997 HIGHLIGHTS
- - Raised $9.3 million of equity capital
- - Obtained a $3.1 million lease financing commitment of which $1.5
million has been utilized as of December 31, 1997
<PAGE> 15
- - Invested $1.2 million in continuing research and development of
composite material and Duraskid pallets
- - Invested $5.0 million in production equipment to manufacture Duraskid
pallets
- - Filed Form 20-F with the Securities and Exchange Commission in the
United States, becoming a reporting issuer
- - Completed an agreement to manufacture and distribute Duraskid pallets
in New England and upper New York state
RESULTS OF OPERATIONS
The focus of the Company during 1997 and 1996 has been the completion of
research and development on its proprietary composite material and the
development of the Duraskid pallet. Losses incurred for 1997 and 1996 were $3.0
million and $1.3 million, respectively. The research and development has been
substantially completed on the composite material and significant progress was
made in the development of the Duraskid pallet in 1997.
1997 OPERATING RESULTS
In 1997, DPI had limited revenues of approximately $60,000 from the sale of
2,600 Duraskid pallets. Sales were limited as the Company was completing design
changes to the board profiles and equipping the Etobicoke facility to handle
planned production capacity. DPI had no revenue in 1996.
All costs related to research and development were expensed as incurred. These
costs amounted to $1.2 million, consisting of salaries and wages, raw materials,
rent, utilities, and repairs and maintenance. These costs increased 85% over
1996 reflecting an increased activity in the effort to complete work on the
composite material and substantially complete the development of the Duraskid.
General and administration expenses amounted to $1.4 million for 1997. Such
expenses consisted of salaries and wages, legal, accounting, and investor
relations fees, rent, utilities, business and property taxes, general office
expenses, and interest on capital lease financing. These costs increased
significantly over 1996 reflecting increased activity in anticipation of
commercialization of the Duraskid pallet.
Sales and marketing expenses of $262,000 consisted of salaries and wages, and
advertising and promotion. There were no direct sales and marketing expenses in
1996 as the Company was solely focused on completing its research and
development of its composite material.
Net loss for the year was $3.0 million or $0.17 per share. The increase in the
loss per share was partly reduced by the increase in the weighted average number
of common shares outstanding during the year from 9.6 million in 1996 to 18.0
million in 1997.
<PAGE> 16
1996 OPERATING RESULTS
Since the Company was engaged in research and development of its proprietary
composite material throughout 1996, the Company had no revenues.
All costs related to research and development were expensed as incurred. These
costs amounted to $669,000, consisting of salary and wages, die designs, product
specifications, raw materials, rent, utilities, and consulting services.
General and administration expenses consisted of salaries and wages, legal,
accounting and investor relation's fees, general office expenses, and interest
on short-term loans payable.
Net loss for the year was $1.3 million or $0.14 per share.
On the basis of the substantive change in the nature of the business conducted
by the Company in 1996 as compared to 1995, management believes that the
Company's previous financial statements are not relevant to its current business
activities and as such, there is no meaningful comparison of the results of
operations of 1996 to 1995.
CAPITAL INVESTMENTS
DPI invested approximately $5.0 million in the purchase of production equipment
and other capital assets during the year. This brings the Company's total
investment in the Etobicoke facility to $6.2 million. The Etobicoke facility now
contains 14 fully operational production lines, each consisting of an extruder,
profile die, water-cooling table, and traveling cut-off saw.
Subsequent to year-end the Company placed purchase orders for compounding and
extrusion equipment totaling approximately US $5.0 million for its Andover, MA
facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash used by operating activities was $3.1 million in 1997 versus
$669,000 in 1996. The increase in cash usage reflects the increase in the level
of activity of the Company as it completes its research and development of the
composite material and the Duraskid, and approaches commencement of commercial
operations.
Cash used in investing activities increased from $1.8 million to $5.3 million,
with the majority being used to purchase 11 lines of production equipment.
The Company's cash provided by financing activities for 1997 was $10.5 million
and consisted of net proceeds of $9.3 million from the issuance of 7.9 million
common shares and net additional borrowings of $1.5 million provided by a
capital lease financing facility.
As of December 31, 1997, the Company had cash on hand of $2.0 million and
working capital of $1.5 million. In addition, the Company had outstanding
warrants of approximately 2.0 million, which if exercised could raise up to
approximately $6.0 million.
The Company anticipates that future cash requirements for working capital and
expansion will come from a combination of cash on hand, cash flow from
operations, debt/lease financing, and equity issuances. If the Company is
required to raise additional funds through debt or equity financings, there can
be no assurance that such funds, if available, will be available on terms
favorable to the Company.
<PAGE> 17
RISKS AND UNCERTAINTIES
a) General
The profitability of DPI is subject to a number of risk factors including:
successful commencement of commercial operations; market acceptance of the
Company's products; competition; effective management of the Company's
anticipated growth and ability to raise additional capital; retention of key
employees and the ability to attract additional key individuals, and continued
improvement upon and protection of the Company's intellectual property.
Management believes the Company's first product, the Duraskid pallet, has many
competitive advantages. However, the Company's success will depend on the
acceptance of the Duraskid pallet in the North American marketplace. Certain
competitors may have substantially greater name recognition and greater
financial, technical, marketing and other resources than the Company.
b) Legal matters
From time to time the Company encounters lawsuits arising from business
activities which are discussed below.
In 1997, through its acquisition of Dura Skid, the Company acquired a license
agreement with SRP Industries Ltd. ("SRP") to utilize certain SRP technologies.
During 1997, the Company determined that SRP's technology was not commercially
viable because of its incompatibility with the production process used by the
Company. In addition, SRP was unable to provide any of the required technical
support services required under the terms of the agreement. Management thereby
concluded that SRP was in breach of this agreement. Accordingly, management
filed a statement of claim for damages of approximately $5.0 million represented
by additional research and development costs that would not otherwise have been
incurred and for a declaration that the agreement was terminated as a result of
SRP's fundamental breach of the agreement. SRP has counterclaimed for
approximately $10 million stating that the Company inappropriately terminated
the agreement, enriched itself with SRP's technology with no compensation to
SRP, and induced key employees of SRP to accept employment with the Company.
In November 1996, the Company entered into a consulting agreement with Coby
Capital Corporation to provide assistance in raising investment capital and
related services. During 1997, the Company terminated this agreement. However,
Coby Capital Corporation has filed an action claiming payment of various fees
aggregating approximately US$720,000 pursuant to the agreement.
In both cases, management is of the opinion that it has acted appropriately and
that the claims are without merit. The final outcome of both of these matters is
uncertain and the potential effect, whether material or not, on the Company's
consolidated financial position is not reasonably determinable at this time,
and, accordingly, no provision has been recorded in the accounts as at December
31, 1997. However, a negative outcome in either of these cases would have a
material adverse effect on the operations of the Company.
<PAGE> 18
c) Year 2000
Certain computer programs and microprocessors use two digits rather than four to
define the applicable year. Any computer program that has date-sensitive
software and microprocessors may recognize a date using "00" as the year 1900
rather than 2000. While not as potentially damaging as in other industries (such
as the high technology and financial services industries), this phenomenon could
cause a disruption of the Company's operations, including, among other things, a
temporary inability to utilize manufacturing equipment, send invoices, or engage
in similar normal business activities. Management believes the Company is
substantially year 2000 compliant with respect to its manufacturing operations
including related process control equipment and its selling, administration and
general operations. Prior to purchasing any new equipment or software, it is
Company policy to ensure that the specifications include year 2000 compliance.
However, there can be no guarantee that the systems of other companies on which
the Company's systems will rely will be converted on a timely basis, or that a
failure to convert by another company, or a conversion that is incompatible with
the Company's systems, would not have a material impact on the Company. Based on
its current assessment, management believes that year 2000 compliance will not
have a material adverse impact on the future operations of the Company.
OUTLOOK
The Company's achievements for 1997 have been significant. The Company has
substantially completed the research and development of its proprietary
composite material and the development of the Duraskid. Significant progress was
made in fully equipping the Etobicoke facility. In addition, an agreement was
entered into to establish a second facility in Massachusetts which will serve
the New England and upper New York state market.
During 1997, the Company began building an awareness of the pallet through a
beta test program established with a number of potential customers. In
conjunction with this, the Company started building its sales and customer
service department. The marketing of the Duraskid pallet is currently focused on
creating brand name awareness. Sales of the Duraskid pallet will be generated by
the Company's own sales force and through a network of independent sales agents.
A national and regional marketing program is being implemented in North America.
DPI has targeted the food and retail, beverage, warehousing, and manufacturing
industries where the benefits of the Duraskid are readily apparent.
<PAGE> 19
During 1997, the Company substantially completed the research and development of
its composite material and the development of the Duraskid pallet. Significant
progress was made in fully equipping the Etobicoke facility and an agreement was
entered into to establish a second facility. The Company plans to enter into
limited commercial production in the first half of fiscal 1998. The Company's
ability to achieve full commercial production is dependent on the completion of
the equipping of the Etobicoke facility with new assembly equipment, market
demand for Duraskid pallets and may be dependent upon its ability to raise
additional capital.
The focus of management for 1998 is as follows:
- - operate the Etobicoke facility at increasing production levels to
achieve full production capacity and have corresponding sales levels;
- - have the Boston facility operational by the end of the year with
established sales efforts;
- - enter into additional agreements with partners for the construction of
additional plants; and
- - commence research and development work on additional products for the
composite material.
The Company's business plan for the next three years contemplates the
construction of 10-15 additional plants throughout North America. The Company
then plans to expand the program to Europe and the Pacific Rim and Asia. Capital
cost per plant with a planned minimum capacity of approximately 1,000,000
pallets per year is estimated at approximately $6.0 million.
The Company's strategy for its expansion is to enter into agreements with local
partners which will enable the Company to quickly create a supply network of raw
materials, capitalize on local knowledge, expand management resources, and
secure a source of investment capital. The partners will be responsible for the
day to day management of their respective operations. The Company plans to
structure the agreements to provide for the payment of a license fee and ongoing
royalties to the Company in return for a percentage ownership by the partners.
In addition to the investment capital provided by its partners, the Company
plans to enter into lease financing arrangements to fund the balance of the
capital requirements.
The Company has devoted significant resources to research and development in
each of the past two years. Up to December 31, 1997, the Company has spent a
total of approximately $2.1 million on research and development. Management
expects to continue to devote significant resources to research and development
efforts on new product development during 1998 and beyond.
<PAGE> 20
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
- ------------------------------------ ----------------------------------- -----------------------------------
Name Position Term
- ------------------------------------ ----------------------------------- -----------------------------------
<S> <C> <C>
Keith Carrigan Director, President and CEO Director since November 1995 and
President and CEO since February 1996
- ------------------------------------ ----------------------------------- -----------------------------------
Patrick Banfield Director Director since January 1997
- ------------------------------------ ----------------------------------- -----------------------------------
Stuart MacGregor Director Director since February 1996
- ------------------------------------ ----------------------------------- -----------------------------------
John Winter Director, VP Manufacturing Director since May 1996 and VP
Manufacturing since December 1995
- ------------------------------------ ----------------------------------- -----------------------------------
Carl McMurray VP Finance and CFO VP Finance and CFO since May 1996
- ------------------------------------ ----------------------------------- -----------------------------------
Weining Song VP Engineering VP Engineering since December 1995
- ------------------------------------ ----------------------------------- -----------------------------------
</TABLE>
All directors hold office until the next annual meeting of the shareholders of
the Company and until their successors have been elected and qualified. Officers
of the Company serve at the discretion of the Board of Directors.
There are no arrangements or understandings between any of the directors or
officers of the Company and any other person pursuant to which they were
selected as a director or officer of the Company. There are no family
arrangements between any director or officer of the Company and any other
director or officer of the Company.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
Compensation Summary
The table below sets forth information concerning the compensation of the
Company's chief executive officer and for all officers as a group for the
Company's financial years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
- ------------ ----------------------------------------------------- -----------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
- ------------ ----------------------------------------------------- -----------------------------------------------------
Name and Year Salary ($) Bonus ($) Other Awards Awards Payouts All other
principal annual securities restricted LTIP (2) compensation
position compensation under Shares or Payouts ($)
($) option/ restricted ($)
SARs (1) share
granted units ($)
(#)
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Keith 1997 168,160 Nil Nil 200,000/Nil Nil Nil Nil
Carrigan 1996(3) 112,000 Nil Nil 200,000/Nil Nil Nil Nil
President
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
J.Hunter, 1996(3) Nil Nil Nil Nil Nil Nil Nil
President 1995 Nil Nil 13,190 Nil Nil Nil Nil
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Officers 1997 381,910 Nil Nil 550,000/Nil Nil Nil Nil
as a group 1996 239,500 Nil Nil 575,000/Nil Nil Nil Nil
1995 Nil Nil 13190 Nil Nil Nil Nil
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
(1) Stock appreciation rights
(2) Long term incentive plans
(3) Mr. Hunter was succeeded as President of the Company by Mr. Carrigan on
February 19, 1996
<PAGE> 21
For each of the financial years ended December 31, 1997, 1996 and 1995, there
were no standard arrangements by which directors of the Company were compensated
for their services to the Company as directors. Directors participate in the
Company's stock option plan.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
(a) Stock Option Plan
- ---------------------
On April 17, 1996, the board of directors of the Company approved the
establishment of a stock option plan (the "1996 Plan") relating to the common
shares ("Common Shares") of the Company. Disinterested shareholders of the
Company passed a resolution approving the establishment of the 1996 Plan on May
30, 1996. Eligibility for participation in the 1996 Plan is restricted to
directors, officers, employees and consultants of the Company and its affiliates
and other designated persons and their personal holding companies and registered
retirement savings plan ("RRSP's"). The number of Common Shares subject to
options granted under the 1996 Plan (and under all other management options and
employee stock purchase plans) is limited, in the aggregate, to 5,000,000. The
maximum number of Common Shares which may be reserved for issuance to any one
person, including insiders of the Company under the 1996 Plan, is not limited
except to the extent that at no time may such number exceed 5% of the number of
issued and outstanding Common Shares. The exercise price of any option granted
under the 1996 Plan may not be less than the fair market value (e.g., the
prevailing market price) of the Common Shares at the time the option is granted.
Options issued under the 1996 Plan may be exercised during a period determined
by the board of directors which cannot exceed five years and are subject to
earlier termination upon the termination of the optionee's employment, upon the
optionee ceasing to be a director and/or officer of the Company or any
subsidiary, or upon the retirement, permanent disability or death of an
optionee. The options issued under the 1996 Plan are non-transferable. The
Company does not provide any financial assistance to participants under the 1996
Plan to facilitate the purchase of Common Shares.
As of December 31, 1997, the following options were outstanding:
<TABLE>
<CAPTION>
Number of options Expiry date Purchase price
----------------- ----------- --------------
<S> <C> <C>
523,300 June 27, 2001 $0.70
430,000 January 27, 2002 $1.10
1,357,500 July 9, 2002 $2.00
75,000 September 1, 2002 $2.80
7,500 October 27, 2002 $2.65
</TABLE>
As of December 31, 1997, directors and officers as a group held options to
purchase up to 1,596,000 common shares of the Company.
(b) Shareholder Rights Plan
- ---------------------------
On April 23, 1997, the board of directors of the Company (the "Board") adopted
the Dura Products International Inc. shareholder rights plan (the "Rights
Plan"). The Rights Plan, which was subsequently approved by the shareholders of
the Company, is effective as of April 23, 1997, and will expire on December 31,
2002.
The objectives of the Rights Plan are to ensure, to the extent possible, that
all shareholders of the Company are treated equally and fairly in connection
with any take-over bid for the Company. Take-over bids may not always result in
shareholders receiving equal or fair treatment or full value for their
investment. In addition, current Canadian securities legislation only requires a
take-over bid to remain open for 21 days. The Board believes that this period
may be insufficient for the Board to evaluate a bid, pursue alternatives which
could maximize the shareholder value, and make informed recommendations to the
shareholders.
The Rights Plan discourages discriminatory or unfair take-over bids for the
Company and gives the Board time, if appropriate, to pursue alternatives to
maximize shareholder value in the event of unsolicited take-over bid for the
Company. The Rights Plan will encourage a potential offeror to proceed by way of
a permitted bid or to approach the Board with a view to negotiation, by creating
the potential for substantial dilution of any offeror's position. The permitted
bid provisions of the Rights Plan are designed to ensure that, in any take-over
bid, all shareholders are treated equally, receive the maximum value for their
investment and are given adequate time to properly assess the take-over bid on a
fully informed basis. However, it should be noted that the terms of The Rights
Plan could deter potential acquisitions of the Company in circumstances where
such bids would result in premiums for shareholders.
Pursuant to the Rights Plan, one Right has been issued by the Company pursuant
to the Rights Agreement in respect of each Common Share outstanding at the Close
of Business on April 23, 1997 (the "Record Time"). One Right will also be issued
for each additional Common Share issued after the Record Time and prior to the
earlier of the Separation Time (as defined below), the expiry date of the Rights
Plan or the day on which the right to exercise Rights expires.
The Separation Time is defined in the Rights Agreement as the Close of Business
on the 10th day (or such earlier or later day as may be determined by the Board)
after the earlier of: public disclosure that a person has become an Acquiring
Person (defined in the Rights Agreement as a person who has acquired, other than
pursuant to an exemption available under the Rights Plan or a permitted bid,
beneficial ownership of 10% percent or more of the Voting Shares of the
Company); and the date of the commencement of, or first public announcement of
an intention to commence, a take-over bid (other than a permitted bid) to
acquire beneficial ownership of 20% percent or more of the Common Shares.
Each Right will entitle the registered holder to purchase from the Company one
Common Share at a price per share equal to 50% of the then fair market value,
subject to certain anti-dilution adjustments. The Rights, however, will not be
exercisable until the Separation Time.
Until the Separation Time, the Rights will trade together with the Common
Shares, will be represented by the Common Share certificates and will not be
exercisable. After the Separation Time, the Rights will become exercisable, will
be evidenced by Rights certificates and will be transferable separately from the
Common Shares.
If an offeror successfully completes a permitted bid, the Board shall be deemed
to have elected to redeem the Rights at $0.001 per Right, appropriately adjusted
for anti-dilution, and no further Rights will be issued.
A permitted bid, even if not approved by the Board, may be taken directly to the
shareholders of the Company. Shareholder approval at a special meeting will not
be required for a permitted bid. Instead, shareholders of the Company will
initially have 60 days to deposit their shares. If more than 50 percent of the
outstanding Common Shares (other than Common Shares beneficially owned by the
offeror on the date of the take-over bid) have been deposited and not withdrawn
by the end of such 60-day period, the bid must be extended for a further period
of 10 days to allow initially disapproving shareholders to deposit their shares
if they so choose.
If a potential offeror does not wish to make a permitted bid, it can negotiate
with, and obtain the prior approval of, the Board to make a take-over bid on
terms which the Board considers fair to all shareholders. In such circumstances,
the Board may waive the application of the Rights Plan to that particular
transaction or redeem the Rights, thereby allowing such bid to proceed without
dilution to the offeror.
Under the Rights Agreement, the implementation of the Rights Plan is triggered,
subject to the Board's discretion, upon the occurrence of any transaction or
event in which any person becomes an Acquiring Person. Except as set out below,
from and after the Close of Business on the 10th day following such an event:
(a) any Rights beneficially owned by the acquiring person and affiliate,
associates and transferees of the acquiring person will become void; and (b)
each Right (other than Rights which are void) will entitle the holder thereof to
purchase Common Shares at 50% of the then fair market value. Therefore, an event
triggering the implementation of the Rights Plan, if not approved by the Board,
will result in significant dilution to an Acquiring Person. The Board, at its
option and at any time prior to the occurrence of such an event, may elect to
redeem all of the outstanding Rights at a redemption price of $0.001 per Right,
appropriately adjusted for anti-dilution as set out in the Rights Agreement.
The Company may, from time to time, amend, vary or delete any of the provisions
of the Rights Agreement to, among other things: (i) make any changes which the
Board, acting in good faith, deems necessary or desirable, (ii) cure any
ambiguity or correct any inconsistency; or (iii) increase or decrease the
exercise price of the Rights. Such amendments will not require the approval of
the holders of Rights or Common Shares. The Company may, from time to time, with
the approval of a majority of the holders of Rights, amend, vary or delete any
of the provisions of the Rights Agreement (whether or not such change shall
materially adversely affect the interests of the holders of the Rights).
<PAGE> 22
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
(a) Material Transactions
Effective January 15, 1996, the Company completed its acquisition of all of the
issued and outstanding shares of Dura Skid Inc. for $400,000, which was settled
by the issuance of 1,000,000 common shares of the Company. In addition to the
$400,000 purchase price, the Company granted warrants to the shareholders of
Dura Skid Inc. which entitled the warrant holders to purchase in the aggregate,
500,000 common shares, at a per share price of $0.40. Dura Skid Inc. was owned
equally by two shareholders, one of whom was Mr. Keith Carrigan. Upon signing
the letter of intent, Mr. Carrigan was elected to the Board of Directors of the
Company, and effective February 19, 1996, became President and CEO of the
Company. Mr. Carrigan does not own greater than 10% of the issued and
outstanding common shares of the Company.
(b) Indebtedness of Directors and Officers
No director or officer of the Company, at any time during the fiscal year ended
December 31, 1997 was indebted to the Company. No director or officer of the
Company, at any time during the fiscal year ended December 31, 1996 was indebted
to the Company.
Except with respect to Mr. James Hunter, a former director and officer of the
Company, who was indebted to the Company to the extent of $31,469 as of December
31, 1995, no director or officer of the Company was indebted to the Company
during the fiscal year ended December 31, 1995.
Key Employee Agreements
On May 1, 1995 the Company entered into an employment agreement with Keith
Carrigan. Mr. Carrigan holds the offices of Director, President and Chief
Executive Officer and his minimum annual compensation is $120,000. The contract
is ongoing unless otherwise terminated pursuant to the terms thereunder. Mr.
Carrigan is eligible to participate in all stock option plans, bonus plans and
other fringe benefit plans of the Company.
On January 1, 1997 the Company entered into an employment agreement with Carl
McMurray. Mr. McMurray holds the offices of Vice President Finance and Chief
Financial Officer and Secretary to the Board. His annual compensation is
$102,000, effective 1998. The contract is ongoing unless otherwise terminated
pursuant to the terms thereunder. Mr. McMurray is eligible to participate in all
stock option plans, bonus plans and other fringe benefit plans of the Company.
On August 7, 1996 the Company entered into a two year employment agreement with
Weining Song. Mr. Song holds the office of Vice President Engineering and his
annual compensation is $75,000. Mr. Song was granted options to acquire 150,000
common shares and is eligible to participate in all stock option plans, bonus
plans and other fringe benefit plans of the Company.
<PAGE> 23
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
Not Applicable
<PAGE> 24
<PAGE> 25
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
Not applicable.
PART IV
ITEM 17. FINANCIAL STATEMENTS.
Not applicable.
ITEM 18. FINANCIAL STATEMENTS.
The consolidated financial statements of the Company, the accompanying notes
thereto and the independent auditors' reports are included as part of this Form
20-F and immediately follow the signature page of this Form 20-F.
Item 19. Financial Statements and Exhibits
(A) FINANCIAL STATEMENTS
The following financial statements are filed herewith:
1. Consolidated Balance Sheets as of December 31, 1997 and December 31,
1996
2. Consolidated Statements of Operations and Deficit for the years ended
December 31, 1997, 1996 and 1995.
3. Consolidated Statements of Changes in Financial Position for the years
ended December 31, 1997, 1996 and 1995.
4. Notes to Consolidated Financial Statements
(B) FINANCIAL STATEMENT SCHEDULES
Schedule I -- Condensed Financial Information of the Registrant
(C) EXHIBITS
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
<S> <C>
1.1* Articles of Incorporation as Amended ..................................
1.2* By-laws ...............................................................
3.1* Share Exchange Agreement dated as of January 15, 1996 by and between
the Company and its wholly-owned subsidiary Dura Skid, Inc. ...........
3.2* Lease Agreement dated as of November 1, 1995 between Carrier Drive
Development Ltd. and Cantech Investments Ltd. .........................
3.3* Shareholder Rights Agreement dated as of April 23, 1997 between the
Company and the R-M Trust Company .....................................
3.4* Employment Agreement by and between Keith Carrigan and the Company
dated May 1, 1995......................................................
3.5* Employment Agreement by and between Carl McMurray and the Company
dated January 1, 1997..................................................
3.6* Employment Agreement by and between Weining Song and the Company
dated August 7, 1996...................................................
3.7* 1996 Stock Option Plan.................................................
3.8* Master Lease Agreement by and between Bombardier Finance, Inc. and the
Company dated August 12, 1997..........................................
3.9* Joint Venture Agreement by and between Dunraskid New England, L.L.C.,
Duraskid and Products, Inc., Environmental Composite Products L.L.C.
and the Company dated September 23, 1997 ..............................
3.10* Technology License Agreement by and between Duraskid New England L.L.C.
and the Company dated October 15, 1997 ................................
3.11* Stock Option Agreement by and between Environmental Composite Products
L.L.C. and the Company dated October 15, 1997 .........................
3.12 Lease Agreement between Forty-Four Lowell Junction Andover L.L.C. and
Duraskid (New England) L.L.C...........................................
3.13 Guaranty of Lease Agreement by Dura Products International, Inc........
3.14 Indemnification Agreement by and among Dura Products International,
Inc. and the members of Environmental Composite Products, L.L.C........
11.0 Computation of Earnings Per Share......................................
27.0 Financial Data Schedule................................................
</TABLE>
* Filed with Form 20-F Registration Statement declared effective by the
Securities and Exchange Commission on November 14, 1997.
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C>
DURA PRODUCTS INTERNATIONAL INC. , 1998
- ------------------------------------- ------------------------------
(Registrant) (Date)
/s/ Keith A. Carrigan /s/ Carl D. McMurray
- ------------------------------------- ------------------------------
(Signature) (Signature)
President and Chief Executive Officer Vice President Finance & Chief
Financial Officer
- ------------------------------------- ------------------------------
</TABLE>
<PAGE> 27
AUDITORS' REPORTS
We have audited the consolidated balance sheet of Dura Products International
Inc. as at December 31, 1997 and the consolidated statements of operations and
deficit and changes in financial position for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1997
and the results of its operations and changes in its financial position for the
year then ended in accordance with accounting principles generally accepted in
Canada.
Ernst & Young
Chartered Accountants
Toronto, Canada
February 6, 1998.
We have audited the consolidated balance sheet of Dura Products International
Inc. as at December 31, 1996 and the consolidated statements of operations and
deficit and changes in financial position for the years ended December 31, 1996
and 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1996
and the results of its operations and changes in its financial position for the
years ended December 31, 1996 and 1995 in accordance with accounting principles
generally accepted in Canada.
Selby & Silverstein
Chartered Accountants
Toronto, Canada
February 21, 1997.
<PAGE> 28
DURA PRODUCTS INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash $ 2,044,184 $ 12,192
Accounts receivable 25,425 36,505
Other receivables (Note 3) 278,168 --
Prepaid expenses 17,284 --
Inventory (Note 4) 182,862 --
------- ------------
Current Assets 2,547,923 48,697
Capital assets, net (Note 5) 6,001,572 1,148,727
Cash in escrow (Note 8) 306,000 --
Technology and other intangible assets,
net of accumulated amortization of
$1,610 (Note 2) 678,357 679,967
------- -------
Total Assets $ 9,533,852 $ 1,877,391
------------ ------------
LIABILITIES
Current liabilities
Accounts payable $ 590,130 $ 723,336
Accrued liabilities 207,503 --
Current portion of capital leases (Note 8) 236,347
Short-term loans payable -- 341,177
-- -------
Current Liabilities 1,033,980 1,064,513
--------- ---------
Capital leases (Note 8) 1,267,116 --
--------- ---------
Minority interest 68,600 --
------ ---------
Total Liabilities 2,369,696 1,064,513
--------- ---------
SHAREHOLDERS' EQUITY
Share capital
Common shares, no par value, unlimited authorized:
21,983,764 and 14,105,919 issued and outstanding
December 31, 1997 and 1996 (Note 6) 14,247,987 4,901,150
Deficit (7,083,831) (4,088,272)
----------- -----------
Stockholders' Equity 7,164,156 812,878
--------- -------
Total Liabilities and Stockholders' Equity $ 9,533,852 $ 1,877,391
------------ - ---------
</TABLE>
(see accompanying notes)
<PAGE> 29
DURA PRODUCTS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUE $ 60,362 $ -- $ --
----------- --------- ---------
EXPENSES
Research and development 1,239,576 668,996 --
General and administration 1,369,844 633,964 93,672
Sales and marketing 261,792 -- --
Amortization 184,709 11,166 --
Mining properties -- -- 521,643
--------- --------- -------
3,055,921 1,314,126 615,315
--------- --------- -------
Loss for the year $(2,995,559) $(1,314,126) $ (615,315)
Deficit, beginning of year (4,088,272) (2,774,146) (2,158,831)
----------- ----------- -----------
Deficit, end of year $(7,083,831) $(4,088,272) $ (2,774,146)
----------- ----------- -----------
Loss per share $ (0.17) $ (0.14) $ (0.11)
Weighted average common shares
outstanding 17,979,443 9,564,501 5,759,927
</TABLE>
(see accompanying notes)
<PAGE> 30
DURA PRODUCTS INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Loss for the year $ (2,995,559) $ (1,314,126) $ (615,315)
Add non-cash items:
Amortization 11,166 --
184,709
Other -- -- 521,643
------------- ------------- -------
(2,810,850) (1,302,960) (93,672)
Net change in non-cash working
capital items
Accounts and other receivables (198,488) (5,036) (1,710)
Prepaid expenses (17,284) -- --
Inventory (182,862) -- --
Accounts payable and accrued
liabilities 74,297 639,367 57,036
------ ------- ------
(3,135,187) (668,629) (38,346)
---------- -------- -------
INVESTING ACTIVITIES
Additions to capital assets (5,035,944) (1,159,893) --
Technology and other intangible
assets -- (679,967) --
Cash in escrow (306,000) -- --
Mining properties and investments -- 1 59,720
---------- ---------- ------
(5,341,944) (1,839,859) 59,720
---------- ---------- ------
FINANCING ACTIVITIES
Issuance of common shares 9,346,837 2,528,996 --
Short-term loans payable (341,177) (8,342) (20,046)
Capital lease receipts 1,511,086 -- --
Capital lease payments (7,623) -- --
------
10,509,123 2,520,654 (20,046)
---------- --------- -------
Increase in cash during the year 2,031,992 12,166 1,328
Cash, beginning of year 12,192 26 (1,302)
------ -- ------
CASH, END OF YEAR $ 2,044,184 $ 12,192 $ 26
------------ ------------ ------------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 52,715 $ 19,202 $ 19,202
</TABLE>
(see accompanying notes)
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
These consolidated financial statements have been prepared in Canadian dollars
and in accordance with accounting principles generally accepted in Canada, which
conform, in all material respects, with accounting principles generally accepted
in the United States, except as disclosed in Note 10.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries Dura Skid Inc. ("Dura Skid") and Dura Skid (New England) LLC.
(c) REVENUE RECOGNITION
Revenue is recognized when goods are shipped to the customer.
(d) INVENTORY
Inventories of raw materials are valued at the lower of average cost and
replacement cost or net realizable value, on a first-in, first-out basis.
Inventories of work in process and finished goods are valued at the lower of
standard cost and net realizable value, on a first-in, first-out basis.
(e) CAPITAL ASSETS
Capital assets are recorded at cost, with amortization being provided for on a
straight-line basis as follows:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment and software 3 years
Furniture and fixtures 5 years
Leasehold improvements term of the lease plus one renewal period
Production equipment 10 years, upon commercial production
</TABLE>
Amortization in the year of purchase is calculated at one-half of the annual
rate.
(f) TECHNOLOGY AND OTHER INTANGIBLE ASSETS
Through its acquisition of Dura Skid, the Company acquired technology, know-how
and expertise related to composite materials, which are recorded at cost. This
asset is assessed for future recoverability on an annual basis by estimating
future net undiscounted cash flows and residual values. When the net carrying
amount of an intangible asset exceeds the estimated net recoverable amount, the
asset is written down with a charge against income.
Amortization of technology and other intangible assets is recorded on a
straight-line basis over five years, commencing with commercial production.
<PAGE> 32
(g) RESEARCH AND DEVELOPMENT
Research costs are expensed as incurred. Development costs are expensed in the
year incurred unless management believes that the development project meets the
generally accepted accounting principles for deferral and amortization. All
development costs to date have been expensed as incurred.
(h) INCOME TAXES
Effective January 1, 1997, the Company adopted the new recommendations of The
Canadian Institute of Chartered Accountants with respect to accounting for
income taxes. This change has been applied retroactively, however, the adoption
of the new recommendations had no impact.
Under the new recommendations, the liability method of tax allocation is used in
accounting for income taxes. Under this method, future tax assets and
liabilities are based on differences between the financial reporting and tax
bases of assets and liabilities, and measured using the substantively enacted
tax rates and laws that will be in effect when the differences are expected to
reverse. Deferred tax assets are also established for the future tax benefits of
loss and tax credit carryovers. The liability method of accounting for deferred
income taxes provides for a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized.
Prior to the adoption of the new recommendations, income tax expense was
determined using the deferral method of tax allocation. Future tax expense was
based on items of income and expense that were reported in different years in
the consolidated financial statements and tax returns and measured at the rate
in effect in the year the differences originated.
Investment tax credits relating to capital asset purchases and scientific
research and experimental development expenditures ("SRED") are accounted for as
a reduction of the cost of such assets and expenses, respectively, when the
Company has reasonable assurance as to realization. To date, no investment tax
credits have been recorded in the accounts of the Company.
(i) LOSS PER SHARE
The loss per share has been calculated using the weighted average number of
shares outstanding during the year.
(j) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents and are grouped with "Cash"
on the consolidated balance sheet. Cash that is being held in escrow has been
categorized as "Cash in escrow" on the consolidated balance sheet (see Note 8).
<PAGE> 33
(k) LEASES
The Company leases certain of its assets. Assets rented under capital lease
arrangements, where substantially all of the benefits of ownership are
transferred to the Company, are accounted for as capital asset acquisitions and
are depreciated over their estimated useful lives. Obligations under the terms
of capital leases are shown as liabilities of the Company.
(l) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual amounts could differ from those estimates.
(m) FINANCIAL INSTRUMENTS
Due to the nature of the Company's financial instruments, the market values
approximate their carrying values.
(n) COMPARATIVE FIGURES
Certain prior years' comparative figures have been reclassified to conform to
the current year's presentation.
1. BASIS OF OPERATIONS
During 1997 the Company substantially completed its research and development of
its composite material and the development of the Duraskid pallet. Significant
progress was made in fully equipping the Etobicoke facility and an agreement was
entered into to establish a second facility. The Company plans to enter into
limited commercial production in the first half of fiscal 1998. The ability of
the Company to achieve full commercial production is dependent on the completion
of the equipping of the Etobicoke facility with new assembly equipment, market
demand for Duraskids and may be dependent upon the Company's ability to raise
additional capital.
2. BUSINESS ACQUISITIONS AND DIVESTITURES
Effective January 15, 1996, the Company acquired 100% of the issued and
outstanding shares of Dura Skid for $400,000. The purchase price was settled by
the issuance of 1,000,000 common shares of the Company. The major asset of Dura
Skid was technology, know-how and expertise. Accordingly, the $400,000 was
allocated to technology and other intangible assets along with the accumulated
shareholders' deficiency of Dura Skid plus legal expenses. In addition to the
$400,000 purchase price, the Company granted warrants to the shareholders of
Dura Skid which entitle the warrant holders to purchase in the aggregate,
500,000 common shares, at a per share price of $0.40, all of which were
exercised during 1996. The acquisition was accounted for using the purchase
method.
<PAGE> 34
The breakdown of the purchase is as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 3,801
Other current assets 13,159
Capital and other assets 13,310
Current liabilities (261,915)
-----------
Net liabilities acquired (231,645)
Technology and other intangible assets acquired 631,645
-----------
Purchase price $ 400,000
-----------
</TABLE>
Effective September 28, 1996, the Company sold its 100% interest in 155433
Canada Ltd. ("155433") for $2.00. 155433 owns the mining properties which had
been written down to $1.00 as of December 31, 1995.
3. OTHER RECEIVABLES
<TABLE>
<CAPTION>
<S> <C>
Other receivables at December 31, 1997 consist of:
GST receivable $ 209,568
Receivable from minority interest partners 68,600
------
Total $ 278,168
---------
4. INVENTORY
Inventory at December 31, 1997 consists of:
Raw materials $ 92,070
Work in process and finished goods 90,792
------
Total $ 182,862
---------
</TABLE>
<TABLE>
<CAPTION>
5. CAPITAL ASSETS
Capital assets consist of:
December 31, 1997 Accumulated Net Book
Cost Amortization Value
---- ------------ -----
<S> <C> <C> <C>
Computer equipment and software $ 112,580 $ 31,595 $ 80,985
Furniture and fixtures 59,823 13,696 46,127
Leasehold improvements 476,556 9,449 467,107
Production equipment 4,032,346 133,615 3,898,731
Equipment under capital lease 1,514,532 5,910 1,508,622
--------- --------- ----------
$6,195,837 $ 194,265 $6,001,572
---------- ---------- ----------
December 31, 1996 Accumulated Net Book
Cost Amortization Value
---- ------------ -----
Computer equipment and software $ 42,428 $ 7,072 $ 35,356
Furniture and fixtures 38,569 3,857 34,712
Leasehold improvements 4,745 237 4,508
Production equipment 1,074,151 0 1,074,151
--------- --------- ---------
$1,159,893 $ 11,166 $1,148,727
---------- ---------- ----------
</TABLE>
<PAGE> 35
Amortization expense was $183,099, $11,166, and nil for the years ended December
31, 1997, 1996, and 1995.
6. SHARE CAPITAL
Class A Special Shares; no par value, unlimited authorized
The Class A Special Shares are voting and may be issued in one or more series.
The directors of the Company may establish, before an issue, the number of
shares to comprise each series and the designation, rights, privileges,
restrictions and conditions attached to each series, and without limiting the
generality of the foregoing, the rate or amount of dividends or the method of
calculating dividends, the dates of payment, the redemption, purchase and/or
conversion prices and terms and conditions of redemption and any sinking fund or
other provisions. As of December 31, 1997 and 1996, no Class A Special Shares
had been issued.
Class B Special Shares; no par value, unlimited authorized
The Class B Special Shares are designated as redeemable, voting,
non-participating shares. No dividends shall be declared, set aside or paid on
the Class B Special Shares.
As of December 31, 1997 and 1996, no Class B Special Shares had been issued.
Common Shares Issued
<TABLE>
<CAPTION>
Shares Amount
------ ------
<S> <C> <C>
Balance, December 31, 1995 5,759,927 $ 2,372,154
Acquisition of Dura Skid Inc. 1,000,000 400,000
Exercise of stock options 1,725,992 892,996
Exercise of warrants 5,500,000 1,200,000
Severance payment 120,000 36,000
---------- ------------
Balance, December 31, 1996 14,105,919 4,901,150
Issued for cash 4,374,033 6,004,815
Exercise of stock options 1,121,200 1,405,390
Exercise of warrants 2,382,612 1,936,632
---------- ------------
Balance, December 31, 1997 21,983,764 $ 14,247,987
---------- ------------
</TABLE>
Stock options
The Company has issued stock options pursuant to the following plans:
(i) The 1996 stock option plan was limited to 1,000,000 shares in the aggregate,
and restricted to directors, officers, employees and consultants of the Company.
The exercise price of any options granted may not be less than the fair market
value at the time the option is granted. Vesting provisions are at the
discretion of the board. The term of the options cannot exceed five years. All
options have been granted and exercised pursuant to this plan.
(ii) The 1996 replacement stock option plan was limited to 2,500,000 shares in
the aggregate, and restricted to directors, officers, employees and consultants
of the Company
<PAGE> 36
and its subsidiaries and other designated persons as designated from time to
time by the Board. The exercise price of any options granted may not be less
than the fair market value at the time the option is granted. Vesting provisions
are at the discretion of the Board. The term of the options cannot exceed five
years. This plan was subsequently amended to increase the limit of shares from
2,500,000 to 5,000,000 shares in the aggregate. As of December 31, 1997,
approximately 1.3 million options had not been granted.
The following is a continuity of stock options outstanding:
<TABLE>
<CAPTION>
Number
------
<S> <C> <C>
Balance, December 31, 1995 575,992
Granted during 1996 2,300,000
Exercised during 1996 (1,725,992)
-----------
Balance, December 31, 1996 1,150,000
Granted during 1997 2,364,500
Exercised during 1997 (1,121,200)
-----------
Balance, December 31, 1997 at weighted
average $1.58 2,393,300
----- -----------
</TABLE>
Of the total options outstanding, 523,300 issued at $0.70 expire on June 27,
2001; 430,000 issued at $1.10 expire on January 27, 2002; 1,357,500 issued at
$2.00 expire on July 9, 2002; 75,000 issued at $2.80 expire on September 1,
2002; and 7,500 issued at $2.65 expire on October 27, 2002. All options are
currently exercisable.
Common share purchase warrants
The following is a continuity of warrants outstanding:
<TABLE>
<CAPTION>
Number
------
<S> > <C>
Balance, December 31, 1995 5,000,000
Issued during 1996 500,000
Exercised during 1996 (5,500,000)
-----------
Balance, December 31, 1996 nil
Issued during 1997 4,374,040
Exercised during 1997 (2,382,612)
-----------
Balance, December 31, 1997 1,991,428
-----------
</TABLE>
The common share purchase warrants outstanding as of December 31, 1997 expire on
March 23, 1999 and entitle the holder to purchase one common share of the
Company at $3.00 per share.
<PAGE> 37
7. INCOME TAXES
The components of deferred income tax assets and liabilities as of December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
- ----------------------------------------------------------------------------------------------------------
Net operating loss carryforwards $ 1,268,455 $ 561,096
- ----------------------------------------------------------------------------------------------------------
Net capital loss carryforwards 676,636 676,636
- ----------------------------------------------------------------------------------------------------------
SRED expenditure pool carryforward 570,436 391,129
- ----------------------------------------------------------------------------------------------------------
SRED ITC's recoverable 327,019 205,781
- ----------------------------------------------------------------------------------------------------------
Depreciation and amortization 68,042 24,128
- ----------------------------------------------------------------------------------------------------------
Total deferred assets 2,910,588 1,858,770
- ----------------------------------------------------------------------------------------------------------
Less: valuation allowance (2,910,588) (1,858,770)
- ----------------------------------------------------------------------------------------------------------
Net deferred tax liability $ - $ -
- ----------------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1997 the Company has net loss carryforwards of $2,843,000 for
income tax purposes that expire as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998, $ 35,000
1999, $ 35,000
2000, $ 31,000
2001, $ 112,000
2002, $ 94,000
2003, $ 907,000
2004, $1,629,000
</TABLE>
In addition, the Company has net capital loss carryforwards of approximately
$1.5 million that do not expire. As of December 31, 1997, the Company has SRED
expenditure pool carryforwards of approximately $1.7 million that do not expire.
The potential tax savings of these losses have not been recognized in these
consolidated financial statements.
8. LEASE OBLIGATIONS AND COMMITMENTS
a) Production equipment lease
During the year, the Company entered into a capital lease facility that provides
for up to $3.1 million of equipment financing and provides for certain financial
covenants and cash collateral to be maintained. Up to December 31, 1997 the
Company utilized $1,485,966 of this facility and agreed to maintain $306,000 of
cash collateral in an escrow account (referred to as "Cash in escrow" on the
consolidated balance sheets). The effective interest rate is 11.4% per annum.
Certain equipment has been pledged as security for the facility. As of December
31, 1997 the Company was in compliance with the financial covenants, which are
measured on a quarterly basis. Based on the Company's growth plans, it is
possible that the Company may not be in compliance with the financial
<PAGE> 38
covenants during 1998. However, management believes that the lender will
continue to make the facilities available to the Company during 1998. As a
result of the covenants associated with this facility, Dura Skid is restricted
in its ability to transfer its net assets of approximately $5.0 million as of
December 31, 1997 to its parent company, Dura Products International Inc.
without the approval of the lender.
The minimum annual lease payments for each of the next five years are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 383,808
1999 383,808
2000 383,808
2001 383,808
2002 425,638
Less imputed interest (478,423)
----------
1,482,447
Less current portion (226,251)
----------
$1,256,196
----------
</TABLE>
b) Premise and office equipment leases
In addition, the Company leases its premises and some office equipment. The
lease for premises is an operating lease. The Company has an option to purchase
the premises. Office equipment is under capital lease. The minimum annual lease
payments for the remaining terms of the leases are as follows:
<TABLE>
<CAPTION>
Operating leases Capital leases
---------------- --------------
<S> <C> <C>
1998 $ 156,072 $ 11,753
1999 165,924 10,275
2000 145,120 2,523
Less imputed interest (0) (3,535)
---------- ---------
$ 467,116 21,016
----------
Less current portion (10,096)
---------
$ 10,920
---------
</TABLE>
Interest expense, which is grouped with general and administration expenses, for
the year ended December 31, 1997 and 1996 for the capital leases was $47,926 and
$1,320. Operating lease expense for the year ended December 31, 1997, 1996, and
1995 was $94,188, $82,140, and nil.
c) Commitments
Subsequent to year-end, the Company entered into a lease agreement to lease a
135,000 square foot facility located in Andover, Massachusetts. The lease is for
a six-year term, with a six-year term renewal period. Rental payments for the
first six years have been fixed at approximately US$610,000 per year. The
Company has also committed up to US$450,000 for improvements, which will be
repaid over the six year period. In conjunction with leasing the facility, the
Company has placed purchase orders for compounding and extrusion equipment
totaling approximately US$5.0 million.
<PAGE> 39
9. CONTINGENCIES
a) During 1996, the Company acquired through its acquisition of Dura Skid a
licensing agreement with SRP Industries Ltd. ("SRP") to utilize certain SRP
technologies. The licensing agreement required the payment of certain minimum
royalties and potential additional royalties based upon future sales. No value
was ascribed to this licensing agreement as the Company had not determined
whether the SRP technologies could be utilized in its products. During early
1997, the Company determined that SRP's technology was not commercially viable
as it relates to the production process used by the Company, requiring the
Company to develop and commercialize its own technology at a significant cost
and time to the Company. In addition, SRP was unable to provide any of the
required technical support services under the terms of the agreement and
management thereby concluded that SRP was in breach of this agreement.
Accordingly, the Company filed a claim against SRP in April 1997 to seek damages
of approximately $5.0 million and to terminate the agreement. In October 1997,
SRP filed a counterclaim against the Company for $10 million, claiming that the
Company inappropriately terminated the agreement, enriched itself with SRP's
technology with no compensation to SRP, and induced key employees of SRP to
accept employment with the Company.
Management of the Company is of the opinion that it has acted appropriately
regarding its proactive approach in terminating this agreement, and that the
counterclaim by SRP is without merit. However, the final outcome of these
matters is uncertain and the potential effect, whether material or not, on the
Company's consolidated financial position is not reasonably determinable at this
time. Accordingly, no provision has been recorded in the accounts of the Company
as of December 31, 1997.
b) In November 1996, the Company entered into a consulting contract with Coby
Capital Corporation ("Coby") to provide assistance in raising investment capital
and related services for a period of up to two years. The Company has terminated
the agreement. However, Coby has filed an action claiming payment of retainer
fees, out-of-pocket expenses, placement fees, and stock options. The total
amount of the claim is approximately US$720,000. The Company is of the opinion
that the claim is without merit and has filed a motion for dismissal. The final
outcome of this matter is uncertain and the potential effect, whether material
or not, on the Company's consolidated financial position is not reasonably
determinable at this time. Accordingly, no provision has been recorded in the
accounts of the Company as of December 31, 1997. However, a negative outcome in
either of these cases would have a material adverse effect on the operations of
the Company.
10. RECONCILIATION OF ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE
UNITED STATES
The Company's accounting principles do not differ materially from accounting
principles generally accepted in the United States ("US GAAP") except as
follows:
(a) Business acquisition
The acquisition of Dura Skid in January 1996 (refer to Note 2) was settled by
way of common shares and share purchase warrants. Under US GAAP the share
purchase warrants must be valued and included in the purchase price. The value
ascribed to the
<PAGE> 40
warrants, as determined under the Black-Scholes model, was $85,000, which would
be added to Technology and other intangible assets. For the year ended December
31, 1997 and 1996, $1,417 and nil, respectively would have been amortized. The
impact of this is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Year ended December 31,
- ------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loss as reported under Canadian GAAP $ (2,995,559) $ (1,314,126)
- ------------------------------------------------------------------------------------------------------------
Additional amortization expense 1,417 -
- ------------------------------------------------------------------------------------------------------------
Loss under US GAAP $ (2,996,976) $ (1,314,126)
- ------------------------------------------------------------------------------------------------------------
Loss per share $ (0.17) $ (0.14)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Stock options
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") in accounting for its stock option plans. Under
APB 25 no compensation expense has been recognized. Statement of Financial
Accounting Standards No. 123 ("FAS 123"), Accounting and Disclosure of
Stock-Based Compensation, requiring the fair value of options issued to be
measured as compensation expense, has been issued. For a description of the
option plans reference should be made to Note 6. The assumptions used in the
Black-Sholes model are as follows: the risk free interest rate used was 4%;
expected dividends was 0%; expected life ranged from .08 to 2.5 years; and
expected volatility ranged from .936 to 2.545. The weighted-average grant date
fair value of options granted during 1997 was $1.16; 1996 was $0.25; and 1995
was $0.32. The pro-forma impact of this is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Year ended December 31,
- ------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pro-forma disclosures under FAS 123
- ------------------------------------------------------------------------------------------------------------
Loss for the year $ (5,745,103) $ (1,940,126)
- ------------------------------------------------------------------------------------------------------------
Loss per share $ (0.32) $ (0.20)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Statement of changes in financial position
During the years ended December 31, 1997 and 1996 several non-cash transactions
occurred which for US GAAP purposes should be excluded from the consolidated
statements of changes in financial position.
1997 transactions include:
(i) Capital assets of $1,511,086 were acquired under capital leases.
These were reflected as investing and financing activities.
1996 transactions include:
(i) The acquisition of Dura Skid Inc. The purchase price was settled
with the issuance of share capital. Accordingly, the purchase had been
reflected in investing activities and the issuance of share capital as
a financing activity, in the amount of $400,000; and
<PAGE> 41
(ii) Share capital was issued for $36,000 as part of a severance
payment. Accordingly, the issuance of share capital had been reflected
as a financing activity and the reduction of the liability as an
operating activity.
Since these non-cash transactions are pervasive throughout the statement, a
separate consolidated statement of changes in financial position has been
prepared using US GAAP, which is set out below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year ended December 31,
- ------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operating activities
- ------------------------------------------------------------------------------------
Loss for the year under US GAAP $(2,996,976) $(1,314,126)
- ------------------------------------------------------------------------------------
Add non-cash item:
- ------------------------------------------------------------------------------------
Amortization 186,126 11,166
- ------------------------------------------------------------------------------------
Net change in non-cash working capital items (2,810,850) (1,302,960)
- ------------------------------------------------------------------------------------
Accounts and other receivables (198,488) 8,123
- ------------------------------------------------------------------------------------
Prepaid expenses (17,284) --
- ------------------------------------------------------------------------------------
Inventory (182,862) --
- ------------------------------------------------------------------------------------
Accounts payable and accrued liabilities 74,297 592,119
- ------------------------------------------------------------------------------------
(3,135,187) (702,718)
- ------------------------------------------------------------------------------------
Investing activities
- ------------------------------------------------------------------------------------
Additions to capital assets (3,524,858) (1,155,308)
- ------------------------------------------------------------------------------------
Cash in escrow (306,000) --
- ------------------------------------------------------------------------------------
Technology and other intangible assets -- (39,597)
- ------------------------------------------------------------------------------------
Mining properties and investments -- 1
- ------------------------------------------------------------------------------------
(3,830,858) (1,194,904)
- ------------------------------------------------------------------------------------
Financing activities
- ------------------------------------------------------------------------------------
Issuance of common shares 9,346,837 2,092,996
- ------------------------------------------------------------------------------------
Capital lease repayments (7,623) --
- ------------------------------------------------------------------------------------
Short-term loans payable (341,177) (187,009)
- ------------------------------------------------------------------------------------
8,998,037 1,905,987
- ------------------------------------------------------------------------------------
Net increase in cash during the year 2,031,992 8,365
- ------------------------------------------------------------------------------------
Cash, beginning of year 12,192 3,827
- ------------------------------------------------------------------------------------
Cash, end of year $ 2,044,184 $ 12,192
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE> 42
Financial Statement
Schedule I
AUDITORS' CONSENT
We consent to the inclusion in this Annual Report (Form F-20) of Dura Products
International Inc. of our report dated February 6, 1998, relating to the
consolidated financial statements of Dura Products International Inc. as at
December 31, 1997 and for the year ended.
Our audit also included the financial statement schedule of Dura Products
International Inc. listed in Item 19 (B). This schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audit. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all respects the information set forth therein.
Toronto, Canada Ernst & Young
April 22, 1998 Chartered Accountants
<PAGE> 43
Financial Statement
Schedule I
DURA PRODUCTS INTERNATIONAL INC.
(PARENT COMPANY)
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
-------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Assets
Cash $ 1,692,308 $ 2,332
Other receivables 6,785 15,000
------------ -----------
1,699,093 17,332
Due from subsidiary 8,349,137 1,747,935
Investment in subsidiaries 471,400 405,000
------------ -----------
$ 10,519,630 $ 2,170,267
------------ -----------
Liabilities and Shareholders' Equity
Accounts payable $ 79,209 $ 385,297
Short-term loan payable -- 103,388
------------ -----------
79,209 488,685
Shareholders' Equity
Common shares 14,247,987 4,901,150
Deficit (3,807,566) (3,219,568)
------------ -----------
$ 10,519,630 $ 2,170,267
------------ -----------
</TABLE>
(see accompanying notes)
<PAGE> 44
DURA PRODUCTS INTERNATIONAL INC.
(PARENT COMPANY)
CONDENSED STATEMENT OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenue $ -- $ -- $ --
---------- ---------- ----------
Expenses
General and
administration 518,180 485,348 93,672
Marketing 69,818 -- --
Write down of
investment in
subsidiary -- -- 482,499
Loss on sales
of investments -- -- 9,228
---------- ---------- ----------
Loss for the year 587,998 485,348 585,399
Deficit, beginning
of year 3,219,568 2,734,220 2,148,821
---------- ---------- ----------
Deficit, end of year $3,807,566 $3,219,568 $2,734,220
---------- ---------- ----------
</TABLE>
(see accompanying notes)
<PAGE> 45
DURA PRODUCTS INTERNATIONAL INC.
(PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Operating Activities
Loss for the year $ (587,998) $ (485,348) $(585,399)
Add non-cash items
Write down of
investment in
subsidiary -- -- 482,499
Net change in non-
cash working capital
items
Other receivables 8,215 20,331 4,388
Accounts payable (306,088) 301,329 57,035
Short-term loan
payable (103,388) (246,131) (20,046)
----------- ----------- ---------
Cash used in
operating activities (989,259) (409,819) (61,523)
----------- ----------- ---------
Investing Activities
Investment in
subsidiaries (66,400) (404,999) --
Advances to
subsidiaries (6,601,202) (1,711,872) (51,378)
Marketable
investments -- -- 114,228
----------- ----------- ---------
Cash used in
investing activities (6,667,602) (2,116,871) 62,850
----------- ----------- ---------
Financing Activities
Issuance of common
shares 9,346,837 2,528,996 --
Bank indebtedness -- -- (1,301)
----------- ----------- ---------
Cash provided by
financing activities 9,346,837 2,528,996 (1,301)
----------- ----------- ---------
Net increase in cash
during year 1,689,976 2,306 26
Cash, beginning of
year 2,332 26 --
----------- ----------- ---------
Cash, end of year $ 1,692,308 $ 2,332 $ 26
----------- ----------- ---------
</TABLE>
(see accompanying notes)
<PAGE> 46
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These parent company-only financial statements have been prepared following
accounting principles generally accepted in Canada and the United States, except
for the parent company's investment in subsidiaries which are accounted for
using the cost method. These parent company-only financial statements should be
read in conjunction with the parent company's consolidated financial statements.
2. COMMITMENTS
a) Production equipment lease
During the year, the parent company's subsidiary, Dura Skid Inc. ("Duraskid"),
entered into a capital lease facility that provides for up to $3.1 million of
equipment financing and provides for certain financial covenants and cash
collateral to be maintained and which has been guaranteed by the parent company.
Up to December 31, 1997 Duraskid utilized $1,485,966 of this facility and
agreed to maintain $306,000 of cash collateral in an escrow account. The
effective interest rate is 11.4% per annum. Certain equipment has been pledged
as security for the facility. As at December 31, 1997 the parent company and
Duraskid were in compliance with the financial covenants, which are measured on
a quarterly basis. Based on the parent company's growth plans, it is possible
that the parent company may not be in compliance with the financial covenants
during 1998. However, management believes that the lender will continue to make
the facilities available to the parent company during 1998. As a result of the
covenants associated with this facility, Duraskid is restricted in its ability
to transfer its net assets of approximately $5.0 million as at December 31, 1997
to its parent company, Dura Products International Inc. without the approval of
the lender.
The minimum annual lease payments for each of the next five years are as
follows:
<TABLE>
<S> <C>
1998 $ 383,808
1999 383,808
2000 383,808
2001 383,808
2002 425,638
Less imputed interest (478,423)
---------
1,482,447
Less current portion (226,251)
----------
$1,256,196
----------
</TABLE>
b) Commitments
Subsequent to year-end, the parent company entered into a lease agreement to
lease a 135,000 square foot facility located in Andover, Massachusetts. The
lease is for a six-year term, with a six-year term renewal period. Rental
payments for the first six years have been fixed at approximately US$610,000 per
year. The Company has also committed up to US$450,000 for improvements, which
will be repaid over the six-year period. In conjunction with leasing the
facility, the Company has placed purchase orders for compounding and extrusion
equipment totaling approximately US$5.0 million.
<PAGE> 47
3. CONTINGENCIES
In November 1996, the Company entered into a consulting contract with Coby
Capital Corporation ("Coby") to provide assistance in raising investment capital
and related services for a period of up to two years. The Company has terminated
the agreement. However, Coby has filed an action claiming payment of retainer
fees, out-of-pocket expenses, placement fees, and stock options. The total
amount of the claim is approximately US$720,000. The Company is of the opinion
that the claim is without merit and has filed a motion for dismissal. The final
outcome of this matter is uncertain and the potential effect, whether material
or not, on the Company's consolidated financial position is not reasonably
determinable at this time. Accordingly, no provision has been recorded in the
accounts of the Company as at December 31, 1997.
<PAGE> 48
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
3.12 Lease Agreement between Forty-Four Lowell Junction Andover L.L.C.
and Duraskid (New England) L.L.C.
3.13 Guaranty of Lease Agreement by Dura Products International, Inc.
3.14 Indemnification Agreement by and among Dura Products International,
Inc. and the members of Environmental Composite Products, L.L.C.
11.0 Computation of Earnings Per Share
27.0 Financial Data Schedule
</TABLE>
- --------------------
<PAGE> 1
EXHIBIT 3.12
SUMMARY OF BASIC TERMS
LEASE BETWEEN
FORTY-FOUR LOWELL JUNCTION ANDOVER LLC and
DURASKID (NEW ENGLAND), LLC
DATED AS OF MARCH 2ND, 1998
The following is a summary of certain basic terms of this Lease which is
intended for the convenience and reference of the parties. In addition, some of
the following items may be incorporated into the Lease by reference to this
"Summary of Basic Terms".
1) Premises: The parcel of land described in Exhibit A attached hereto (the
"Land") together with the buildings located thereon (the "Building").
2) Agreed Land Area: 10.95 acres, more or less.
3) Agreed Square Footage in the Building: 135,330 square feet
4) Lease Term: Six (6) years commencing on the Commencement Date (as defined
below) and expiring at 11:59 P.M. on the day prior to the sixth anniversary
of the Commencement Date.
5) Commencement Date: March 1, 1998
6) Rent:
A. Minimum Annual Rent:
Lease Year (1): $50,748.75 per month commencing on the first of the month
following substantial completion of specific Landlord's Work as stated in
Section 4.1
Lease Years (2) - (6): $608,985.00 per annum.
Extended Term: Six (6) years. Minimum Annual Rent for Extended Lease Year
(1) shall equal the lesser of (a) Minimum Annual Rent for Lease Year (1)
adjusted by the C.P.I. and capped at eighteen (18%) percent or (b) the then
fair market rent as determined in accordance
i
<PAGE> 2
with Section 4.1.3 of this Lease. The Minimum Annual Rent for the Remaining
Extended Lease Years shall be Minimum Annual Rent in effect for the
previous Extended Lease Year adjusted by the C.P.I. and capped at three
(3%) percent in accordance with Section 4.1.4 of this Lease.
B. Additional Rent:
This Lease shall be considered a "Triple-Net Lease" with Tenant paying as
additional rent all insurance, taxes and utilities and operating costs and
charges, except as otherwise specifically provided herein.
Further, Tenant shall pay as additional rent the following:
(a) Two hundred thousand and 00/100 ($200,000.00) dollars as
provided in Section 4.2.4 of this Lease.
(b) Two hundred fifty thousand 00/100 ($250,000.00) dollars as
provided in Section 4.2.5 of this Lease.
7) Lease Year: A one (1) year period commencing on the Commencement Date or
any anniversary thereof and expiring at 11:59 P.M. on the day prior to the
next anniversary thereof.
8) Use: The Premises may be used for manufacturing and/or warehousing subject
to all governing leases and regulations and subject to the provisions of
this Lease.
9) Security Deposit: None.
10) Broker: Sluice Associates, Inc.
11) Right of First Refusal: Tenant's Right of First Refusal to Purchase the
Premises as provided in Article XI of this Lease.
12) Tenants Option to Purchase: Tenant shall have the Option to Purchase as set
forth in Article XII of this Lease.
13) Notice Address: To Landlord:
Brownfields Recovery Corp.
222 Berkeley Street, Suite 1450
Boston, MA 02116
ATTN: Forty-four Lowell Junction Andover LLC
To Tenant:
Duraskid (New England), L.L.C.
ii
<PAGE> 3
c/o Wood Recycling, Inc.
3 Wheeling Avenue
Woburn, M.A. 01801
14) Landlord's Work:
Landlord's Work shall mean collectively the following-described work
subject to the provisions of this Lease:
a) Perform all the roof and deck repair work recommended to be
performed in that certain report prepared by C.I.D. Associates,
Inc., a copy of which report is attached to this Lease as Exhibit
"B".
b) Paint (one coat) underside of deck and existing structural columns
and joists.
c) Convert oil heat to gas heat and provide sufficient heating units
so as to adequately heat the manufacturing area.
d) Repair and up-grade parking surfaces, as necessary, over two-year
period commencing no later than May 15, 1998.
e) Provide 1,600 amp electrical service to the Building.
f) Paint (one coat) exterior of Building commencing no later than May
15, 1998.
g) Repair exterior doors and windows, as necessary, so as to ensure
said doors and windows are operational.
h) Repair interior electric lights, as necessary, so as to ensure
said electric lights are operational and suitable for
manufacturing purposes.
i) Landscape the grounds located on the Premises consistent with
neighboring commercial properties with specifications to be
approved by Tenant.
j) Provide adequate exterior lighting in accordance with local
governmental requirements.
k) Subject to the provisions of Section 3.1, perform any other
repairs or improvements so as enable Tenant to obtain Occupancy
Permit.
l) Construct offices with installation of adequate HVAC system in
accordance with plans and specifications to be agreed upon by
Landlord and Tenant with total cost to
iii
<PAGE> 4
Landlord not to exceed one hundred fifty thousand and 00/100
($150,000.00) dollars with balance, if any, paid by Tenant as
provided in Section 3.1.
15) Tenant's Work:
Tenant's Work shall mean collectively the following described work
subject to the provisions of this Lease:
a) Up-grade Building's electrical service from 1,600 amps to 6,000
amps in accordance with Section 3.2 of this Lease.
16) Landlord's Contributions:
Landlord shall contribute to Tenant up to two hundred fifty thousand
and 00/100 ($250,000.00) dollars toward electrical up-grade to 6,000
amps subject to reimbursement as set forth in Section 4.2.5.
17) Guarantor of Tenant's Obligations: Dura Products International, Inc.
(Exhibit C, attached hereto) 60 Carrier Drive
Etobicoke, Ontario
Canada M9W 5R1
iv
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I.........................................................................................................1
THE PREMISES AND USE OF THE PREMISES..............................................................................1
1.1 THE BUILDING AND LAND....................................................................................1
1.2 LEASE OF THE PREMISES....................................................................................1
1.4 PERMITTED USE OF THE PREMISES............................................................................1
ARTICLE II........................................................................................................2
TERM AND OCCUPANCY................................................................................................2
2.1 BASIC TERM...............................................................................................2
2.2 DEFINITION OF RENTABLE SQUARE FEET.......................................................................2
2.3 PRE-TERM OCCUPANCY.......................................................................................2
ARTICLE III.......................................................................................................2
IMPROVEMENTS......................................................................................................2
3.1 LANDLORD'S WORK..........................................................................................2
3.2 TENANT'S WORK............................................................................................4
3.3 GENERAL PROVISIONS APPLICABLE TO TENANT'S CONSTRUCTION.................................................4
3.4 SECURITY...............................................................................................4
3.5 LANDLORD'S CONTRIBUTION................................................................................5
ARTICLE IV........................................................................................................6
RENT..............................................................................................................6
4.1 THE MINIMUM ANNUAL RENT..................................................................................6
4.2 ADDITIONAL RENT..........................................................................................8
4.2.1 Real Estate Taxes................................................................................8
4.2.2 Insurance........................................................................................9
4.2.3 Utilities........................................................................................9
4.2.4 General Reimbursement............................................................................7
4.2.5 Electrical Up-grade Reimbursement................................................................8
4.2.6 Late Payment of Rent............................................................................11
ARTICLE V........................................................................................................11
INSURANCE........................................................................................................11
5.1 TENANT REIMBURSEMENT OF INSURANCE TAKEN OUT BY LANDLORD.................................................11
5.2 REQURIES INSURANCE......................................................................................11
5.3 OBLIGATIONS APPLICABLE TO INSURANCE POLICIES............................................................12
5.4 WAIVER OF SUBROGATION...................................................................................12
v
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
ARTICLE VI.......................................................................................................13
TENANT'S ADDITIONAL COVENANTS....................................................................................13
6.1 AFFIRMATIVE COVENANTS...................................................................................13
6.1.1 Perform Obligations............................................................................13
6.1.2 Occupancy and Use..............................................................................13
6.1.3 Compliance with Law............................................................................14
6.1.4 Safety.........................................................................................14
6.1.5 Taxes Assessed Against Personalty and Leasehold................................................14
6.1.6 Zoning and Governmental Regulation.............................................................14
6.1.7 Indemnity......................................................................................14
6.1.8 Landlord's Right to Enter......................................................................14
6.1.9 Payment of Landlord's Cost Of Enforcement......................................................15
6.1.10 Yield Up.......................................................................................15
6.1.11 Estoppel Certificate...........................................................................15
6.1.12 Landlord's Expenses Regarding Consents.........................................................16
6.1.13 Holdover.......................................................................................16
6.2 NEGATIVE COVENANTS......................................................................................16
6.2.1 Assignment and Subletting......................................................................16
6.2.2 Nuisance.......................................................................................17
6.2.4 Hazardous Materials............................................................................17
ARTICLE VII......................................................................................................18
CASUALTY OR TAKING...............................................................................................18
7.1. TAKING..................................................................................................18
7.2 CASULATY................................................................................................18
ARTICLE VIII.....................................................................................................19
DEFAULTS.........................................................................................................19
8.1 EVENTS OF DEFAULT.......................................................................................19
8.2 REMEDIES................................................................................................20
8.3 REMEDIES CUMULATIVE.....................................................................................21
8.4 LANDLORD'S RIGHT TO CURE DEFAULTS.......................................................................21
8.5 EFFECT OF WAIVERS OF DEFAULT............................................................................21
8.6 NO ACCORD AND SATISFACTION..............................................................................22
ARTICLE IX.......................................................................................................22
MORTGAGES........................................................................................................22
9.1 LEASE SUBORDINATE.......................................................................................22
9.2 MORTGAGEES RIGHTS REGARDING PREPAYMENT OF RENT..........................................................23
9.3 RIGHTS OF HOLDER OF MORTGAGE............................................................................23
MAINTENANCE......................................................................................................24
10.1 Maintenance and Expenses............................................................................24
10.2 Landlord's Maintenance Obligations..................................................................24
ARTICLE XI.......................................................................................................26
vi
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
RIGHT OF FIRST REFUSAL...........................................................................................
11.1 TENANT'S RIGHT OF FIRST REFUSAL......................................................................25
11.2 LANDLORD'S COMPLIANCE................................................................................25
ARTICLE XII......................................................................................................30
MISCELLANEOUS PROVISIONS.........................................................................................30
12.1 NOTICES FROM ONE PARTY TO THE OTHER..................................................................30
12.2 QUIET ENJOYMENT......................................................................................30
12.3 LEASE NOT TO BE RECORDED.............................................................................31
12.4 BIND AND INURE; LIMITATION OF LANDLORD'S LIABILITY...................................................31
12.5 LANDLORD'S DEFAULT...................................................................................31
12.6 BROKERAGE............................................................................................32
12.7 APPLICABLE LAW AND CONSTRUCTION......................................................................32
12.8 SUBMISSION OF AN OFFER...............................................................................33
12.9 AUTHORITY............................................................................................33
12.10 TITLE................................................................................................33
12.11 PERSONAL PROPERTY OF TENANT..........................................................................28
12.12 LANDLORD'S INDEMNITY.................................................................................29
12.13 COSTS AND ATTORNEY'S FEES............................................................................29
12.14 CERTIFICATION OF LEASE...............................................................................34
ARTICLE XIII.....................................................................................................35
TENANT'S OPTION TO EXTEND........................................................................................35
13.1 EXTENSION PERIOD.....................................................................................35
13.2 EXERCISING OPTION....................................................................................35
13.3 CHANGE IN MINIMUM ANNUAL RENT........................................................................35
ARTICLE XIV.....................................................................................................35
EVIRONMENTAL MATTERS.............................................................................................35
14.1 DEFINITIONS..........................................................................................35
14.2 LANDLORD'S INDEMNIFICATION...........................................................................35
14.3 TENANT'S INDEMNIFICATION.............................................................................35
14.4 LIMITATION OF ACTIONS................................................................................35
vii
</TABLE>
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This LEASE made as of the 2nd day of March, 1998 between Forty-four
Lowell Junction Andover LLC, a Massachusetts Limited Liability Company, having a
usual place of business at 222 Berkeley Street, Suite 1450, Boston,
Massachusetts 02116 ("Landlord") and Duraskid (New England), L.L.C., a
Massachusetts Limited Liability Company, having a usual place of business at 3
Wheeling Avenue, Woburn, Massachusetts 01801 ("Tenant").
WITNESSETH
ARTICLE I
The Premises and Use of the Premises
1.1 The Building and Land.
The "Premises" leased hereunder is located at 44 Lowell Junction Road,
Andover, Massachusetts and consists of a structure which includes approximately
one hundred thirty-five thousand, three hundred thirty (135,330) square feet of
floor area ("the Building") together with parking area, driveways, walks, exits,
service roads, landscaped areas and open spaces on approximately 10.95 acres
("the Land"). Exhibit A depicts the Building and the Land which together are the
"Premises".
1.2 Lease of the Premises.
The Landlord does hereby lease and demise to Tenant and Tenant does
hereby lease from Landlord the entire Premises, subject to and with the benefit
of the terms, covenants, conditions and provisions of the this Lease.
1.3 Permitted Use of the Premises.
The Premises may be used for manufacturing, warehousing, outside
storage and related activities subject to all governmental laws and regulations.
Tenant shall be responsible for obtaining all licenses, permits and approvals
from the appropriate governing authorities necessary for any and all uses of the
Premises by Tenant. Landlord shall assist Tenant in obtaining permits and
approvals which assistance shall include, upon request by Tenant's counsel, the
attendance at local governmental hearings. In the event that relief from the
prevailing Andover Zoning By-Laws or regulations are required so as to lawfully
conduct a particular activity on the Premises, Tenant shall notify the Landlord
in writing of its intention to seek said relief prior to the filing of any
petition for such relief.
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ARTICLE II
Term and Occupancy
2.1 Basic Term.
To have and to hold for a term (the "Term") commencing on the
Commencement Date and expiring at 11:59 p.m. on the day prior to the sixth (6th)
anniversary of the Commencement Date, unless sooner terminated as provided in
this Lease.
2.2 Building Square Feet.
The Building shall conclusively be deemed to contain 135,330 square
feet of floor area for all purposes in this Lease, and no measurement or
re-measurement of the Building shall be conducted or required for any purpose
under this Lease.
2.3 Pre-Term Occupancy.
Subject to the provisions of Section 3.2, Tenant may, at its sole risk,
occupy the Premises or any part thereof, prior to the Commencement Date, for the
purposes of making improvements to the Premises as provided in Section 3.2 and
for equipping, fixturing or otherwise readying the Premises for Tenant's use, in
which event Tenant's occupancy of the Premises prior to the Commencement Date
shall be subject to all of the terms, covenants and conditions of this Lease,
except that Tenant shall not be obligated to pay Minimum Rent or Additional Rent
or any other rent during any such occupancy of the Premises prior to the
Commencement Date. Tenant shall pay all charges for electricity, utilities and
heat, if any, consumed by it at the Premises during any such occupancy of the
Premises prior to the Commencement Date. Upon completion, all improvements
affixed to the Building or Land with the exception Tenant's equipment, furniture
and trade fixtures shall become the property of Landlord, except for those items
set forth in Exhibit D.
ARTICLE III
Improvements
3.1 Landlord's Work.
Landlord's Work shall be performed in a good and workmanlike manner,
using first quality materials and in compliance with all applicable laws. No
changes in Landlord's Work may be made without the prior written approval of
Tenant. With the exception of Item (l) of the Summary of Basic Terms, the entire
cost of construction of Landlord's Work shall be paid by Landlord. Landlord
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<PAGE> 10
shall pay the cost to complete said Item (l) up to a maximum of one hundred
fifty thousand and 00/100 ($150,000.00) dollars (Maximum Landlord Contribution).
The Maximum Landlord Contribution shall include all out-of-pocket expenses
incurred by Landlord in completing said Item (l) (Defined Costs) but shall
exclude administration expenses incurred by the members of Landlord's Limited
Liability Company. Landlord shall notify Tenant of bids to be accepted and
Tenant may with just and reasonable cause reject any bid. Tenant shall pay
forthwith to Landlord upon receipt of invoice(s) all Defined Costs, if any,
which exceed the Maximum Landlord Contribution.
Except as otherwise stated in the Summary of Basic Terms, Landlord
shall use reasonable efforts to complete Landlord's Work as soon as practicable.
Prior to the commencement of Landlord's Work, Landlord shall provide Tenant with
a written description (together with such plans and specifications as are
reasonably necessary to allow Tenant to adequately review Landlord's proposed
work) of the materials to be used and method of completion (hereinafter, "Scope
of Work") so as to allow Tenant to participate in the design and method of
completion of Landlord's Work. In the event that Tenant fails to respond to
Landlord within two (2) business days of receipt of the Scope of Work, then
Landlord shall be entitled to complete said Work in accordance with said Scope
of Work. In the event that Tenant disagrees with the Scope of Work and responds
to Landlord as aforesaid, then unless both parties agree otherwise, Tenant and
Landlord shall meet within five (5) days of submittal of the Scope of Work and
each use due diligence to resolve the dispute. Should the parties be unable to
resolve said dispute, then the parties agree to forthwith elect one arbitrator
who shall be qualified in the particular field and the decision of the
arbitrator shall be final.
Landlord agrees to complete such other work to the existing Building as
is necessary so as to obtain an occupancy permit. Notwithstanding same, Landlord
shall not be obligated to complete work which is required by any law, statute,
code, ordinance, by-law, rule or regulation of any governmental authority due to
Tenant's particular use or manner of use of the Premises which would not
otherwise be required and necessary for the typical manufacturing business.
Landlord shall not be obligated under this paragraph to complete any work which
is otherwise included in Tenant's Work or is Tenant's responsibility pursuant to
any other provision of this Lease.
3.1.1 Landlord's Warranty.
Notwithstanding anything contained herein to the contrary, Landlord
shall be solely responsible to correct and/or repair all defects in materials
and/or workmanship ("Defective Work") in any portion of Landlord's Work for a
period one (1) year from the date on which the Defective Work was completed.
After the expiration of said one (1) year period, Landlord shall assign to
Tenant all warranties received by Landlord from any contractor or supplier with
respect to any aspect of Landlord's Work, and Landlord shall cooperate with
Tenant in the enforcement of any such warranty.
3.1.2 Failure to Complete Landlord's Work.
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In the event that Landlord fails to substantially complete Summary of
Basic Terms items 13(a), 13(c), 13(e), 13(g), 13(h), 13(j) and 13(k) and 13(l)
on or before July 31, 1998 (Outside Completion Date) which failure to complete
materially interferes with Tenant's ability to operate its business, then,
except as then otherwise stated herein, Tenant may terminate this Lease by
giving Landlord written notice. In the event that the delay in completing said
items is due to the unreasonable interference by Tenant or Tenant's failure to
cooperate with Landlord, then the Outside Completion Date shall be extended for
a time equal to the delay which was caused by Tenant. The parties may extend the
Construction Completion Date by mutual written agreement. In the event of
termination in accordance with this Section 3.1.2 and notwithstanding anything
contained herein to the contrary, Landlord shall not be liable for any damages
sustained by Tenant, as may otherwise be allowed in this Lease, if Landlord's
failure to complete was due to a cause beyond Landlord's reasonable control.
3.2 Tenant's Work.
Tenant shall improve the Building by up-grading Building's electrical
service from 1600 amps to 6000 amps subject to the provisions of this Lease.
Approval of plans and specifications by Landlord shall not be unreasonably
withheld. Tenant may make non-structural improvements to the Premises at any
time or from time to time prior to or during the Term without the approval or
consent of the Landlord. For purposes of this Section 3.2, "non-structural
alterations or improvements" shall mean any alterations or improvements to the
Premises other than material alterations or improvements to the roof, exterior
walls, load-bearing walls, support beams or foundation of the Building.
All structural alterations or improvements to the Premises proposed by
Tenant shall be done in accordance with plans and specifications first approved
by Landlord, which approval shall not be unreasonably withheld, delayed or
conditioned. Prior to commencing construction of any structural alterations or
improvements to the Premises, Tenant shall submit to Landlord plans and
specifications for such proposed structural alterations or improvements.
Landlord shall review such plans and specifications as submitted within ten (10)
business days after receipt thereof and shall notify Tenant in writing within
such ten (10) business day period whether Landlord approves or disapproves such
plans and specifications. In the event Landlord reasonably disapproves such
plans and specifications in any respect, Landlord shall, in writing in its
notice of disapproval to Tenant, specify in reasonable detail the reasons for
its disapproval thereof. Tenant shall then prepare any revisions to such plans
and specifications which may be reasonably necessary to correct the deficiencies
in such plans and specifications as described in Landlord's disapproval notice
and shall resubmit such plans and specifications as so revised to Landlord for
re-review in accordance with the same procedure set forth above, except that
Landlord must complete its review and notify Tenant of its approval or
disapproval of the revised plans and specifications within three (3) business
days after receipt thereof by Landlord. Landlord and Tenant shall initial any
plans and specifications after the same have been submitted by Tenant and
approved by Landlord. If Landlord fails to give Tenant written notice as
aforesaid either approving or disapproving any plans and specifications or
4
<PAGE> 12
resubmitted plans and specifications submitted by Tenant to Landlord within the
time period specified above, Landlord shall be deemed to have approved such
plans and specifications or resubmitted plans and specifications, as applicable.
All work to be performed by or on behalf of Tenant shall be done in a
good and workmanlike manner using first quality materials and in accordance with
the provisions of all laws, rules, regulations and insurance requirements
applicable thereto. Tenant shall not place any load upon the floor of the
Building which exceeds the floor load capacity. All work performed by or on
behalf of Tenant and the installation of Tenant's furniture, fixtures and
equipment shall be at the sole risk, hazard and, except as otherwise
specifically stated to the contrary herein, at the expense of Tenant. Prior to
the commencement by Tenant of any construction, Tenant shall deposit with the
Landlord Evidence of Insurance (in form ACORD 27) evidencing "Builder's Risk"
coverage reasonably acceptable to the Landlord. The Landlord may waive the
requirement for said "Builder's Risk" coverage if such construction in the
Landlord's reasonable discretion is deemed minor in nature.
3.3 General Provisions Applicable to Tenant's Construction.
Tenant shall obtain all permits and licenses necessary for any proposed
improvements to the Premises before commencing construction of any such
improvements. Landlord may inspect the work of Tenant at reasonable times and
shall give notice of any observed defects in such work which, shall be remedied
by Tenant as soon as is practicable, so long as such remediation is reasonably
necessary.
3.4 Security.
At the option of Landlord, Tenant shall furnish to the Landlord prior
to the commencement of any structural improvements, a bond or other security
acceptable to Landlord assuring that any work commenced or continued by Tenant
will be completed in accordance with plans and specifications approved in
advance in writing by Landlord, but such bond or security shall only be required
if the cost of such structural improvements is estimated to exceed $100,000.
Tenant shall: (a) keep the Premises at all times free of liens for labor and
material; (b) employ for such work one or more responsible contractors whose
labor will work without interference with other labor working on the Premises;
(c) require such contractors employed by Tenant to carry worker's compensation
insurance in accordance with statutory requirements and commercial general
liability insurance covering such contractors on or about the Premises in
amounts that at least equal the limits as reasonably required by Landlord; (d)
submit certificates evidencing such coverage to Landlord prior to the
commencement of such work; and (e) save Landlord harmless and indemnified from
all injury, loss, claims or damage to any person or property occasioned by or
growing out of such work, except to the extent due to the negligence or
intentional misconduct of Landlord or its agents, contractors or employees.
3.5 Landlord's Contribution.
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<PAGE> 13
Landlord shall contribute to Tenant up to two hundred fifty thousand
and 00/100 ($250,000.00) dollars towards Tenants costs incurred in up-grading
the electrical service from 1600 amps to 6000 amps. The electrical up-grade
shall be referred to as " Subsidized Work". Landlord shall disburse said
contributions for Subsidized Work as Subsidized Work progresses in accordance
with the Construction Disbursement Schedule attached hereto as Exhibit E. Tenant
shall periodically request disbursements by submitting a written request to
Landlord at Landlord's address and Landlord shall have the option to inspect the
construction so as to ensure compliance with the plans and specifications. So
long as Subsidized Work is completed substantially in conformance with the said
plans and specifications, then Landlord shall advance the respective
disbursement within three (3) business days. In the event that the Landlord
reasonably determines that the Subsidized Work performed to date is not in
substantial conformance with plans and specifications approved by Landlord or
the request for disbursement is inconsistent with the Construction Disbursement
Schedule, then Landlord shall notify Tenant. Tenant shall use diligent efforts
to repair all defects in workmanship and/or materials so long as reasonable. In
the event that the cost of the Subsidized Work exceeds the maximum amount
provided by Landlord as stated herein, then Tenant shall pay from its own funds
the balance necessary to complete the said work.
ARTICLE IV
Rent
4.1 The Minimum Annual Rent.
Tenant covenants and agrees to pay the Minimum Annual Rent to Landlord,
without offset (except as otherwise expressly provided herein), at the address
of Landlord or at such other place or to such other person or entity as Landlord
may, by thirty (30) days prior notice to Tenant, from time to time direct, the
Minimum Annual Rent as follows:
FOR THE FIRST LEASE YEAR:
Fifty thousand seven hundred forty-eight and 75/100 ($50,748.75)
dollars per month commencing on the first day of the month following the day on
which Landlord (i) has completed Summary of Basic Terms items 13(a), 13(c),
13(e), 13(g), 13(h), 13(j) and 13(k) or has completed said items to the extent
that any incomplete item does not substantially interfere with Tenant's use and
enjoyment of the Premises, and (ii) Landlord has constructed interior petitions
in new office area in accordance with plans and specifications referred to in
Summary of Basic Terms item 13(l) and Landlord is diligently pursuing completion
of said Item 13(l) (Rent Commencement Date), and continuing on the first day of
each month during the first Lease Year, thereafter.
FOR THE REMAINING YEARS OF THE INITIAL TERM:
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<PAGE> 14
Six hundred eight thousand nine hundred eighty-five and 00/100
($608,985.00) dollars payable in equal monthly installments of fifty thousand
seven hundred forty-eight and 75/100 in advance on the first day of each
calendar month included in the Term; and for any portion of a calendar month at
the end of the Term.
FOR THE FIRST YEAR OF THE EXTENDED TERM:
If Tenant exercises its option to extend the Initial Term for the
Extended Term pursuant to the provisions of Article XIII below, the Minimum
Annual Rent payable in equal monthly installments on the first of each month
during the First Year of the Extended Term shall be the lesser of (i) one
hundred eighteen percent (118%) of the Minimum Annual Rent in effect for the
immediately preceding Lease Year as determined pursuant to the provisions of
this Section 4.1 (ii) the amount equal to the sum of the Minimum Annual rent in
effect for the immediately preceding Lease Year plus the product of (a) the
Minimum Annual Rent in effect for the immediately preceding Lease Year as
determined in accordance with the provisions of this Section 4.1, multiplied by
(b) the decimal equivalent of the percentage increase in the CPI between the
calendar month which is immediately prior to the calendar month in which the
first day of the first Lease Year of the Initial Term and the calendar month
that is immediately prior to the calendar month in which the first day of the
current Lease Year occurs, or (iii) the fair market rent for comparable space
within the Town of Andover to be determined by Section 4.1.1 of this Lease.
Notwithstanding the foregoing, in no event shall the Minimum Annual Rent paid
for the first Lease Year of the Extended Term be less than the Minimum Annual
rent paid for the preceding Lease Year. Landlord shall provide to Tenant notice
of the Minimum Annual Rent for the first Lease Year of the Extended Lease Year
promptly after calculating same in accordance with the preceding provisions of
this paragraph. If Tenant has not received such notice prior to the commencement
of the first Lease Year of the Extended Term, Tenant shall continue to pay
Minimum Annual Rent at the rate in effect for the immediately preceding Lease
Year until such time as Tenant shall receive such notice. Within thirty (30)
days after receipt of such notice, Tenant shall pay to Landlord for each month
or partial month during the current Lease Year for which the Minimum Annual Rent
was paid at the rate in effect for the preceding Lease Year, the difference
between the new rate in effect for the current Extended Lease Year and the rate
in effect for the preceding Lease Year.
FOR REMAINING LEASE YEARS DURING THE EXTENDED TERM:
If Tenant exercises its option to extend the Initial Term for the
Extended Term pursuant to the provisions of Article XIII below, the Minimum
Annual Rent payable in equal monthly installments on the first of each month
shall be the lesser of (i) one hundred three percent (103%) of the Minimum
Annual Rent in effect for the immediately preceding Lease Year as determined
pursuant to the provisions of this Section 4.1 or (ii) the amount equal to the
sum of the Minimum Annual rent in effect for the immediately preceding Lease
Year plus the product of (a) the Minimum Annual Rent in effect for the
immediately preceding Lease Year as determined in accordance with the provisions
of this Section 4.1, multiplied by (b) the decimal equivalent of the percentage
increase
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in the CPI between the calendar month which is immediately prior to the calendar
month in which the first day of the immediately preceding Lease Year occurs and
the calendar month that is immediately prior to the calendar month in which the
first day of the current Lease Year occurs. Notwithstanding the foregoing, in no
event shall the Minimum Annual Rent paid for any Lease Year be less than the
Minimum Annual rent paid for the preceding Lease Year. Landlord shall provide to
Tenant notice of the Minimum Annual Rent for each Lease Year after the first
Lease Year promptly after calculating same in accordance with the preceding
provisions of this paragraph. If Tenant has not received such notice prior to
the commencement of any Lease Year, Tenant shall continue to pay Minimum Annual
Rent at the rate in effect for the immediately preceding Lease Year until such
time as Tenant shall receive such notice. Within thirty (30) days after receipt
of such notice, Tenant shall pay to Landlord for each month or partial month
during the current Lease Year for which the Minimum Annual Rent was paid at the
rate in effect for the preceding Lease Year, the difference between the new rate
in effect for the current Lease Year and the rate in effect for the preceding
Lease Year.
As used herein, the phrase "the CPI" shall mean the Consumer Price
Index for Urban Wage Earners and Clerical Workers for Boston, Massachusetts
(Revised Series), All Items (1982-1984=100), published by the Bureau of Labor
Statistics of the United States Department of Labor. If the CPI ceases to be
published, then "the CPI" shall mean a comparable index selected by Landlord and
Tenant.
4.1.1 Determination of Appraised Value.
In determining appraised value as required in Section 4.1, Landlord and
Tenant shall jointly choose one certified commercial real estate appraiser who
is also a licensed real estate broker having expertise in appraising commercial
property in the Town of Andover. The appraiser shall conduct an appraisal using
commercially recognizable standards who shall determine the fair market rent for
the Premises. The Landlord and Tenant shall share equally in the cost of said
appraisal. The appraised value as determined by said appraiser shall be final.
In lieu of hiring an appraiser, Landlord and Tenant may stipulate as to the fair
market rent.
4.2 Additional Rent.
Tenant covenants and agrees to pay, as Additional Rent, without offset
(except as otherwise expressly provided herein), taxes, municipal or state
betterment assessments, insurance costs, utility charges and reimbursements, as
follows:
4.2.1. Real Estate Taxes.
Tenant, during the Term of this Lease, shall pay prior to the due date
or cause to be paid prior to the due date all taxes levied against the Premises,
including real property taxes, personal property
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taxes and special assessments (and interest, demand and other charges assessed
due to Tenant's failure to pay taxes and assessments). Tenant may, in its own
name or in the name of Landlord, contest any assessment or tax, and, in such
event, Tenant shall pay all costs and expenses of contesting such assessment or
tax. Landlord agrees to direct the appropriate taxing authority to mail bills
for such taxes and assessments directly to Tenant. Tenant agrees to provide
Landlord with appropriate evidence that the payments required to be made
hereunder have been made within a reasonable time after Landlord requests such
evidence. If any taxes or assessments may be payable in installments, Tenant may
pay the same in installments as the same become due. Tenant shall be obligated
to pay only those taxes, assessments or betterments attributed to the Term of
this Lease and any such taxes and assessments or installments thereof payable
with respect to a tax period during which the Term of this Lease shall commence
or end shall be adjusted between Landlord and Tenant as of the beginning or end
of the Term, as applicable, so that Tenant shall pay only the amount which bears
the same relation to the tax or assessment or installment thereof as the part of
such tax period included within the Term of this Lease bears to the entire tax
period at the beginning or end of the Term, as applicable. So long as this Lease
is in full force and effect, Tenant shall be entitled to the benefit of all real
estate tax reductions, exemptions and/or abatements benefiting the Premises
which are in force and effect by agreement with the Town of Andover taxing
authorities, which benefits shall be adjusted between Landlord and Tenant in the
same manner as tax payments are adjusted as described in the previous sentence.
Nothing contained in this Lease shall, however, require Tenant to pay
any of Landlord's income taxes, excess profits taxes, excise taxes, franchise
taxes, estate, secession, inheritance or transfer taxes.
4.2.2 Insurance
Tenant shall also pay to the Landlord, as Additional Rent, for
the cost of all insurance required to be maintained pursuant to Article V,
below.
4.2.3. Utilities
Tenant shall pay directly to the applicable utility companies
all charges for water, sewer, gas, electricity, telephone and other utilities or
services used or consumed on the Premises during the Term of this Lease, whether
called charge, tax, assessment, fee or otherwise, including, without limitation,
water and sewer use charges and taxes, if any, all such actual charges to be
paid as the same from time to time become due. If Tenant is not billed directly
by the applicable utility company for any of such utilities or services, Tenant
shall from time to time, within thirty (30) days after receipt of Landlord's
invoice therefor, pay to Landlord the total of such charges assessed against the
Premises by such utility company. It is understood and agreed that Tenant shall
make its own arrangements for such utilities and that Landlord shall be under no
obligation to furnish any utilities to the Premises and shall not be liable for
any interruption or failure in the supply of any such utilities to the Premises,
except as otherwise expressly provided herein. Notwithstanding any of the
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foregoing to the contrary, Tenant shall pay for any utilities used by Tenant
prior to the Commencement Date.
4.2.4 General Reimbursement.
In consideration for the costs incurred by Landlord in completing
Landlord's Work as set forth in paragraph 13 of the Summary of Basic Terms and
other good and valuable consideration, the receipt of which Tenant hereby
acknowledges, Tenant shall pay to Landlord as Additional Rent the sum of two
hundred thousand and 00/100 ($200,000.00) dollars payable as follows:
FIRST LEASE YEAR OF INITIAL TERM:
Thirty-three thousand three hundred thirty-three and 33/100
($33,333.33) dollars payable in advance in equal monthly installments commencing
on the Rent Commencement Date and continuing on the first day of each month
within the FIRST LEASE YEAR, thereafter.
FOR THE REMAINING YEARS OF THE INITIAL TERM:
Thirty-three thousand three hundred thirty-three and 33/100
($33,333.33) dollars payable in equal monthly installments of two thousand seven
hundred seventy-seven and 78/100 ($2,777.78) dollars in advance on the first day
of each calendar month included in the Initial Term with any balance owed
payable at the expiration of the Initial Term.
4.2.5 Electrical Up-grade Reimbursement.
In consideration for Landlord's contribution towards electrical
up-grade as set forth in Section 3.5 of this Lease, Tenant shall pay Landlord as
Additional Rent the sum of two hundred fifty thousand and 00/100 ($250,000.00)
dollars payable as follows:
FOR FIRST LEASE YEAR OF INITIAL TERM:
Forty one thousand six hundred sixty-six and 67/100 ($41,666.67)
dollars payable in advance in equal monthly installments equal monthly
installments commencing on the Rent Commencement Date and continuing on the
first day of each month within the FIRST LEASE YEAR, thereafter.
FOR THE REMAINING YEARS OF THE INITIAL TERM:
Forty one thousand six hundred sixty-six and 67/100 ($41,666.67)
dollars payable in equal monthly installments of three thousand four hundred
seventy-two and 22/100 ($3,472.22) dollars in advance on the first day of each
calendar month included in Term with any balance owed payable at the expiration
of the Initial Term.
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Notwithstanding anything contained in this Lease to the contrary, in
the event that the cost of the electrical up-grade to 6000 amps is less than two
hundred fifty thousand and/100 ($250,000.00) dollars thereby reducing the amount
advanced by Landlord to Tenant for said up-grade, then the electrical
reimbursement amount owed for each Lease Year shall be equally reduced resulting
in a proportionate reduction in the periodic payments.
4.2.6 Late Payment of Rent.
If any installment of rent is not received by Landlord within five (5)
days after the date the same was due, a late charge of Five (5%) percent of the
unpaid amount shall be due and payable to the Landlord. Further, if any
installment of rent is paid on or after the fifth (5th) day following the date
on which the same was due, the unpaid amount shall bear interest from the due
date to the date payment is received by Landlord at an interest rate equal to
the prime commercial rate of BankBoston, N.A. (or its successor as the case may
be) in effect as of the due date plus four hundred (400) basis points per annum,
(the "Default Rate") but in no event more than the highest rate of interest
allowed by applicable law. Any amounts due under this Section 4.2.6 shall be
Additional Rent.
ARTICLE V
Insurance
5.1 Tenant Reimbursement of Insurance Taken Out by Landlord.
Tenant shall from time to time reimburse Landlord within thirty (30)
days after receipt of Landlord's invoice thereof for the cost of any insurance
required to be maintained by the Landlord hereunder, equitably prorated in the
case of blanket policies maintained by Landlord to reflect the insurance
coverage reasonably attributable to the Premises, provided that Tenant shall
reimburse Landlord for all of Landlord's cost incurred in providing any
insurance required to be maintained by Landlord hereunder which is attributable
to any special endorsement or increase in premium resulting from the business or
operations of Tenant, and any special or extraordinary risks or hazards
resulting therefrom.
5.2 Required Insurance.
During the Term of this Lease, Landlord and Tenant each agree to
maintain or cause to be maintained Commercial General Liability insurance
insuring their respective interests against claims for bodily injury, death and
property damage occurring on, in or about the Premises and the ways immediately
adjoining the Premises with a combined single limit of not less than Two Million
Dollars ($2,000,000.00) for total claims for any one (1) occurrence and not less
than Three Million Dollars ($3,000,000.00) for total claims in the aggregate
during any one (1) policy year. Tenant's Commercial General Liability insurance
policy shall name Landlord as an additional insured, and
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Landlord's Commercial General Liability insurance policy shall name Tenant as an
additional insured.
Landlord shall take out and maintain in force for all periods
throughout the Term and any extension thereof, casualty insurance on the
Building in an amount equal to the full replacement value of the Building
(including all improvements, alterations, additions and charges made by Landlord
or Tenant, but excluding fixtures and equipment owned by Tenant), covering all
risks of direct physical loss or damage and so-called "extended coverage" risks.
Such casualty insurance shall name Landlord as the insured and shall properly
name the record mortgage holders in order of their priority. The proceeds of
such insurance in case of loss or damage shall be paid to Landlord.
Tenant shall take out and maintain in force throughout the Term fire
insurance, including extended coverage, insuring the full replacement cost of
all improvements, alterations or additions to the Premises made at Tenant's
expense, and the full replacement cost of all equipment, machinery, fixtures,
furniture and all other personal property owned or used by Tenant and located in
the Premises.
If Tenant fails to obtain and maintain any insurance policies required
to be obtained and maintained by Tenant pursuant to the provisions of this
Section 5.2, then Landlord may obtain and maintain such insurance policies, and
Tenant shall pay to Landlord the reasonable cost thereof no later than thirty
(30) days after receipt of a notice from Landlord of the amount of such costs.
5.3 Obligations Applicable to Insurance Policies.
All policies of insurance required to be maintained hereunder by either
party shall be obtained from responsible companies qualified to do business in
the Commonwealth of Massachusetts. Tenant agrees to furnish Landlord with
insurance certificates of all such insurance which Tenant is obligated to obtain
pursuant to this Lease prior to the beginning of the Term hereof and with each
renewal policy at least fifteen (15) days prior to the expiration of the policy
it renews. Prior to the Commencement Date and within fifteen (15) days prior to
the expiration of all such policies, Landlord shall furnish to Tenant either a
duplicate original of all insurance policies required to be maintained by
Landlord hereunder or Evidence of Insurance (in form ACORD 27) for each such
policy evidencing the foregoing insurance or renewal thereof, as the case may
be.
Tenant shall furnish Landlord with a certified copy of policies of
insurance that Tenant is obligated to maintain pursuant to this Lease if any
mortgage lender of Landlord requires same as soon as is reasonably possible
after receiving a request from Landlord therefor. Each such policy required to
be maintained by Tenant hereunder shall provide that such policy shall be
non-cancelable unless at least a ten (10) day notice is given to Landlord and to
all mortgagees of which Tenant has been provided notice.
5.4 Waiver of Subrogation.
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All insurance which is carried by either party with respect to the
Premises or to furniture, furnishings, fixtures or equipment therein or
alterations or improvements thereto, whether or not required, shall include
provisions which deny to the insurer acquisition by subrogation of rights of
recovery against the other party, insofar as, and to the extent that such
provisions may be effective without making it impossible to obtain insurance
coverage from responsible companies qualified to do business in the Commonwealth
of Massachusetts (even though extra premium may result therefrom) and without
voiding the insurance coverage in force between the insurer and the insured
party. In the event that extra premium is payable by either party as a result of
this provision, the other party shall reimburse the party paying such premium
the amount of such extra premium. Each party shall be entitled to have
duplicates or certificates of any policies containing such provisions. Each
party hereby waives all rights of recovery against the other for loss of injury
against which the waiving party is protected by insurance, reserving, however,
any rights with respect to any excess of loss or injury over the amount
recovered by such insurance. Tenant shall not acquire as insured under any
insurance carried on the Premises under the provisions of this Section any right
to participate in the adjustment of loss or to receive insurance proceeds and
agrees upon request promptly to endorse and deliver to Landlord any checks or
other instruments in payment of loss in which Tenant is named as payee. The
preceding sentence shall not apply to proceeds of insurance paid to Tenant
resulting from loss or damage to the personal property, fixtures and any other
property of Tenant which Landlord is not responsible to repair and restore in
the event of a loss or casualty pursuant to Article VII.
ARTICLE VI
Tenant's Additional Covenants
6.1 Affirmative Covenants.
Tenant covenants at its expense, except as otherwise expressly provided
herein, at all times during the Term and for such further time as Tenant
occupies the Premises, or any part thereof, as follows:
6.1.1 Perform Obligations.
To perform promptly, or within the time periods specified herein, all
of the obligations of Tenant set forth in this Lease; and to pay when due the
Minimum Annual Rent and Additional Rent and all charges, rates and other sums
which by the terms of this Lease are to be paid by Tenant.
6.1.2 Occupancy and Use.
To use and occupy the Premises only for the Permitted Uses set forth in
Section 1.4, and from time to time to procure all licenses and permits necessary
therefor at Tenant's sole expense.
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6.1.3 Compliance with Law.
To make all repairs, alterations, additions or replacements to the
Premises as are necessary and/or required by any law or ordinance or any order
or regulation of any public authority subject to the provisions of Section 10.2,
below.
6.1.4 Safety.
To keep the Premises equipped with all safety appliances as are
standard in the industry in which the Tenant engages.
6.1.5 Taxes Assessed Against Personalty and Leasehold.
To pay all municipal, county, or state taxes assessed against the
leasehold interest hereunder, or against personal property of any kind on or
about the Premises;
6.1.6 Zoning and Governmental Regulation.
To comply with the orders and regulations of all governmental
authorities with respect to zoning, building, fire, health and other codes,
regulations, ordinances or laws applicable to the Premises.
6.1.7 Indemnity.
To defend, with counsel approved by Landlord, such approval not be
unreasonably withheld, all actions against Landlord, any partner, trustee,
stockholder, officer, director, employee or beneficiary of Landlord, holders of
mortgages secured by the Premises, the Building, or the Land ("Indemnified
Parties") with respect to, and to pay, protect, indemnify and save harmless, to
the extent permitted by law, all Indemnified Parties from and against,
liabilities, losses, damages, costs, expenses (including reasonable attorneys'
fees and expenses), causes of action, suits, claims, demands or judgments
arising from injury to persons or death or damage to property caused by an act,
fault, omission, or other misconduct of Tenant or its agents, contractors,
licensees, sublessees or invitees, connected with the use or occupancy of the
Premises, except to the extent any such injury, death or damage is due to the
negligence or willful misconduct of any of the Indemnified Parties or as a
result of any failure of Landlord to perform any of its obligations hereunder.
6.1.8 Landlord's Right to Enter.
To permit Landlord and its agents to enter into the Premises at
reasonable times and upon reasonable prior notice (except in the case of an
emergency) to examine the Premises, to make such repairs and replacements as
Landlord may be required hereunder to make and to show the Premises
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to prospective purchasers and lenders, and, during the last six (6) months of
the Term, to show the Premises to prospective tenants and to keep affixed in
suitable places notices of availability of the Premises. Whenever the Landlord
enters the Premises, Landlord shall use reasonable efforts to (a) minimize
interference with Tenant's business operation and (b) safeguard Tenant's trade
secrets.
6.1.9 Payment of Landlord's Cost Of Enforcement.
To pay on demand Landlord's expenses, including reasonable attorney's
fees, incurred in enforcing any obligation of Tenant under this Lease or in
curing any default beyond applicable notice and cure periods by Tenant under
this Lease.
6.1.10 Yield Up.
At the expiration or earlier termination of the Term of this Lease, to
surrender all keys to the Premises; to remove all of its trade fixtures and
personal property in the Premises; to remove such signs wherever located on the
Premises; to repair all damage caused by such removal; and to yield up the
Premises (including all installations and improvements made by Tenant except for
trade fixtures and the items set forth in Exhibit D) broom clean and in the same
order and repair in which Tenant is obligated to keep and maintain the Premises
by the provisions of this Lease. Tenant shall pay to Landlord the reasonable
cost to make repairs and replacements to the Premises due to damage caused by
Tenant and incurred by Landlord. Any property of Tenant not so removed at or
prior to the expiration or earlier termination of the Term of this Lease shall
be deemed abandoned and may be removed and disposed of by Landlord in such
manner as Landlord shall determine and Tenant shall pay Landlord the entire
reasonable cost and expense incurred by Landlord in effecting such removal and
disposition.
6.1.11 Estoppel Certificate.
Upon not less than ten (10) days' prior notice by Landlord, to execute,
acknowledge and deliver to Landlord a statement in writing certifying that this
Lease is unmodified and in full force and effect and that except as stated
therein Tenant has no knowledge of any defenses, offsets or counterclaims
against its obligations to pay Minimum Annual Rent and Additional Rent and any
other charges and to perform its other covenants under this Lease (or, if there
have been any modifications that the Lease is in full force and effect as
modified and stating the modifications and, if there are any defenses, offsets
or counterclaims, setting them forth in reasonable detail), the dates to which
the Minimum Annual Rent and Additional Rent and other charges have been paid and
a statement that Landlord is not in default hereunder (or if in default, the
nature of such default, in reasonable detail) and such other matters reasonably
required by Landlord or any prospective purchaser or mortgagee of the Premises.
Any such statement delivered pursuant to this Section 6.1.11 may be relied upon
by any prospective purchaser or mortgagee of the Premises to whom such statement
is addressed, or any prospective assignee of any such mortgage to whom such
statement
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is addressed.
6.1.12 Landlord's Expenses Regarding Consents.
To reimburse Landlord within thirty (30) days after demand therefor for
all reasonable legal expenses incurred by Landlord in connection with all
requests by Tenant for consent or approval under this Lease.
6.1.13 Holdover.
To pay to Landlord the greater of one hundred fifty (150%) percent of
(a) the then fair market rent as reasonably determined by Landlord or (b) the
total of the Minimum Annual Rent, Additional Rent, and all other payments then
payable hereunder, for each month or portion thereof Tenant shall retain
possession of the Premises or any part thereof after the expiration or earlier
termination of this Lease, and also to pay all direct but not consequential
damages sustained by Landlord on account thereof; the provisions of this
subsection shall not operate as a waiver by Landlord of the right of re-entry
provided in this Lease.
6.2 Negative Covenants.
Tenant covenants at all times during the Term and for such further time
as Tenant occupies the Premises or any part thereof:
6.2.1 Assignment and Subletting.
Not without the prior written consent of Landlord, except as expressly
provided herein, to assign this Lease, to make any sublease, or to permit
occupancy of the Premises or any part thereof by anyone other than Tenant,
voluntarily or by operation of law; as Additional Rent, to reimburse Landlord
promptly for reasonable legal and other expenses incurred by Landlord in
connection with any request by Tenant for consent to assignment or subletting
(but only if such consent is required hereunder); no assignment or subletting
shall affect the continuing primary liability of Tenant (which, following
assignment, shall be joint and several with the assignee); no consent to any of
the foregoing in a specific instance shall operate as a waiver in any subsequent
instance.
Unless consent is not required pursuant to any other provisions of this
Section 6.2.1, Landlord's consent to any proposed assignment or subletting is
required. Landlord's consent to any proposed assignment or subletting by Tenant
shall not be unreasonably withheld provided that Tenant is not then in default
under this Lease (beyond applicable notice and cure periods).
Subject to the limitation set forth herein, Tenant shall have the
right, subject to the terms and conditions hereinafter set forth, without the
consent of Landlord, to assign Tenant's interest in this Lease (i) to any
corporation or other entity which is a successor to Tenant either by merger or
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consolidation or operation of law, or (ii) to a corporation or other entity
which shall (1) control, (2) be under the control of, or (3) be under common
control with Tenant (the term "control" and "controlling" as used herein shall
be deemed to mean ownership or control of more than twenty-five percent (25%) of
the outstanding stock of the corporation, or an equivalent percentage ownership
or controlling interest in an entity if Tenant is not a corporation) (any such
entity described in clauses (i) and (ii) above being herein referred to as a
"Related Entity") or (iii) to any purchaser of all or substantially all of the
assets or a controlling interest in Tenant. Tenant may also sublease all or any
portion of the Premises to a Related Entity without the consent of Landlord.
Tenant shall, within ten (10) business days after execution thereof, deliver to
Landlord (a) in the case of an assignment described above, a duplicate original
instrument of assignment and assumption duly executed by Tenant and the
assignee, in which such assignee shall assume observance and performance of, and
agree to be bound by, all of the terms, covenants and conditions of this Lease
on Tenant's part to be observed and performed from and after the effective date
of the assignment or (b) in the case of a sublease described above, a duplicate
original instrument of sublease duly executed by Tenant and the subtenant. The
transfer (including the creation and issuance of new stock) of a controlling
interest in the share of Tenant (if Tenant is a corporation or trust) or a
transfer of a majority of the total interest in Tenant (if Tenant is a
partnership or other entity) at any one time or over a period of time, directly
or indirectly, shall not be deemed an assignment of this Lease and shall not be
subject to any of the provisions of this Section 6.2.1, including the
requirement that Tenant obtain Landlord's prior consent thereto. Notwithstanding
any of the foregoing to the contrary, if a Related Entity's primary operation at
the Premises will be the manufacture of products, the component's of which
include significant quantities of Hazardous Materials (as defined in Section
6.2.3), then the provisions of this paragraph shall not apply to a proposed
assignment to such a Related Entity, but rather the remaining provisions of this
Section 6.2.1 shall apply to a proposed assignment to such a Related Entity.
In all cases of assignment or sub-letting, Tenant shall deliver to
Landlord, prior to occupancy by assignee or sub-lessee, Certificates of
Insurance from assignee and/or sub-lessees evidencing insurance coverage
reasonably acceptable to the Landlord and its mortgagees.
6.2.2 Nuisance.
Not to commit any nuisance; nor make, allow or suffer any waste; nor
make any use of the Premises which will invalidate any of Landlord's insurance
required to be maintained hereunder.
6.2.3 Hazardous Materials.
Not to cause any Hazardous Materials (as defined in Section 15.1) of
this Lease to be used, generated or stored on, at, under or about the Premises
except to the extent necessary for the on-going operation of Tenant's pallet
manufacturing business to be operated at the Premises during the Term of this
Lease.
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ARTICLE VII
Casualty or Taking
7.1 Taking.
If the Premises or any portion thereof shall be condemned or taken by
any public authority or by any other person or entity with the power of
condemnation, by eminent domain or by purchase in lieu thereof, and such
condemnation or taking renders the Premises unsuitable for Tenant's business
operation therein, then Tenant may terminate this Lease by giving notice thereof
to Landlord, such termination being effective as of the date specified in such
notice. If Tenant so terminates this Lease, Minimum Annual Rent and Additional
Rent shall be paid to the effective date of such termination, and Tenant shall
be entitled to an appropriate refund of any Minimum Annual Rent and Additional
Rent and any other amounts paid by Tenant hereunder for any period after the
effective date of termination. If this Lease is not so terminated, this Lease
and the Term thereof shall continue, except that if Tenant is deprived of the
use of any portion of the Premises or any rights under this Lease as a result of
such condemnation or taking, Minimum Annual Rent, Additional Rent and any other
amounts payable by Tenant hereunder shall be abated or reduced according to the
extent to which Tenant is deprived of the use or benefit of the Premises or any
rights under this Lease. Whether or not this Lease is terminated by Tenant as a
result of any condemnation or taking, all damages awarded as a result of the
condemnation or taking for the value of Tenant's leasehold interest, for the
cost of any leasehold improvements paid for by Tenant and for the cost of
Tenant's equipment, machinery, furniture, fixtures and other personal property
shall belong to Tenant. All other damages awarded shall belong to the Landlord.
In addition, Tenant shall have the right to claim, prove, collect and retain any
other damages awarded and any other damages compensable under the applicable
laws of the jurisdiction in which the Premises are located as a result of such
condemnation or taking.
7.2 Casualty.
If the Premises or any portion thereof is damaged by fire or other
casualty, then, except as provided below, Landlord shall repair and restore the
Premises (including all improvements, alterations, additions and changes thereto
made by Landlord or Tenant, but excluding Tenant's equipment and fixtures)
substantially to their condition immediately prior to such fire or other
casualty. Such repair and restoration shall be commenced promptly and completed
with due diligence, taking into account the time required by Landlord to effect
a settlement with and procure insurance proceeds from the insurer, and for
delays beyond Landlord's reasonable control. Until the repair and restoration
work is completed, the Minimum Annual Rent, the Additional Rent and all other
amounts to be paid by Tenant hereunder shall be equitably abated to the extent
the damage to the Premises as a result of the fire or other casualty interferes
with the conduct of Tenant's business at the Premises, as reasonably determined
by Tenant. Notwithstanding any of the foregoing provisions of this Section 7.2
to the contrary, if Landlord shall fail to substantially complete the
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repair and restoration work required to be performed by Landlord hereunder
within one hundred eighty (180) days after a fire or other casualty, then Tenant
may, by written notice to Landlord, terminate this Lease at any time after such
one hundred eight (180) day period but prior to the date such repair and
restoration work has been substantially completed. Notwithstanding any of the
foregoing provisions of this Section 7.2 to the contrary, if there is
substantial damage to the Premises as a result of a fire or other casualty and
for any reason, including, without limitation, unavailability of adequate
insurance proceeds, such damage shall not be susceptible of complete repair
within one hundred eighty (180) days after the occurrence of such fire or other
casualty, then Tenant may, by written notice to Landlord, terminate this Lease
as of the date of occurrence of such fire or other casualty, provided such
notice is given to Landlord within thirty (30) days after the occurrence of such
fire or other casualty. Notwithstanding any of the foregoing provisions of this
Section 7.2 to the contrary, if a portion of the Premises is damaged due to a
fire or other casualty during the last year of the Term and if such damage
materially and adversely interferes with the conduct of Tenant's business at the
Premises as reasonably determined by Tenant, then Tenant may, by written notice
to Landlord, terminate this Lease as of the date of occurrence of such fire or
other casualty, provided such notice is given to Landlord within thirty (30)
days after the occurrence of such fire or other casualty. In the event of the
termination of this Lease pursuant to any of the provisions of this Section 7.2,
Minimum Annual Rent, Additional Rent and all other amounts to be paid by Tenant
hereunder shall be pro rated as of the date of such termination.
ARTICLE VIII
Defaults
8.1 Events of Default.
Subject to applicable provisions of law, this Lease is upon the
condition that: (a) if Tenant shall default in the performance of any of its
obligations to pay the Minimum Annual Rent or Additional Rent hereunder and if
such default shall continue for five (5) days after receipt of written notice of
such default, or if within thirty (30) days after notice from Landlord to Tenant
specifying any other default of Tenant's obligations as required under this
Lease, Tenant has not commenced diligently to correct the default so specified
or has not after such thirty (30) day period diligently pursued such correction
to completion, or (b) if any assignment for the benefit of creditors shall be
made by Tenant, or (c) if Tenant's leasehold interest shall be taken on
execution or other process of law in any action against Tenant, or (d) if a lien
or other involuntary encumbrance is filed against Tenant's leasehold interest,
and is not discharged within thirty (30) days thereafter, or (e) if a petition
is filed by Tenant or any guarantor of Tenant for liquidation, or for
reorganization or an arrangement or any other relief under any provision of the
Bankruptcy Code as then in force and effect, or (f) if an involuntary petition
under any of the provisions of said Bankruptcy Code is filed against Tenant and
such involuntary petition is not dismissed within ninety (90) days, agents and
servants of Landlord lawfully, may, in addition to and not in derogation of any
remedies for any preceding breach of covenant, immediately or at any time
thereafter and without demand or notice, at
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Landlord's election, do any one or more of the following: (1) give Tenant
written notice stating that the Lease is terminated, effective upon the giving
of such notice or upon a date stated in such notice, as Landlord may elect, in
which event the Lease shall be irrevocably extinguished and terminated as states
in such notice without any further action, or (2) with or without process of
law, in a lawful manner, enter and repossess the Premises as of Landlord's
former estate, and expel Tenant and those claiming through or under Tenant, and
remove its and their effects, without being guilty of trespass, in which event
the Lease shall be irrevocably extinguished and terminated at the time of such
entry, or (3) pursue any other rights or remedies permitted by law. Any such
termination of the Lease shall be without prejudice to any remedies which might
otherwise be used for arrears of rent or prior breach of covenant, and in the
event of such termination Tenant shall remain liable under this Lease as
hereinafter provided.
8.2 Remedies.
In the event that this Lease is terminated under any of the provisions
contained in Section 8.1, Tenant covenants as an additional and cumulative
obligation, after any such termination to pay punctually as compensation to
Landlord all the sums and to perform all the obligations which Tenant covenants
in this Lease to pay and to perform in the same manner and to the same extent
and at the same time as if this Lease had not been terminated. In calculating
the amounts to be paid by Tenant pursuant to the preceding sentence Tenant shall
be credited with any amount paid to Landlord as compensation as in this Section
8.2 provided and also with the net proceeds of any rent obtained by Landlord by
re-letting the Premises, after deducting all of the Landlord's reasonable
expenses in connection with such re-letting, including, without limitation, all
repossession cost, brokerage commissions, fees for legal services, it being
agreed by Tenant that Landlord may (i) re-let the Premises or any part or parts
thereof, for a term or terms which may at Landlord's option be equal to or less
than or exceed the period which would otherwise have constituted the balance of
the Term and may grant such concessions and free rent as Landlord in its
reasonable judgment considers advisable or necessary to re-let the same and (ii)
make such alteration, repairs and decorations in the Premises as Landlord in its
reasonable judgment considers advisable or necessary to re-let the same, and no
action of Landlord in accordance with the foregoing or failure to re-let after
using reasonable efforts or to collect rent under re-letting shall operate or be
construed to release or reduce Tenant's liability as aforesaid. In the event
that Landlord seeks damages from Tenant pursuant to this paragraph, then
Landlord shall use reasonable efforts to mitigate its damages and re-let the
Premises. Notwithstanding anything contained herein to the contrary, Tenant
shall be not be responsible for indirect and/or consequential damages sustained
by Landlord due to Tenant's breach.
In lieu of any other damages or indemnity and in lieu of full recovery
by Landlord of all sums payable under all the foregoing provisions of this
Section 8.2 (except those sums payable pursuant to the following paragraph which
sums are to be considered as cumulative), Landlord at its option may by notice
to Tenant, at any time after this Lease is terminated under any of the
provisions contained in Section 8.1 and before such full recovery, elect to
recover, and Tenant shall thereupon pay, as liquidated damages, an amount equal
to the aggregate of the Minimum Annual
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Rent hereunder during the six (6) months (provided that there are at least six
(6) months remaining in the Term at the time of termination) next prior to such
termination, plus the amount of rent of any kind accrued unpaid at the time of
termination less the amount of any recovery by Landlord under the foregoing
provisions of this Section 8.2 up to the time of payment of such liquidated
damages. In the event that such termination occurs within the first six (6)
months of the Initial Term and Landlord exercises its option pursuant to this
paragraph, then the liquidated damages shall be three hundred four thousand four
hundred ninety-two and 50/100 ($304,492.50) dollars.
In addition to all other damages payable to Landlord pursuant to the
provisions of this Section 8.2 and notwithstanding any other provision contained
herein to the contrary, Tenant shall pay to Landlord in a lump-sum upon
termination of this Lease due to Tenant's default as set forth in Section 8.1:
(a) Tenant contribution for improvements as provided in Section 4.2.4 of this
Lease, and (b) cost to up-grade to the electric service as provided in Section
4.2.5 of this Lease, less previous payments made to Landlord as Additional Rent
on account of said items, in accordance with said Section 4.2.4 and Section
4.2.5.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater than, equal to, or less than the amount of the loss or
damages referred to above.
8.3 Remedies Cumulative.
Any and all rights and remedies which Landlord may have under this
Lease, and at law and equity, shall be cumulative and shall not be deemed
inconsistent with each other, and any two or more of all such rights and
remedies any be exercised at the same time insofar as permitted by law.
8.4 Landlord's Right to Cure Defaults.
Landlord may, but shall not be obligated to, cure, at any time,
following the expiration of any applicable notice and cure periods, except in
cases of imminent danger to persons or property emergency when no notice shall
be required, any default by Tenant under this Lease; and whenever Landlord so
elects, all reasonable costs and expenses incurred by Landlord, including
reasonable attorney's fees, in curing such default shall be paid by Tenant to
Landlord as Additional Rent with ten (10) days after demand therefor, together
with interest thereon at the Default Rate provided in Section 4.2.6 from the
date of payment by Landlord to the date of payment by Tenant.
8.5 Effect of Waivers of Default.
Any consent or permission by Landlord to any act or omission which
otherwise would be a breach of any covenant or condition herein, or any waiver
by Landlord of the breach of any covenant
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or condition herein, shall not in any way be held or construed (unless expressly
so declared) to operate so as to impair the continuing obligation of any
covenant or condition herein, except as to the specific instance, or otherwise
operate to permit similar acts or omissions.
The failure of Landlord to seek redress for violation of, or to insist
upon the strict performance of, any covenant or condition of this Lease shall
not be deemed a waiver of such violation nor prevent a subsequent act, which
would have originally constituted a violation, from having all the force and
effect of an original violation. The receipt by Landlord of rent with knowledge
of the breach of any covenant of this Lease shall not be deemed to have been a
waiver of such breach by Landlord.
8.6 No Accord and Satisfaction.
No acceptance by Landlord of a lesser sum than the Minimum Annual Rent,
Additional Rent or any other charge then due shall be deemed to be other than on
account of the earliest installment of such rent or charge due, unless Landlord
elects by notice to Tenant to credit such sum against the most recent
installment due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent or other charge be deemed an
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy in this Lease provided.
ARTICLE IX
Mortgages
9.1 Lease Subordinate.
This Lease shall be subject and subordinate to any mortgage
("Mortgage") now or hereinafter placed on the Premises or any portion or
portions thereof or interest therein, provided that Landlord obtains and
delivers to Tenant an agreement from the holder of each such Mortgage by which
such holder agrees that it shall not disturb Tenant's possession of the Premises
and will recognize all of Tenant's rights under this Lease (provided Tenant is
not then in default hereunder, beyond applicable notice and cure periods).
Notwithstanding the foregoing, the holder of any Mortgage or any purchaser at a
foreclosure sale or otherwise with respect to any Mortgage shall not be:
(a) liable for any act or omission of a prior Landlord (including
the mortgagor); or
(b) subject to any offsets or defenses which the Tenant might have
against any prior Landlord (including the mortgagor); or
(c) bound by any Minimum Annual Rent, Additional Rent, or any
other charge which the Tenant might have paid more than thirty
(30) days in advance to any prior Landlord (including the
mortgagor); or
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(d) bound by any agreement or modifications of the Lease made
without the consent of the holder of the Mortgage.
In the event that any mortgagee or its successor in title shall succeed
to the interest of Landlord, the Tenant shall and does hereby agree to attorn to
such mortgagee or successor and to recognize such mortgagee or successor as its
Landlord. Notwithstanding the foregoing, any such holder may at its election
subordinate its Mortgage to this Lease without the consent or approval of
Tenant.
This Section 9.1 shall be self-operative except for Landlord's
obligation to provide Tenant with the agreements from each holder of a mortgage
as provided in the first paragraph of this Section 9.1. Landlord and Tenant
agree to execute and deliver promptly any appropriate certificates or
instruments requested by the other party or any mortgagee to carry out the
subordination, non-disturbance and attornment agreements contained in this
Section 9.1.
In the event that a mortgage or mortgages secures said property upon
transfer of title to the Premises to Landlord, Landlord shall provide Tenant
with a non-disturbance agreement from all such mortgagees.
9.2 Mortgagees Rights Regarding Prepayment of Rent.
No Minimum Rent, Additional Rent, or any other charge shall be paid
more than thirty (30) days prior to the due date thereof and payments made in
violation of this provision shall (except to the extent that such payments are
actually received by a mortgagee) be a nullity as against any mortgagee and
Tenant shall be liable for the amount of such payments to such mortgagee.
9.3 Rights of Holder of Mortgage.
No act or failure to act on the part of Landlord which would entitle
Tenant under the terms of this Lease, or by law, to be relieved of Tenant's
obligations hereunder or to terminate this Lease, shall result in a release or
termination or such obligations or a termination of this Lease unless (i) Tenant
shall have first given written notice of Landlord's act or failure to act to
each mortgagee of Landlord of which Tenant has received notice, including the
address of such mortgagee, specifying the act or failure to act on the part of
Landlord which could nor would give basis to Tenant's rights; and (ii) such
mortgagees, after receipt of such notice, have failed or refused to correct or
cure the condition complained of within a reasonable time thereafter (but in no
event longer than thirty (30) days after such notice); but nothing contained in
this Section shall be deemed to impose any obligation on any such mortgagees to
correct or cure any condition.
ARTICLE X
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Maintenance
10.1 Tenant's Maintenance Obligation.
Tenant shall, from and after the Commencement Date until the end of the
Term and any extension thereof, maintain the Premises in as good condition and
repair as the Premises are at the Commencement Date , reasonable wear and tear,
damage to the Premises caused by fire and casualty or by eminent domain, damage
or lack of repair or maintenance due to the negligence or willful misconduct of
Landlord or its agents, contractors, officers and employees, excepted. With the
exception of Landlord's Work and Landlord's continuing obligation to maintain
the Building's roof as set forth in Section 10.2, Tenant shall be responsible to
perform all maintenance and repairs necessary to maintain the Premises, as
aforesaid, at Tenant's sole cost and expense with no contribution from Landlord.
Once Landscaping is complete in accordance with paragraph 13(j) of the
Summary of Basic Terms, Tenant shall maintain in reasonably good condition all
lawns and planted areas within the Land. Tenant shall also provide snow plowing
of parking areas, walks and driveways within the Land as reasonably necessary or
appropriate.
10.2 Landlord's Maintenance Obligations.
During the Term, Landlord shall have a continuing obligation to
maintain the roof of the Building. In the event that Tenant disturbs any portion
of the Building's roof, then Tenant shall be responsible for any maintenance of
the roof required as a result of the roof being so disturbed by Tenant. During
the Term, Tenant shall replace, as necessary, all Building Systems (as defined
below) and Building Structural Elements (as defined below). In addition, Tenant
shall make all replacements, additions, alterations and improvements to the
Premises which are required by any law, statute, code, ordinance, by-law, rule
or regulation of any governmental authority. The cost of all work performed by
Tenant as provided in the preceding provisions of this paragraph shall initially
be paid by Tenant, subject to reimbursement by Landlord for a portion of such
cost as provided in the following provisions of this paragraph. With respect to
any replacement, addition, alteration or improvement performed by Tenant
pursuant to the preceding provisions of this paragraph, Landlord shall reimburse
to Tenant a percentage of the cost thereof, which percentage shall be the
decimal equivalent of the fraction the numerator of which is the number of years
(or fraction thereof) remaining in the Term on and after the date of completion
of the replacement, alteration, addition or improvement in question and the
denominator of which is the useful life of the replacement, alteration, addition
or improvement in question (expressed in a number of years or fraction thereof),
which useful life shall be determined by Tenant acting in good faith in its
reasonable discretion. For purposes of the preceding sentence, the word "Term"
shall mean the Initial Term only if the replacement, addition, alteration or
improvement in question is completed during the Initial Term and prior to any
exercise by Tenant of the Extension Option (as defined in Article XIII below)
pursuant to the provisions of this Article XIII below and shall mean the
Extended Term (as defined
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in Article XIII below) if the replacement, addition, alteration or improvement
in question is completed after any exercise by Tenant of the Extension Option
pursuant to the provisions of Article XIII below or during the Extended Term.
Any amount to be reimbursed by Landlord to Tenant pursuant to the provisions of
this paragraph shall be paid to Tenant within thirty (30) days after receipt by
Landlord of a statement of the amount to be paid which statement shall provide a
detailed explanation of the calculation of the amount to be paid by Landlord
(including, without limitation, the total cost of the work performed and
Tenant's determination of the useful life of the replacement, alteration,
addition or improvement in question). In the event Landlord fails to make any
such payment or reimbursement on or prior to its due date thereof, Tenant may
offset the amount owed and unpaid, together with interest thereon at the Default
Rate (as defined below), from the date due through the effective date of the
offset, against Minimum Annual Rent and other sums then and thereafter owing to
Landlord under this Lease. Notwithstanding any of the foregoing to the contrary,
if the replacement addition, alteration or improvement in question is completed
during the Initial Term and prior to any exercise by Tenant of the Extension
Option and Tenant thereafter exercises the Extension Option, then the amount to
be reimbursed by Landlord to Tenant as provided in this paragraph shall be
recalculated to reflect the fact that the Term shall include the Extended Term
and, as such, Tenant shall reimburse Landlord within thirty (30) days after the
commencement of the Extended Term for the difference between the amount
previously paid by Landlord to Tenant on account of such replacement, addition,
alteration or improvement based upon the Term expiring at the end of the Initial
Term and the amount payable by Landlord to Tenant on account of such
replacement, addition, alteration or improvement based upon the Term expiring at
the end of the Extended Term. Notwithstanding any of the foregoing to the
contrary, if the Term terminates prior to the end of the Initial Term (or the
end of the Extended Term if Tenant shall have exercised the Extension Option
pursuant to the provisions of Article XIII below) for any reason, the amount to
be reimbursed by Landlord to Tenant shall be recalculated to reflect the fact
that the Term has terminated on the effective date of such termination and
Landlord shall pay to Tenant on or prior to the effective date of such
termination the difference between the amount payable by Landlord to Tenant on
account of the replacement, addition, alteration or improvement in question
based upon the Term ending on such effective date of termination and the amount
previously paid by Landlord to Tenant on account of such replacement, addition,
alteration or improvement based upon the Term expiring at the end of the Initial
Term or the Extended Term, as applicable.
As used herein, the phrase "Building Systems" shall mean, collectively,
the plumbing, sprinkler, fire suppression, heating, ventilating and air
conditioning, electrical and mechanical lines and equipment associated
therewith, water and sewer pipes and equipment associated therewith, generators,
transformers and boilers, whether located within the Building or outside the
Building but within the Premises. As used herein, the phrase "Building
Structural Elements" shall mean the exterior and interior structures of the
Building, including the exterior walls, bearing walls, support beams,
foundation, columns, exterior doors and windows and lateral support to the
Building.
Notwithstanding any of the foregoing to the contrary, Landlord shall
have no obligation to reimburse Tenant for any portion of the costs incurred by
Tenant for the replacement of any Building
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Systems or Building Structural Elements which were installed by Tenant, or
up-graded by Tenant or otherwise modified by Tenant. In addition,
notwithstanding anything contained herein to the contrary, Landlord shall not be
obligated to reimburse Tenant for any costs incurred by Tenant for repairs,
replacements, additions, alterations and improvements required by any law,
statute, code, ordinance, by-law, rule or regulation of any governmental
authority due to Tenant's particular use or manner of use of the Premises which
would not otherwise be required and necessary for the average manufacturing
business.
ARTICLE XI
Right of First Refusal
11.1 Tenant's Right of First Refusal.
Landlord agrees that so long as this Lease is in full force and effect
and so long as Tenant is not in default of this Lease, Landlord will not sell
all or any portion of the Premises described in Exhibit A attached hereto or the
Building or other improvements now or hereafter erected on said Land unless (a)
Landlord has received a bona fide offer to purchase the Premises; (b) Landlord
has given Tenant written notice stating the name and address of the offeror and
the terms and conditions of said bona fide offer and the encumbrances subject to
which the Premises, or any part thereof, are to be conveyed and containing an
offer by Landlord to sell the same to Tenant on the same terms and conditions as
said bona fide offer; and (c) Tenant has not, within sixty (60) days after the
giving of such notice, mailed or otherwise given Landlord written notice that
Tenant elects to purchase the same in accordance with said offer. In the event
that Tenant so elects to purchase, the Premises or such part thereof shall be
conveyed by a good and sufficient Quitclaim Deed conveying a good and clear
record and marketable title thereto, free from all encumbrances except as stated
in said bona fide offer and such deed shall be delivered and consideration paid
at the Essex County (Northern District) Registry of Deeds, or at Landlord's
option, the offices of Landlord's legal counsel at 11:00 o'clock A.M. on the
ninetieth (90th) day or next business day after the date of the giving of such
notice of election to purchase or the date for closing as specified in the
offer, whichever is later. In the event that Tenant shall not give such notice
of election to purchase within the time above specified, or in the event Tenant
shall, after giving such notice, fail to complete such purchase as hereinabove
provided, then for a period of six (6) months thereafter, Landlord shall be free
to sell and convey the Premises or such part thereof covered by the offer to the
offeror named in Landlord's notice at a price not lower than that specified
therein, but Landlord shall not otherwise sell or convey the Premises or any
part thereof without again offering the same to Tenant. The provisions of this
Section 11.1 shall not be construed to apply to (a) bona fide mortgages; or (b)
sales or other proceedings for the foreclosure thereof; or (c) easements to any
municipality or utility company required for the installation and/or maintenance
of drainage, sewage, electric, gas, water and electric lines and appurtenance to
and from the Premises or (d) conveyance to a Related Entity of Landlord as
defined in Section 6.2.1 of this Lease.
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11.2 Purchase Price Credit.
Notwithstanding any of the foregoing to the contrary, in the event
Tenant exercises its right of first refusal and purchases the Premises under the
terms and conditions as set forth in said bona fide offer, then Landlord shall
provide a credit to Tenant at the closing in an amount equal to the total of all
reimbursements previously made by Tenant to Landlord pursuant to Section 4.2.4
and Section 4.2.5.
11.3 Tenant's Election to Exercise Option to Purchase.
Notwithstanding any of the foregoing to the contrary, Tenant may, within sixty
(60) days of receipt of Landlord's written notice and offer to sell, elect to
purchase the Premises for the same Purchase Price and terms and conditions as
provided in Section 11.3.
12.1 notwithstanding that the purchase may occur before Extended Lease
Year (1). In the event that such election occurs during the first year of the
Initial Lease Term, then for purposes of calculating the Purchase Price, the
rent payable for the second year of the Initial Lease Term shall be utilized.
11.4 Landlord's Compliance.
If Landlord shall make and record with said Deeds an affidavit stating
that (1) a certain conveyance by it is made pursuant to a bona fide offer to
purchase; (2) it has given notice to Tenant in connection with such conveyance
as required by the provisions of this paragraph; (3) it has not received written
notice of election to purchase given by Tenant in accordance with the provisions
of this paragraph, or that Tenant who has given notice of election to purchase
has failed to complete the same in accordance with said provisions, as the case
may be; and (4) such conveyance is made to the person named in such notice at a
price not lower than therein stated; then such affidavit shall be conclusive
evidence of compliance with the requirements of this paragraph with respect to
such conveyance in favor of the grantee therein and all persons claiming by,
through or under him.
ARTICLE XII
Option to Purchase
12.1 Tenant's Option to Purchase.
Tenant shall have the option to purchase (the "Purchase Option") the
Premises at any time during the Term on and after the expiration of the Initial
Term pursuant to and in accordance with the provisions of this Section 12.1 If
Tenant desires to exercise the Purchase Option, Tenant shall give written notice
(the "Purchase Notice") of such exercise to Landlord at any time after the fifth
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(5th) Lease Year of the Initial Term. If Tenant gives such Purchase Notice, then
Tenant shall purchase the Premises on the date set forth in the Purchase Notice
as the date for closing, but in no event earlier than the first day of the
Extended Term and sooner than the date which is ninety (90) days following the
date of receipt by Landlord of the Purchase Notice (the actual date of Closing
being hereinafter referred to as the "Closing Date"). Tenant shall purchase the
Premises pursuant to the Purchase Option at a purchase price equal to the
Minimum Annual Rent in effect for Lease Year in which the Purchase Notice is
given to Landlord multiplied by ten (10) less Landlord's yearly expense to
maintain the Building's roof averaged over the previous three Lease Years,
excluding the then current Lease Year or partial Lease Year (the "Purchase
Price"). On the Closing Date, Landlord shall deliver to Tenant a Quitclaim Deed
to the Premises and any other instruments necessary to assign any other property
then required to be assigned by Landlord pursuant hereto, and, simultaneous with
recording such quitclaim deed with the Essex (Northern District) Registry of
Deeds, Tenant shall pay by cash or certified check to Landlord the Purchase
Price. The Premises are to be conveyed by a good and sufficient quitclaim deed
running to Tenant, or to the nominee or designee designated by Tenant, and such
quitclaim deed shall convey a good and clear, record and marketable title to the
Premises, free from encumbrances except:
1. such real estate taxes and assessments for then current fiscal
year as are not due and payable on the Closing Date; and
2. the then existing zoning by-laws and building regulations; and
3. municipal betterments assessed after the date of this Lease; and
4. easements, rights, restrictions and reservations of record which
do not materially adversely affect the use of the Premises as
contemplated herein or the value of the Premises.
5. Any adverse title condition existing on the Premises which was a
direct and proximate cause of the Tenant.
6. Any defects of title or encumbrances existing as of the date of
this Lease with the exception of mortgages, monetary liens and
outstanding taxes, if any.
Tenant shall have no obligation to purchase the Premises after exercising the
Purchase Option if the Premises are not in the same condition on the Closing
Date as the same were in on the date of receipt by Landlord of the Purchase
Notice, reasonably wear and tear only excepted unless the adverse condition was
caused by Tenant. Upon completion of the sale of the Premises pursuant to the
Purchase Option, but not prior thereto, this Lease shall terminate, except with
respect to such obligations or liabilities of Tenant or Landlord hereunder which
expressly survive the expiration of the Term of this Lease. Notwithstanding the
foregoing, at Tenant's sole option, this Lease may not
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terminate but it may continue in effect after the completion of such sale if the
Premises are purchased by a nominee or designee of Tenant, provided that the
nominee or designee of Tenant shall succeed to the interest of Landlord with no
recourse against Landlord. The time for delivery of the deed, as provided
herein, shall be extended for up to thirty (30) days to allow Landlord to use
reasonable efforts to remove any defect of title or otherwise make the Premises
conform to the requirements of this Section 12.1 and Landlord agrees to do so,
if necessary. Notwithstanding same, under no circumstances shall Landlord be
required to expend more than fifty thousand and/100 ($50,000.00) dollars so as
to comply with the requirement to use reasonable efforts as stated in the
previous sentence. At the expiration of said thirty (30) days, Tenant may
terminate the Purchase Option without recourse to Landlord if the Premises still
do not conform (in which event this Lease shall continue in full force and
effect) or, at Tenant's option, Tenant may purchase the Premises without
reduction in the Purchase Price and without recourse to Landlord, so long as
Landlord has used such reasonable efforts as limited herein. To the extent not
otherwise provided herein, the Massachusetts Conveyancing Association Title
Standards and Practices Standards then in effect shall govern practice and
procedure with respect to the closing of title. Landlord may use the Purchase
Price or any portion thereof to clear encumbrances of record provided that the
instruments required to clear such encumbrances are recorded simultaneously with
the recording of the deed or arrangements reasonably satisfactory to Tenant for
subsequent recording of such instruments are made prior to the Closing Date.
Tenant acknowledges that an appropriate payoff letter from an institutional
mortgagee shall be deemed satisfactory arrangement for purposes of the
immediately preceding sentence. If, prior to the Closing, the Premises shall
have been damaged or destroyed by fire or other casualty and Landlord shall have
not completed all repair and restoration work required to be performed by
Landlord hereunder with respect to such fire or other casualty prior to the
Closing Date, then the Closing Date shall be extended until said work required
to be performed by Landlord hereunder with respect to such fire or other
casualty is complete.
12.2 Termination of Lease for Failure to Purchase.
Except as otherwise stated herein, this Lease, at the option of Landlord, shall
terminate ninety (90) days following the Scheduled Closing date or, if the
Closing Date has been extended, the extended Closing Date, in the event that
Tenant elects to exercise its Option to Purchase in lieu of exercising its Right
of First Refusal in accordance with Section 11.3 and Tenant fails after to
purchase the Premises in accordance with the Purchase Option. The previous
sentence shall not apply in the event Tenant fails to purchase the Premises
because the Premises do not conform to the provisions regarding the conveyance
of title to the Premises or the condition of the Premises as set forth in
Section 12.1.
12.3 Reimbursement for Subsidized Work.
Notwithstanding any of the foregoing to the contrary, in the event
Tenant purchases the Premises pursuant to the provisions of this Article XII,
Tenant shall pay at closing to Landlord in addition to the Purchase Price the
full amount of all payments made by Landlord to Tenant for
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Subsidized Work pursuant Section 3.5 less the lesser of (i) the amounts
previously reimbursed to Landlord pursuant to Section 4.2.4 and 4.2.5 or (ii)
four hundred thousand and 00/100 ($400,000.00) dollars.
12.4 Termination of Option to Purchase.
Notwithstanding anything contained in this Lease to the contrary,
Tenant's Option to Purchase shall terminate sixty (60) days after Tenant's
receipt of Landlord's written notice and offer to purchase the Premises as set
forth in Section 11.1 provided that the Premises are then sold to a third party
after Tenant's election not to purchase the Premises pursuant to Section 11.1.
Except as otherwise stated herein, this Option to Purchase shall
terminate ninety (90) days following the Scheduled Closing date or, if the
Closing Date has been extended, the extended Closing Date, in the event that
Tenant elects to exercise its Option to Purchase (without having first received
a written notice from Landlord to sell in accordance with Section 11.1) and
Tenant fails to purchase the Premises in accordance with the Purchase Option.
Upon termination of Option to Purchase for failure to purchase as stated herein,
Tenant shall pay to Landlord all direct costs incurred by Landlord in preparing
the Premises for sale to Tenant which costs shall include reasonable attorney's
fees incurred by Landlord. The previous two (2) sentences shall not apply in the
event Tenant fails to purchase the Premises because the Premises do not conform
to the provisions regarding the conveyance of title to the Premises or the
condition of the Premises as set forth in Section 12.1.
ARTICLE XIII
Miscellaneous Provisions
13.1 Notices from One Party to the Other.
All notices required or permitted hereunder shall be in writing and
addressed, if to the Tenant, at the Notice Address of Tenant as set forth in the
Summary of Basic Terms or such other address as Tenant shall have last
designated by notice in writing to Landlord and, if to Landlord, at the Notice
Address of Landlord as set forth in the Summary of Basic Terms or such other
address as Landlord shall have last designated by notice in writing to Tenant.
All notices, requests, demands and other communications required or permitted
hereunder shall be given (1) by Federal Express (or other established overnight
delivery service), or (2) by certified or registered mail, postage prepaid,
return receipt requested, or (3) by hand delivery. Notices, requests, demands
and other communications required or permitted hereunder shall be deemed given
and therefor effective upon receipt thereof or refusal to accept delivery
thereof.
13.2 Quiet Enjoyment.
Landlord agrees that upon Tenant's paying the rent and performing and
observing the terms,
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covenants, conditions and provisions on its part to be performed and observed
within applicable notice and cure periods, Tenant shall and may peaceably and
quietly have, hold and enjoy the Premises during the Term without any manner of
hindrance or molestation from Landlord or anyone claiming under Landlord,
subject, however, to the terms of this Lease.
13.3 Lease not to be Recorded.
Tenant agrees that it will not record this Lease. Both parties shall,
upon the request of either, execute and deliver a notice of this Lease which
notice shall include a description of the Purchase Option (omitting the Purchase
Price), in such a form, if any, as may be permitted by applicable statute, and
upon termination for whatever reason, a like notice of termination of Lease ,
which notice of lease and/or notice of termination may be recorded with the
Essex (Northern District) Registry of Deeds.
13.4 Bind and Inure; Limitation of Landlord's Liability.
The obligations of this Lease shall run with the land, and this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. No owner of the Premises shall be liable
under this Lease except for obligations occurring or accruing while owner of the
Premises. For recovery of any judgement from Landlord hereunder, Tenant agrees
to look solely to Landlord's interest in the Premises, including all rents
therefrom and tax abatements with respect thereto and, subject to the rights of
any mortgagees thereof, the proceeds of fire and casualty insurance and
condemnation awards, but not upon any other assets of Landlord. Nothing
contained in this section is intended to, nor shall, limit any right that Tenant
might otherwise possess so to enable Tenant to obtain injunctive relief against
Landlord. No partner, trustee, stockholder, member, manager, officer, executor,
director, employee or beneficiary (or the partners, trustees, stockholders,
officers, directors or employees of any such beneficiary) of Landlord shall be
personally liable under this Lease and Tenant shall look solely to Landlord's
interest in the Premises, and the general assets of the partners, trustees,
executors, stockholders, officers, employees or beneficiaries (and the partners,
trustees, stockholders, members, managers, officers, directors, or employees of
any such beneficiary) of Landlord shall not be subject to levy, execution or
other enforcement procedure.
13.5 Landlord's Default.
If Landlord fails to perform any of the covenants, terms or conditions
of this Lease to be performed by Landlord and, unless another time limit is
elsewhere in this Lease specifically provided, such failure to perform continues
for a period of thirty (30) days after written demand for performance given by
Tenant, or, if the failure to perform (other than one of or in the nature of a
breach of the covenant of quiet enjoyment) is of such a character as to require
more than thirty (30) days to cure and Landlord shall thereafter fail to use
reasonable diligence in curing such failure to perform, then, and in any of such
events, Tenant may, in addition to any other remedies provided
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for in this Lease or by law or equity (including the right to sue for damages,
an injunction or specific performance): (i) abate the Minimum Annual Rent,
Additional Rent and other sums then or thereafter owing hereunder to the extent
to which such failure to perform deprives Tenant of the use or benefit of the
Premises or any of its rights under this Lease or (ii) elect to make such
payments and cure such failure to perform on behalf of Landlord and, in
connection therewith, do or cause to be done all work and make all payments
reasonably necessary thereto by Tenant, including costs and charges in
connection with any legal action which may have been commenced or threatened. In
the event Tenant elects to exercise its rights under subparagraph (ii) above,
all sums so expended by Tenant (including reasonable attorneys' fees incurred in
connection therewith), together with interest thereon from the date of
expenditure until reimbursement at the Default Rate, shall be paid by Landlord
to Tenant within thirty (30) days after demand therefor. In the event Landlord
fails to make such payments within thirty (30) days after demand therefor,
Tenant shall have the right to offset all sums expended hereunder (including
reasonable attorneys' fees incurred in connection therewith), together with
interest thereon from the date of expenditure until reimbursement at the Default
Rate, against Minimum Annual Rent, Additional Rent and any other sums then or
thereafter owing to Landlord under this Lease. Tenant shall have the right to
exercise its rights pursuant to subparagraphs (i) and (ii) above concurrently.
13.6 Brokerage.
Tenant warrants and represents to Landlord that Tenant has had no
dealings with any broker or agent in connection with this Lease except Sluice
Associates, Inc. of Peabody, Massachusetts (the "Broker) and covenants to defend
(with counsel reasonably approved by Landlord) and hold harmless and indemnify
Landlord from and against any and all cost, expense or liability for any
compensation, commissions and charges claimed by any broker or agent (other than
the Broker) with respect to Tenant's dealings in connection with this Lease or
the negotiation thereof. Landlord warrants and represents to Tenant that
Landlord has had no dealings with any broker or agent in connection with this
Lease except the Broker and covenants to defend (with counsel reasonably
approved by Tenant) and hold and indemnify Tenant from and against any and all
costs, expenses or liabilities for any compensation, commissions or charges
claimed by any broker or agent (other than the Broker) with respect to
Landlord's dealings with this Lease or the negotiation thereof. Landlord shall
pay all brokerage commissions and/or fees due and payable to the Broker in
connection with this Lease.
13.7 Applicable Law and Construction.
This Lease shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts. If any term, covenant, condition or
provision of this Lease or the application thereof to any person or
circumstances shall be declared invalid, or unenforceable by the final ruling of
a court of competent jurisdiction having final review, the remaining terms,
covenants, conditions and provisions of this Lease and their application to
persons or circumstances shall not be affected thereby and shall continue to be
enforced and recognized as valid agreements of the
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parties, and in the place of such invalid or unenforceable provision, there
shall be substituted a like, but valid and enforceable provision which comports
to the findings of the aforesaid court and most nearly accomplishes the original
intention of the parties.
There are no prior oral or written agreements between Landlord and
Tenant affecting this Lease. This Lease may be amended, and the provisions
hereof may be waived or modified, only by instruments in writing executed by
Landlord and Tenant.
The titles of the several Articles and Sections contained herein are
for convenience only and shall not be considered in construing this Lease.
Unless repugnant to the context, the words "Landlord" and "Tenant"
appearing in this Lease shall be construed to mean those named above and their
respective heirs, executors, administrators, successors and assigns, and those
claiming through or under them respectively. If there be more than one tenant
the obligations imposed by this Lease upon Tenant shall be joint and several.
13.8 Submission of an Offer.
The submission of a draft of this Lease or a summary of some or all of
its provision does not constitute an offer to lease or demise the Premises, it
being understood and agreed that neither Landlord nor Tenant shall be legally
bound with respect to the leasing of the Premises unless and until this Lease
has been fully executed by both Landlord and Tenant and a fully executed
original counterpart of same has been delivered to each of them.
13.9 Authority.
Simultaneously with the execution and delivery of the Lease, Tenant
shall furnish to Landlord (a) a valid Certificate of Organization from the
Secretary of State verifying that all necessary members of Tenant's Limited
Liability Company have properly executed this Lease so as to legally bind
Tenant; and (b) Certificate of Corporate Existence of Guarantors set forth in
Exhibit C; and (c) Corporate Vote, Corporate Resolution or other evidence
reasonably acceptable to Landlord stating that the persons executing the
Guaranties (Exhibit C) have been granted authority to execute and bind the
respective Guarantor.
13.10 Title.
Landlord warrants that (i) it has executed an agreement to purchase the
Premises; and (ii) it is authorized to enter into this Lease, and (iii) the
Premises are subject to no prior lease or agreement inconsistent with the terms
of this Lease. In the event that this Lease is executed prior to Landlord
assuming title to the Premises and Landlord, fails to purchase said Premises,
then this Lease shall become null and void without recourse against either
party.
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13.11 Personal Property of Tenant.
All of the furnishing, fixtures, equipment, effects and property of
every kind, nature and description of Tenant ("Tenant's Property") and of all
person claiming by, through or under Tenant which, during the continuance of the
Lease or any occupancy of the Premises by Tenant or anyone claiming under
Tenant, may be on the Premises, shall, as between the parties, be at the sole
risk and hazard of Tenant and if the whole or any part thereof shall be
destroyed or damaged by fire, water or otherwise, or by the leakage or bursting
of water pipes, steam pipes, or other pipes, by theft or from any other cause,
no part of said loss or damage is to be charged to or to be borne by Landlord,
except that Landlord shall in no event be indemnified or held harmless or
exonerated from any liability to Tenant or to any other person, for any injury,
loss, damage or liability to the extent prohibited by law. Tenant may install in
or on the Premises such equipment, machinery, fixtures and other personal
property as Tenant deems desirable, and all such items shall remain Tenant's
personal property whether or not attached to the Premises. Tenant may remove any
of such items from the Premises at any time during the Term of this Lease
however, Tenant shall restore and repair any damages to Premises caused by said
installation and/or subsequent removal of personal property.
13.12 Landlord's Indemnity.
Landlord shall defend (with counsel approved by Tenant, such approval
not to be unreasonably withheld) and indemnify and hold harmless Tenant and
Tenant's agents, contractors, officers and employees and invitees from and
against any and all losses, claims, liabilities, expenses and damages which
directly, but not consequentially, arise out of or result from (i) the
negligence or willful misconduct of Landlord or any of its agents, contractors
or employees, (ii) judgments, citations, fines or other penalties rendered or
assessed against Tenant as a result of Landlord's failure to comply with any and
all federal, state and local laws, safety and health regulations relating to any
portion of the Premises which Landlord has assumed the duty to comply with
pursuant to this Lease; and (iii) the willful breach of any provision of this
Lease by Landlord or by any agent, contractor or employee of Landlord. Landlord
shall not indemnify Tenant under any circumstance for Tenant's loss of profits
or Tenant's loss of business opportunities or for any other consequential damage
sustained by Tenant or any person or entity claiming by through or under Tenant
resulting from Landlord's any breach of any provision of this Lease.
13.13 Costs and Attorney's Fees.
In the event either Landlord or Tenant brings or commences a legal
proceeding to enforce any of the terms or provisions of this Lease, the
prevailing party in such proceeding shall have the right to recover from the
other party reasonable attorneys' fees and costs to be fixed by the court in
this same proceeding. The phrase "legal proceeding" as used herein shall,
without limitation, include appeals from a lower court judgment as well as
proceedings in the Federal Bankruptcy Court, whether or not they are adversary
proceedings or contested matters. The phrase "prevailing party"
34
<PAGE> 42
as used herein shall mean the party that prevails in obtaining a remedy or
relief which most nearly reflects the remedy or relief which that party sought.
13.14 Certification of Lease.
Either Landlord or Tenant may, at any time and from time to time, upon
not less than ten (10) days prior notice, request the other party to execute,
acknowledge and deliver to the party making such a request a statement in
writing certifying that (i) this Lease is unmodified and in full force and
effect (or if there have been modifications, that the same is in full force and
effect as modified and stating the modifications), (ii) the dates to which the
Minimum Annual Rent, Additional Rent and other amounts due and payable hereunder
have been paid, and (iii) the party requesting the certification has performed
all of its obligations and is not in default under this Lease (or if there are
any defaults under this Lease by such party, stating such defaults with
particularity), it being intended that any such statement delivered pursuant to
the provisions of this Section 13.14 may be relied upon by a prospective
purchaser or mortgagee of the Premises or by a prospective assignee or sublessee
of Tenant's interest in this Lease.
ARTICLE XIV
Tenant's Option to Extend
14.1 Extension Period.
The Tenant shall have the option (the "Extension Option") to extend
this lease for one additional six (6) year term ("the Extended Term") commencing
after the expiration of the Term of the Initial Term so long as the Tenant is
not in default hereunder at the time Tenant delivers the Extension Notice (as
defined below) and at the commencement of the Extended Term. Upon exercise of
the Extension Option, all references in this Lease to obligations and rights of
the parties during the "Term" of this Lease shall include both the "Initial (or
initial ) Term" and the "Extended (or extended)Term" unless otherwise specified
as "Initial (or initial)Term" or "Extended (or extended) Term".
14.2 Exercising Option.
To exercise the Extension Option, the Tenant shall notify the Landlord
of such exercise (the "Extension Notice") no later than ONE HUNDRED TWENTY (120)
days before the expiration of the Initial Term.
14.3 Change in Minimum Annual Rent.
Tenant shall lease the Premises for the Extended Term upon all of the
same terms and conditions as provided herein during the Initial Term, and the
Minimum Annual Rent due and
35
<PAGE> 43
payable during the Extended Term shall calculated as set forth in Section 4.1.
ARTICLE XV
Environmental Matters
15.1 Definitions.
For all purposes of this Lease "Hazardous Materials" shall include and
mean any and all substances (a) defined or classified as a "hazardous
substance",. "hazardous material", "hazardous waste", "pollutant", "toxic
substance", or otherwise identified as a regulated or hazardous substance,
material or waste in any of the following, as the same may be amended form time
to time: (i) the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980; (ii) the federal Resource Conservation and Recovery Act;
(iii) Massachusetts General Laws, Chapter 21C; (iv) Massachusetts General Laws,
Chapter 21E; and (v) any other federal, state, or local law or regulation
addressing environmental contamination, waste, or human health and safety, or
(b) presenting a risk to human health or the environment under any other
applicable federal, state or local law or regulation, as now promulgated or as
may be promulgated in the future. "Hazardous Materials" shall specifically
include, without limitation, oil, petroleum, and petroleum-based derivatives.
15.2 Landlord's Indemnification.
Landlord shall indemnify, defend and hold harmless Tenant and Tenant's
officers, directors, members, managers, employees (collectively, "Tenant
Parties") from and against any and all claims, losses, obligations, liabilities,
damages, fines, judgments, penalties, costs and expenses (including, without
limitation, reasonable attorneys' and consultants' fees and disbursements) to
the extent arising out of or related to any Hazardous Materials present at the
Premises as of the date of this Lease.
15.3 Tenant's Indemnification.
Tenant shall indemnity, defend and hold harmless Landlord and
Landlord's members, managers, officers, agents, and employees form and against
any and all claims, losses, obligations, liabilities, damages, fines, judgments,
penalties, costs and expenses (including, without limitation, reasonable
attorneys' and consultants' fees and disbursements) to the extent arising out of
or related to the presence or release of any Hazardous Materials at the Premises
that are first present or first occurs, as the case may be, after the date of
this Lease including, without limitation, any Hazardous Materials present or
released due to any act or omission of any Tenant Parties.
15.4 Limitation of Actions.
36
<PAGE> 44
The foregoing environmental indemnity provisions set forth in Section
15.2 and Section 15.3 shall survive the expiration or earlier termination of
this Lease or any transfer of any interest in this Lease. Notwithstanding any
other provision of this Lease, the Tenant shall be personally liable, without
limitation and recourse, for the performance of its obligations under this
section.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to
be duly executed under seal in any number of counterpart copies, each of which
shall constitute an original, as of the day and year first above written.
Attest: LANDLORD:
Forty-four Lowell Junction Andover LLC
by:
- ------------------------- --------------------------------
John A. Thomas, Member
- ------------------------- --------------------------------
and David Ting, Member
Attest: TENANT:
Duraskid (New England), L.L.C.
by:
- --------------------------- -----------------------------------
, Manager
- -------------------------------- -----------------------------------
, Manager
37
<PAGE> 1
EXHIBIT 3.13
GUARANTEE
FOR VALUE RECEIVED, and in consideration for, and as an inducement to
FORTY-FOUR LOWELL JUNCTION ANDOVER LLC (the "Landlord") to make the foregoing
lease (the "Lease") with DURASKID (NEW ENGLAND), L.L.C. (the "Tenant"), the
undersigned, DURA PRODUCTS INTERNATIONAL, INC., a Canadian corporation (the
"Guarantor"), unconditionally guarantees the full performance and observance of
all the covenants, conditions and agreements therein provided to be performed
and observed by the Tenant, the Tenant's successors and assigns, and expressly
agrees that the validity of this agreement and the obligations of the Guarantor
shall in no wise be terminated, affected or impaired by reason of the granting
by the Landlord of any indulgences to the Tenant or by reason of the assertion
by the Landlord against the Tenant of any of the rights or remedies reserved to
the Landlord pursuant to the provisions of the Lease or by the relief of the
Tenant from any of the Tenant's obligations under the Lease by operation of law
or otherwise (including, but without limitation, the rejection of the Lease in
connection with proceedings under the bankruptcy laws now or hereafter enacted);
the Guarantor hereby waiving all suretyship defenses. The obligations of the
Guarantor include the payment to Landlord of any monies payable by Tenant under
any provisions of the Lease, at law, or in equity, including, without
limitation, any monies payable by virtue of the breach of any warranty, the
grant of any indemnity or by virtue of any other covenant of Tenant under the
Lease.
The Guarantor further covenants and agrees that this Guarantee shall
remain and continue in full force and effect as to any renewal, modification or
extension of the Lease, whether or not the Guarantor shall have received any
notice of or consented to such renewal, modification or extension. The Guarantor
further agrees that its liability under this Guarantee shall be primary (and
that the heading of this instrument and the use of the word "guarantee(s)" shall
not be interpreted to limit the aforesaid primary obligations of the Guarantor),
and that in any right of action which shall accrue to the Landlord under the
Lease, the Landlord may, at its option, proceed against the Guarantor, any other
guarantor, and the Tenant, jointly or severally, and may proceed against the
Guarantor without having commenced any action against or having obtained any
judgment against the Tenant or any other guarantor. The Guarantor irrevocably
waives any and all rights the Guarantor may have at any time (whether arising
directly or indirectly, by operation of law or by contract or otherwise) to
assert any claim against the Tenant on account of payments made under this
Guarantee, including, without limitation, any and all rights of or claim for
subrogation, contribution, reimbursement, exoneration and indemnity, and further
waives any benefit of and any right to participate in any security deposit or
other collateral which may be held by the Landlord; and the Guarantor will not
claim any set-off or counterclaim against the Tenant in respect of any liability
the Guarantor may have to the Tenant. The Guarantor further represents to the
Landlord as an inducement for it to -make the Lease, that the Guarantor owns all
of the entire outstanding capital stock of the Tenant, that the execution and
delivery of this Guarantee is not in contravention of its charter or by-laws or
applicable state laws, and has been duly authorized
<PAGE> 2
by its Board of Directors.
It is agreed that the failure of the Landlord to insist in any one or
more instances upon a strict performance or observance of any of the terms,
provisions or covenants of the Lease or to exercise any right therein contained
shall not be construed or deemed to be a waiver or relinquishment for the future
of such term, provision, covenant or right, but the same shall continue and
remain in full force and effect. Receipt by the Landlord of rent with knowledge
of the breach of any provision of the Lease shall not be deemed a waiver of such
breach.
No subletting, assignment or other transfer of the Lease, or any
interest therein, shall operate to extinguish or diminish the liability of the
Guarantor under this Guarantee; and wherever reference is made to the liability
of the Tenant named in the Lease, such reference shall be deemed likewise to
refer to the Guarantor.
All payments becoming due under this Guarantee and not paid when due
shall bear interest from the applicable due date until received by the Landlord
at the interest rate set forth in Section 4.2.6 of the Lease.
It is further agreed that all of the terms and provisions hereof shall
inure to the benefit of the heirs, executors, administrators and assigns of the
Landlord, and shall be binding upon the successors and assigns of the Guarantor.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be
executed in its corporate name by its duly authorized representative, and its
corporate seal to be affixed hereto this day of
, 1998.
Attest: DURA PRODUCTS INTERNATIONAL, INC.
______________________________ By:______________________________
Secretary Its President
Hereunto duly authorized
2
<PAGE> 3
ACKNOWLEDGMENT
STATE OF )
) ss.
COUNTY OF ) , 1998
On this day, before me, personally appeared , who being by me duly
sworn, did say that he is President of Dura Products International, Inc., that
said instrument was signed and sealed on behalf of said corporation by authority
of its Board of Directors; and said acknowledged said instrument to be
the free act and deed of said corporation.
--------------------------------------
Notary Public
My Commission Expires:
3
<PAGE> 1
EXHIBIT 3.14
INDEMNIFICATION AGREEMENT
This Agreement, effective as of March 2, 1998, is made by and among
DURA PRODUCTS INTERNATIONAL, INC., a corporation incorporated under the laws of
Ontario (the "Guarantor"), whose address is 60 Carrier Drive, Etobicoke,
Ontario, Canada M9W 5R1 and the undersigned individuals, all of whom are members
(the "Members") of Environmental Composite Products, LLC (the "LLC"), in
connection with the execution and delivery by the Guarantor of a certain
Guarantee dated as of March 2, 1998 (the "Guarantee") pursuant to which the
Guarantor has guarantied 100% of the obligations of Duraskid (New England)
L.L.C. (the "Tenant") to Forty-Four Lowell Junction Andover LLC (the "Landlord")
under that certain lease (the "Lease") dated as of March 2, 1998 covering the
premises located at 44 Lowell Junction Road, Andover, Massachusetts.
The parties hereby agree as follows:
1. Responsibility. The Guarantor shall be responsible for 51% of all
amounts paid to the Landlord under the Guarantee (the "Guarantor's Portion") and
the Members shall be responsible for 49% of all amounts paid to the Landlord
under the Guarantee (the "Members' Portion"). Except as provided in Section
2(d), no Member shall be responsible for more than his Share of the Members'
Portion. A Member's "Share" means the fractional share set forth on Schedule A
hereto.
2. Indemnification.
(a) In the event that the Guarantor receives notice from the Landlord
that the Landlord is exercising or intends to exercise its rights under the
Guarantee (the "Landlord Demand"), the Guarantor shall promptly notify the
Members thereof in writing and shall deliver with said notice a copy of the
Landlord Demand and all correspondence from the Landlord, its
<PAGE> 2
agents and its attorneys, sent in connection with the Landlord Demand. The
Members shall have thirty (30) days to review the Landlord Demand, during which
time the Guarantor shall not make or cause to be made any payments to the
Landlord pursuant to the Landlord Demand. After the expiration of such 30-day
period, the Guarantor may make, or cause to be made, payment to satisfy the
Landlord Demand and, upon making of such payment, the Guarantor shall become
entitled to indemnification from the Members in accordance with provisions of
this Section 2.
(b) In the event that at any time the Guarantor shall pay or cause to
be paid to the Landlord any amount (a "Guarantee Payment") as a result of the
Landlord's exercise or enforcement of its rights under the Guarantee, other than
by a settlement of a cause of action brought in any court of law not consented
to by a majority of the Members, each Member shall be liable to the Guarantor
for and shall pay to the Guarantor an amount (the "Indemnification Payment")
equal to such Member's Share of the Guarantee Payment paid by the Guarantor.
(c) Amounts due under Section 2(b) or Section 2(d) below shall be paid
within thirty (30) days of receipt of written notice from the Guarantor, which
notice shall specify the amount of the Guarantee Payment paid by the Guarantor.
Any payment due to the Guarantor from any Member which is not made when due
shall bear interest at the rate of 18% per annum commencing ten (10) days after
receipt of the notice of the payment by the Guarantor and such interest shall be
due and payable together with the payment of the principal amount due hereunder.
(d) If any Member fails to make his Indemnification Payment within
sixty (60) days after receipt of written notice from the Guarantor, the
Guarantor shall give written notice to the remaining Members and such
Indemnification Payment shall be made by all of the other
-2-
<PAGE> 3
Indemnification Members in proportion to their individual Shares. Such payment
shall be in addition to, and not in lieu of, the Indemnification Payment
required under Section 2(b).
(e) In the event that the Guarantor learns that the Landlord is
exercising or intends to exercise its rights under the Guarantee or receives any
correspondence from the Landlord, its agents or its attorneys sent in connection
with the exercise or enforcement of the Landlord's rights under the Guarantee,
the Guarantor shall promptly notify the Members thereof in writing and shall
deliver with said notice a copy of all such correspondence.
(f) All costs and expenses paid or incurred by the Guarantor in
opposing or contesting the Landlord's exercise or enforcement of its rights
under the Guarantee shall be borne by the Guarantor without any right to
indemnity or reimbursement hereunder from the Members, unless a majority of the
Members consents to the action taken by the Guarantor in opposing or contesting
the Landlord's claim under the Guarantee, in which event all such costs and
expenses shall be deemed to be Guarantee Payments and the Members shall
indemnify the Guarantor for 49% thereof in accordance with the provisions of
subsections (b)-(d) above.
(g) The Guarantor may interplead any and all of the Members into, and
otherwise make such persons parties to, any matter, action or proceeding in
which the Landlord is seeking to enforce its rights under the Guarantee; each
Member hereby consents to being interpleaded and being made a party to any such
matter, action or proceeding; each Member hereby consents to the personal
jurisdiction and venue of any court or other body in which such matter, action
or proceeding is pending or has been brought; and each Member hereby waives any
rights or privileges he may have to object to the exercise of such jurisdiction
and venue by any such court or body.
-3-
<PAGE> 4
3. Costs of Enforcement. In the event that any Member fails to perform
his payment obligations under Section 2 hereof, said Member shall reimburse and
pay, in addition to the amounts owned under Section 2, all costs and expenses of
collection of amounts due hereunder and enforcement of this Agreement (including
without limitation reasonable attorneys' fees) to the Guarantor or any Members
paying or incurring such costs and expenses.
4. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and legal
representatives.
(b) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall constitute together one and the same agreement, and in pleading or proving
any provision of this Agreement, it shall not be necessary to produce more than
one of such counterparts.
(c) This Agreement shall be deemed to be a contract made under
the laws of the Commonwealth of Massachusetts, and for all purposes it shall be
construed in accordance with and governed by such laws.
(d) No failure or successive failure on the part of any party
to enforce any covenant or agreement, and no waiver or successive waivers of any
conditions of this Agreement, shall operate as a discharge of such covenant,
agreement or condition, or render the same invalid, or impair the right of such
party to enforce the same in the event of any similar or subsequent breach.
(e) Any communication, notice, report, payment, consent,
waiver or other document made or delivered hereunder shall be made in writing
and shall be sent and deemed sufficiently given if delivered in person by hand
or if sent by registered or certified mail, postage
-4-
<PAGE> 5
prepaid, or by an overnight delivery service, if to the Guarantor, to the
address set forth above, and if to a Member, at the address listed on Schedule A
hereto, or to such other address as the addressee shall have provided by notice
given in the manner set forth herein.
(f) In case any provision of this Agreement shall be or become
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall remain unaffected and unimpaired thereby.
(g) The captions and headings of this Agreement are for
convenience only and shall not affect the construction hereof.
(h) This Agreement may only be altered, assigned, modified or
amended and any provision or performance waived, by a written instrument
executed by all the parties hereto affected thereby.
IN WITNESS WHEREOF, the Guarantor and the Members have executed this
Agreement as a sealed instrument.
MEMBERS:
- ----------------------------------- -----------------------
Mark Paulino Philip L. Caron
- ----------------------------------- -----------------------
James M. Herlihy Conrad Paulino
- ----------------------------------- -----------------------
Ronald Phillips Robert Banfield
- ---------------------------------- -----------------------
Patrick Banfield William Banfield
-5-
<PAGE> 6
GUARANTOR:
DURA PRODUCTS INTERNATIONAL, INC.
By:___________________________________
Keith Carrigan, President
-6-
<PAGE> 7
SCHEDULE A
Names, Addresses and Shares of Members
--------------------------------------
Name and Address
of Members Fractional Shares
---------- -----------------
Mark Paulino 1/6
360 Lynnfield Street
Peabody, MA 01960
Philip L. Caron 1/6
103 Beane Lane
Newington, NH 03801
James M. Herlihy 1/6
19 Tibbets Avenue
Danvers, MA 01923
Conrad Paulino 1/6
186 Dayton Street
Danvers, MA 01923
Ronald Phillips 1/6
57 River Street
Danvers, MA 01923
Robert Banfield 1/18
197 8th Street
Charlestown, MA 02119
Patrick Banfield 1/18
22 Meeting House Square
Middleton, MA 01949
William Banfield 1/18
P.O. Box 43
Hampton Falls, NH 03844
-7-
<PAGE> 1
Exhibit 11
Calculation of Earnings per Share
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Canadian GAAP
Net loss for the year $(2,995,559) $(1,314,126) $ (615,315)
Weighted average number of common shares o/s for the
year 17,979,443 9,564,501 5,759,927
Loss per share is net loss divided by weighted
average # o/s $ (0.17) $ (0.14) $ (0.11)
US GAAP
Net loss for the year $(2,996,976) $(1,314,126) $ (148,120)
Weighted average number of common shares o/s during
the year 17,979,443 9,564,501 5,759,927
Loss per share is net loss divided by weighted
average # o/s $ (0.17) $ (0.14) $ (0.03)
Pro-forma loss for the year $(5,745,103) $(1,940,126) $ (332,497)
Pro-forma loss per share is pro-forma loss divided
by weighted average # o/s $ (.032) $ (0.20) $ (0.06)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED December 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> CANADIAN
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> .6999
<CASH> 2,044,184
<SECURITIES> 0
<RECEIVABLES> 25,425
<ALLOWANCES> 0
<INVENTORY> 182,862
<CURRENT-ASSETS> 2,547,923
<PP&E> 6,001,572
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,533,852
<CURRENT-LIABILITIES> 1,033,980
<BONDS> 1,267,116
0
0
<COMMON> 14,247,987
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,533,852
<SALES> 60,362
<TOTAL-REVENUES> 60,362
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,055,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,995,559)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,995,559)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
