FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
Commission file number: 333-46643
INDUSTRIAL RUBBER PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1550505
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3804 East 13th Street, Hibbing, MN 55746
(Address of principal executive offices) (Zip Code)
Issuer's telephone number including area code: (218) 263-8831
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $ .001 Par Value
- - - - - - - - - - - - - - - - - - - - - - -
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter
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period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ] - - - - - -
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X] - - - The Company's revenues for its
fiscal year ended December 31, 1999: $12,985,301
Aggregate Market Value of Stock held by Non-Affiliates of the Company as of
March 15, 2000, : $4,087,846 based on a closing average bid and asked price on
that date of $1.5469 per share.
The number of shares of the Company's Common Stock outstanding as of March
15, 2000, is 4,187,205.
Transitional Small Business Disclosure Form: Yes: [ ] ; No: [X].
- - - - - -
Documents Incorporated by Reference
Portions of the Proxy Statement for the 2000 Annual Meeting of Shareholders are
incorporated by references in Part III.
TABLE OF CONTENTS
PART I
Item 1: Description of Business.................................... 4
Item 2: Description of Property.................................... 16
Item 3: Legal Proceedings.......................................... 18
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Item 4: Submission of Matters to a Vote of Security Holders........ 18
Part II
Item 5: Market for Common Equity and Related Stockholder Matters... 18
Item 6: Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 19
Item 7: Financial Statements....................................... 23
Item 8: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 23
PART III
Item 9: Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act.......................................... 23
Item 10: Executive Compensation..................................... 24
Item 11: Security Ownership of Certain Beneficial Owners
and Management........................................ 24
Item 12: Certain Relationships and Related Transactions............. 24
Item 13: Exhibits and Reports on Form 8-K........................... 24
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PART I
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Annual Report on Form 10-KSB are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes",
"anticipates", "expects", or words of similar import. Similarly, statements that
describe the Company's future plans, objectives or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and which could cause actual results to differ materially from those
anticipated as of the date of this report. Shareholders, potential investors and
other readers are urged to consider these factors in evaluating the
forward-looking statements and are cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included herein are
only made as of the date of this report and the Company undertakes no obligation
to publicly update such forward-looking statements to reflect subsequent events
or circumstances.
Item 1: Business
(a) General development of business
Industrial Rubber Products, Inc. (the "Company" or "Industrial Rubber") was
founded in 1986 to acquire and operate a rubber lining facility then owned by
Irathane Systems Incorporated, a wholly owned subsidiary of Illinois Tool Works,
Inc.
The Company was incorporated as a Minnesota corporation on March 5, 1986, as
Industrial Rubber Applicators, Inc., and on January 30, 1998, changed its name
to Industrial Rubber Products, Inc. The Company's executive offices are located
at 3804 E. 13th Avenue, Hibbing, MN 55746, and its telephone number is (218)
263-8831.
The Company began operations in April of 1986. The Company's business originally
consisted of applying and then vulcanizing rubber (for corrosion and abrasion
resistance purposes) to wearable parts that were used primarily in the mining
industry.
In 1996 the Company entered into a major contract for approximately $10,000,000,
to provide rubber lining services for a pipelining project near Salt Lake City,
Utah. To effectively provide these services the
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Company leased and opened a manufacturing facility in Clearfield Utah in
1996. During 1997 and 1998 the Company used the facility to provide products and
services to copper and gold producing customers in the Western United States and
Canada.
On January 20, 1999, the Company acquired Sonwil Products, Inc. dba TJ Products
in West Jordan, Utah. TJ Products provides products and services similar to
Industrial Rubber in the Inter-mountain West region of the United States. In
addition, it produces cast urethane and rubber molded products for the military,
aerospace, paper, utility and mineral processing industries. TJ Products had
sales volume of approximately $3 million in 1998 and 1999.
On January 31, 1999, the lease on the Clearfield facility expired and the
Company consolidated those operations at the facilities of the newly acquired TJ
Products.
On March 31, 1999, the Company acquired the assets of Irathane Systems Inc.,
("Irathane") which was a wholly owned subsidiary of Illinois Tool Works.
Irathane has three manufacturing plants located in Colorado Springs, Colorado;
Hibbing, Minnesota; and Sudbury, Ontario, Canada. These plants produce primarily
cast urethane products for the mineral processing, aggregate and utility
industries. The Colorado Springs plant also produces the prepolymer liquids used
to produce the cast products in all three Irathane plants and sells the liquids
to licensees in Chile and India. Irathane Systems has had historical annual
sales of approximately $10 million.
In October of 1999, the Company became the distributor for Nordberg Sales Corp.
("Nordberg") covering the taconite industry in Minnesota and Michigan. The
Company distributes new equipment (crushers), wear materials and spare parts for
Nordberg. The Company also distributes new equipment (magnetic separators and
filter systems) for Scanmec (a wholly owned division of Nordberg). The previous
distributor for these products in this area had annual sales of approximately $2
million.
Initially, the Company was taxed as a C corporation under the Internal Revenue
Code. Effective January 1, 1989, the Company elected to be taxed as an S
corporation. The Company continued to be taxed as an S corporation until March
31, 1998, when the Company elected C
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corporation status.
(b) Narrative description of Industrial Rubber's business
PRINCIPAL PRODUCTS, SERVICES AND MARKETS
Industrial Rubber and its subsidiaries design, produce and supply protective
materials, abrasion resistant products and equipment, erosion/corrosion
protective linings and proprietary rubber products to the mineral processing,
power, wood processing and other heavy industries.
Product Lines
Industrial Rubber has five product lines. Its urethane cast parts line consists
of urethane molded products for the mineral processing and aggregate industries.
Its steel cast parts line consists of new machinery, wear materials and spare
parts that the Company distributes for Nordberg and Scanmec. Its pipe and pipe
lining products line consists of rubber lined pipe and pipe parts fabricated
primarily for the mineral processing industry. Its proprietary products line
consists of engineered replacement parts primarily for mineral processing
facilities. Its standard rubber products line consists of products sold, along
with related services, to the Company's customers in the various industry
segments served by the Company.
Urethane Cast Parts
Industrial Rubber Products produces urethane cast parts at all three
Irathane facilities and at TJ Products. These parts include screens for the
mineral processing and aggregate industries, pump linings and parts for the
utility and mineral processing industries, rollers for the paper industry, tie
pads for the railroad industry and many other parts for the mineral processing
industry including cyclones, classifier shoes, discharge cones and launder
liners. Irathane also produces the liquid prepolymer used to produce the cast
parts and distributes the liquid prepolymer through licensees in Chile and
India. The Company also applies urethane coating to pipe and other parts to
prevent wear.
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Steel Cast Parts
Industrial Rubber Products was recently selected by Nordberg as its distributor
in Minnesota and Michigan for Nordberg and Scanmec products. Nordberg products
include new equipment (primarily crushers), and wear materials and spare parts
for existing equipment. Nordberg is one of the largest suppliers of crushing
equipment in the taconite industry and currently has over 100 crushers installed
in the taconite plants of Minnesota and Michigan. The Scanmec products include
new equipment used in magnetic separation and filtration of taconite slurry.
Pipe and Pipe Lining Products
Industrial Rubber produces and supplies rubber and steel slurry pipe and
components for tailings pipeline systems. A proprietary formulated rubber
compound (IRP X8220) is used which protects these pipelines from abrasion and
corrosion.
In 1996, the Company designed and developed new processes and equipment that
decreased the cost and improved the overall product quality of overland slurry
pipelines. Mechanical couplings, historically used in connecting lined pipe for
long distance overland slurry systems, are typically high cost items to the
customer. This is particularly true in high pressure, large diameter pipelines.
The Company believes that prior to 1996, industry standards and equipment
limitations only allowed for the production of 40' long pipe sections.
Industrial Rubber has designed its own production equipment, and presently
supplies to its customers 60'lined pipe sections, eliminating one third of the
required mechanical couplings, and resulting in cost savings to the customers.
The Company believes that the development of 60' lined pipe has set the standard
for the industry.
Proprietary and Engineered Products
Industrial Rubber's proprietary and engineered product line includes air bags,
lifter bars, shell liners, pressure seals, fuel ignitors, auto suspension parts,
screens and mill parts, all manufactured with either rubber or urethane raw
materials.
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Standard Rubber Products
Historically, the Company's standard rubber products are vulcanized rubber to
steel. Examples of such products are manifolds, screens, pulleys, and rolls. The
acquisition of TJ Products greatly expanded this line of products to include
molded rubber products for the military and aerospace industries; as well as
parts for the paper and mineral processing industries. All products are made to
customer engineered specifications. The Company's Quality Assurance Program
seeks to insure product conformity while limiting defects and reducing
associated value added costs. The Company's Irathane/Elliott division in
Sudbury, Ontario, Canada, is ISO 9000 certified.
Markets
The markets for the Company's products are the hard rock mineral processing,
coal mining and power generation, aggregate, railroad, paper and pulp
production, and other similar heavy industries.
The North American mining industry, including aggregate related materials (the
fastest growing segment of mining) is served by the Company's products. The hard
rock that hosts important minerals (iron, copper, gold, molybdenum), is
generally blasted from the earth and then crushed, and ground (processed), to
allow the extraction (beneficiation) of these minerals. The equipment needed to
process and beneficiate this rock is subject to constant abrasion, corrosion and
erosion. Industrial Rubber has developed, designed, tested and produced rubber
and urethane products that protect the mineral processing and beneficiation
equipment, extending their serviceable life, and saving its customers money
through decreased replacement costs and reduced downtime. The Company's rubber
and urethane products also provide further benefits to its customers through
noise abatement and dust and dirt reductions.
Although Industrial Rubber's products protect the mineral processing and
beneficiation equipment, the products do become worn and must be replaced. Many
of the Company's products are used to replace its own and other manufacturers'
protective products that have become worn.
Industrial Rubber's first market was the Minnesota taconite industry where
taconite rock with a typical iron ore content of 25% to 30% is excavated,
crushed, ground and separated to make 46 million tons of
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high-grade taconite(iron ore) pellets annually.
In 1991, Industrial Rubber began to sell its products to other mineral
processing markets to diversify its business and minimize the effects of demand
cycles. Recently, through acquisition, the Company has further diversified into
the aggregate, paper, utility, and railroad industries.
Although North America is a large market for the Company's products, the world
mining industry is significantly larger, with Chile alone operating a
significant number of grinding mills with resulting mine production of 3,000,000
metric tons. The international market offers potential market growth for
Industrial Rubber, with most of the actual contracts coming through licensees
and from North American engineering firms or their subcontractors.
Marketing and Distribution of Products
The Company markets its products through a direct sales force, independent sales
representatives, distributors, licensees, and OEM alliances.
The Company's present sales force consists of a sales and marketing vice
president, nine direct sales people, two inside sales people, approximately 40
independent sales representatives and distributors, two licensee representatives
(India and Chile), four OEM alliances, and sales and marketing clerks.
Industrial Rubber seeks to grow through increased penetration of the North
American hard rock mining market with its present rubber products, the
development and sales of new products, sales to new markets outside of North
America and sales of present and new products to new markets.
Industrial Rubber's marketing strategy is to maximize penetration of domestic
markets, including mineral processors, the aggregate industry, and coal and
power generating facilities, with its present products. The Company is acting to
expand its product lines and new products will be cross-sold to existing and new
customers.
The marketing plan includes prospective customer identification, customer needs
analysis and increased and strategic placement of the sales
<PAGE>
force, to facilitate geographic market and product expansion. The Company
intends to develop business partnerships with existing customers. The marketing
plan is being implemented in the U.S., Canadian, and Chilean markets and, when
appropriate, will be implemented elsewhere. Chile, Peru, Brazil, Argentina,
Mexico, and Australia are major mineral processing countries, as are certain
Southeast Asian countries.
Industrial Rubber utilizes general and product specific brochures and sales
literature. Video is used as an additional marketing resource. Advertising and
articles in industry trade magazines, journals, newsletters and papers has been
increased. Trade show attendance and participation has increased to become a
larger part of the marketing effort.
The Company has identified other protective material products, including steel
and iron products that are not presently produced by Industrial Rubber, but are
used by its customers. Through its distribution agreement with Nordberg, the
Company seeks to be able to supply cast iron and steel products to its customers
and is seeking strategic relationships with the manufacturers of related
products.
The goal is to allow the Company to supply its customers with a full line of
protective products eliminating the disadvantage to the customers of acquiring
components from multiple suppliers. Customers should further benefit by having a
single source for the design and testing of protective product improvements.
STATUS OF PUBLICLY ANNOUNCED NEW PRODUCTS
In October of 1999, the Company signed a distributorship agreement with Nordberg
to supply Nordberg and Scanmec products to the taconite operations in Minnesota
and Michigan. The backlog for these products on January 1, 2000, was
approximately $1 million. In March 2000, the Company and Nordberg signed a
five-year supply alliance with Cleveland Cliffs for their six mining operations
in Minnesota and Michigan. Under the terms of the alliance, the Company will
distribute for Nordberg, 90% of the Cliffs operational needs of the covered
items, or from $7 to 10 million annually for the six properties in total. The
Company will begin to supply the Cliff's properties in April and May of this
year.
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COMPETITIVE CONDITIONS
The protective material products business that serves the mineral
processing and other heavy industries is competitive. These protective material
products are made of steel, iron, rubber, urethane, ceramics, plastics and
hybrids of these materials. The Company's competitors fabricate, cast, mold,
shape, machine, and form the material into finished products. Both large and
small companies throughout the world compete on price and by adding value to
their products through fit and function, using physical design, chemical or
physical make up or proprietary data (patents). The competition falls into two
categories.
The first category is the regional manufacturer/supplier that services the
mineral processing and power generation properties that are close to its
production facility. Standard rubber liners, urethane castors and metal
fabricators typically fall within this category. They use personalized service
and quick delivery as an advantage to their regional customers.
The second category is national manufacturers of products that are used by a
large number of mineral processing and power generating plants. Rubber molders,
cast iron and metal makers, ceramic manufacturers and original equipment
manufacturers typically fall into this category. They use proprietary design,
large distribution networks and high volume to reduce manufacturing costs.
Sophisticated quality programs, managed inventories and just-in-time deliveries
are advantages to their customers and their size provides them with access to
greater financial and other resources.
The Company believes that it can successfully compete with companies in both
categories, through focused service to customers located near its Minnesota,
Ontario, and Utah facilities and through its ability to provide quality products
in increasingly large quantities to customers located in geographically distant
areas.
RAW MATERIALS AND SUPPLIES.
The Company obtains rubber used to manufacture its rubber products from numerous
rubber suppliers using Industrial Rubber Products proprietary compounds. The
Company produces its own prepolymer liquids for cast urethane production through
supply of raw materials from large nationally recognized chemical companies. The
Company
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obtains numerous metal fabrications from metal fabricators in Minnesota,
Colorado, other states and Canada. The Company anticipates that it will continue
to obtain these materials from these suppliers, but other sources are available
for all such materials.
DEPENDENCE ON MAJOR CUSTOMERS
While the Company is not dependent on any single customer, a substantial
portion of Industrial Rubber's revenues in 1997 and 1998 were from large project
contracts for rubber lined tailings pipe. The companies purchasing such products
and services from the Company pursuant to large contracts vary and the recent
drops in commodity prices have caused many modernization and new projects to be
put on hold. The Company has no orders for large contracts at this time,
although the Company is continuing to seek such contracts.
PROPRIETARY RIGHTS AND LABOR CONTRACTS
The Company holds numerous patents and trademarks. Industrial Rubber holds a
patent for the Discharge Millhead, which will terminate on April 7, 2013. The
Irathane division holds various patents for elastomeric railroad pads and a
railroad tie repair system. The Company is developing additional potentially
patentable products including rubber compounds, grinding mill parts, screens and
cyclone products, pipe coupling products and parts for the automobile industry.
The Company also has several proprietary rubber and urethane compounds.
Since many of the Company's developments are extensions of existing knowledge,
no assurance can be given that patents for either the products or processes
being developed will be issued, that the scope of any patent protection will
exclude competitors or provide competitive advantages to the Company, that any
of the Company's patents will be held valid if subsequently challenged or that
others will not claim rights in or ownership to the patents and other
proprietary rights held by the Company. Further, there can be no assurance
competitors have not developed or will not develop similar products, duplicate
the Company's products or, if patents are issued to the Company, design around
such patents. In addition, whether or not patents are issued, others may hold or
receive patents, which contain claims having a scope that covers products
developed by the Company.
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Industrial Rubber's proprietary rubber formula is not patentable. While the
Company obtains confidentiality agreements from its suppliers and its key
employees, competitors could independently develop the formula. Further,
litigation to protect either patents or trade secrets, to enforce patents issued
to the Company, to protect trade secrets or know-how owned by the Company, and
to defend the Company against claimed infringement may be necessary.
The Minnesota production employees at the Industrial Rubber Products plant
are covered by a collective bargaining agreement with the United Steel Workers
of America, Local #6860-1, which terminates on April 15, 2000. The Minnesota
production employees at the Irathane plant are covered by a collective
bargaining agreement with Midwestern Industrial Council, which terminates on
June 30, 2002. The Sudbury, Ontario production employees at the Irathane plant
are covered by a collective bargaining agreement with the International
Brotherhood of Painters and Allied Trades, Local 1904, which terminates on May
31, 2001. There is no union affiliation at the TJ Products facility, the
Colorado Springs Irathane facility, or any other Industrial Rubber Products
facility.
RESEARCH AND DEVELOPMENT.
The Company has not incurred significant research and development costs,
although it has incurred certain of such costs on a job-by-job basis which are
expensed as incurred.
The Company has a research facility in Colorado Springs, which was part of the
Irathane acquisition. This facility, which performs research and development
functions for all Industrial Rubber divisions, is staffed by a lead scientist
(chemist) who has over twenty years experience in the
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elastomeric research industry, a technician and a clerk.
GOVERNMENTAL REGULATION
While Industrial Rubber's products are not subject to, and do not require
any governmental approvals before sale, the Company is subject to a wide variety
of governmental regulations. As a manufacturing company, Industrial Rubber is
subject to safety regulations established by the United States Department of
Labor and the Minnesota Department of Labor and Industry under the Occupational
Safety and Health Act ("OSHA"). Because its products are sold to the mining
industry, workplace safety at the Company is also subject to regulation by the
Mine Safety and Health Administration. The Company's operations are continually
being monitored and inspected. During February 1998, the Company received OSHA
reports addressing a number of deficiencies found by inspectors in the Company's
production facilities, and assessing fines against the Company totaling
approximately $6,000. In 1998 all deficiencies were addressed, none of which had
a material effect on the Company's operations. The Company intends to
participate with OSHA in a program to limit or correct future deficiencies
before fines are assessed.
ENVIRONMENTAL REGULATION
The Company uses hazardous solvents in its production processes and disposes of
waste products such as used solvents. These and other activities of the Company
are subject to various federal, state and local laws and regulations governing
the generation, handling, storage, transportation, treatment and disposal of
hazardous wastes. Under such laws, an owner or lessee of real estate may be
liable for, among other things, (i) the costs of removal or remediation of
certain hazardous or toxic substances located on, in or emanating from, such
property, as well as related costs of investigation and property damage and
substantial penalties for violations of such laws, and (ii) environmental
contamination at facilities where its waste is or has been disposed. Such laws
often impose such liability without regard to whether the owner or lessee knows
of, or was responsible for, the presence of such hazardous or toxic substances.
While the Company's operations, to its best knowledge, are in full compliance
with all existing laws and regulations, environmental
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legislation andregulations have changed rapidly in recent years and the
Company cannot predict what, if any, impact future changes in such legislation
may have on the Company's business. Further, environmental legislation has been
enacted, and may in the future be enacted, that creates liability for past
actions that were lawful at the time taken. As in the case with manufacturing
companies in general, if damage to persons or the environment has been caused,
or is in the future caused, by the Company's use of hazardous solvents or by
hazardous substances located at the Company's facilities, the Company may be
fined or held liable for the cost of remediating such damage.
Imposition of such fines or the incurrence of such liability may have a material
adverse effect on the Company's business, financial condition and results of
operations. Further, changes in environmental regulations in the future may
require the Company to make significant capital expenditures to change methods
of disposal of hazardous solvents or otherwise alter aspects of its operations.
During 1997, the Minnesota Pollution Control Agency ("MPCA") notified the
Company that it was required to complete an initial investigation of possible
soil contamination caused by the previous owner of the Minnesota facility. In
June of 1998 representatives from the MPCA's Regulatory Compliance Section
("RCS") collected samples from the former drum storage area. All results were
reported as below detection limits; therefore, no further soil or ground water
investigation is necessary at this time.
RECENT EVENTS
On December 30, 1999, the Board of Directors, with the recommendation from the
Executive Management team, approved two facility consolidation initiatives.
First, the Arizona production facility was shutdown. The facility, which began
operations in 1999, had incurred continuing losses and had not accumulated a
backlog of future work. The manager of the facility will remain in the Southwest
territory in a sales function with orders directed to other Company
manufacturing facilities. The facility had only two other employees. Since the
Company currently does not have a use for the production equipment in Arizona,
the equipment (approximately $250,000 net book value) was written off in 1999.
In addition, the
<PAGE>
Company recorded a provision in 1999 of approximately $100,000 to cover the
remaining two years on the leased facility. The Company is currently attempting
to sublease the facility.
Second, the Board approved the sale of the Colorado Springs land and buildings
for about $1.7 million. The proceeds of the sale will be used to retire existing
bank debt. The Colorado manufacturing operations will be moved to the current
Irathane facility in Hibbing, Minnesota. The Company anticipates that most
Colorado employees will not transfer to Hibbing, and recorded a $100,000
provision in 1999 to cover the severance cost of these employees. The Company
intends to lease a small facility in Colorado Springs for research and
development.
EMPLOYEES
As of February 15, 2000, Industrial Rubber had 115 employees, all of whom were
fulltime; 75 were production workers (51 union); the other 40 were in sales,
engineering, accounting, administrative and clerical, and production
supervision.
The Company believes that its relations with its employees are excellent,
demonstrated by a low turnover rate. The Company believes that the
representation of employees by unions acts to remove a potential barrier to the
sale of certain of the Company's products to the taconite mining plants by
responding to union contract language that limits out-sourcing of work.
Item 2: Properties
The Company currently has five manufacturing facilities. Three of these are
owned and two are leased. Two are in Hibbing, Minnesota (Industrial Rubber and
Irathane); and one each in Colorado Springs, Colorado; West Jordan, Utah; and
Sudbury, Ontario. On December 30, 1999, the Company closed a manufacturing
facility in Casa Grande, Arizona that it was leasing.
The Hibbing, Minnesota (Industrial Rubber) facility is a 30,000 square foot
manufacturing facility and office facility that the Company owns, subject to a
mortgage with a balance of $297,103, as of December 31, 1999. This facility is
used to produce proprietary rubber and rubber lined products that are used in
the taconite industry and also shipped
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throughout North America for use in copper, gold, molybdenum and other
mineral processing operations. This facility also houses the Company's corporate
headquarters.
The Hibbing, Minnesota (Irathane) facility is a 30,000 square foot manufacturing
and office facility that the Company leases. This facility is used to produce
urethane cast products used in the taconite industry in Minnesota, other mineral
processing operations throughout the world, and screens for the aggregate
industry. This facility also houses sales and technical support staffs.
The Colorado Springs facility is a 40,000 square foot manufacturing and office
facility that the Company owns. This facility is used to produce urethane cast
products primarily used in the taconite industry of Minnesota and Michigan. This
facility also produces the liquid prepolymers for all of Irathane's facilities
and for licensees in Chile and India. The Company decided on December 30, 1999,
to sell this facility and consolidate operations in the Hibbing facility. The
closing is anticipated to take place on March31, 2000. The Company expects to
lease a facility in the Colorado Springs area for its research and development
efforts.
The West Jordan, Utah facility is a 25,000 square foot manufacturing facility
that is leased from the previous owner of TJ Products. The facility produces
urethane cast products, rubber molded products and rubber lined products for the
mineral processing, military and aerospace, paper and power industries in the
Inter-mountain West. The Company has options to purchase all or portions of the
land and buildings during the course of the lease.
The Sudbury, Ontario facility is a 15,000 square foot manufacturing facility
used to produce urethane cast products and rubber lined products for the mineral
processing industry in Canada. The Company owns the facility.
The Company also owns a 16,000 square foot facility in Hibbing, MN., that is
currently being used as a distribution center and storage facility.
The Company believes that all facilities are in satisfactory condition given
their age and use, and expects only normal maintenance in the near future.
<PAGE>
Item 3: Legal Proceedings
The Company has not been involved in any legal proceedings since the date of the
initial public offering and there are no known pending or threatened legal
proceedings at this time.
Item 4: Submission of Matters to a Vote of Security Holders
No matters have been submitted to a vote of the security holders of the Company
since the date of its previous annual meeting, May 25, 1999, through the
solicitation of proxies or otherwise.
Part II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock trades on the Nasdaq SmallCap Market under the symbol
INRB. The following table sets forth the high and low bid quotation for the
quarters shown. The prices quoted represent prices between trades in the stock
without adjustments for mark-ups, mark-downs or commissions and do not
necessarily reflect actual transactions. The Company's initial public offering
date was April 24, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Quarter High Low
1998
1st n/a n/a
2nd 4-7/8 3-1/4
3rd 3-7/8 2
4th 2-3/4 1
1999
1st 2-1/8 11/16
2nd 2-1/8 1-1/8
3rd 1-15/16 15/16
4th 1-3/8 1/4
</TABLE>
The approximate number of shareholders of record and beneficial shareholders of
the Company's $.001 par value common stock as of December 31, 1998 and December
31, 1999, was 50 and 1,000, respectively.
<PAGE>
The Company has not paid any dividends on its Common Stock, and intends to
follow a policy of retaining all of its earnings to finance its business and any
future acquisitions. The terms of the Company's covenants with its bank further
limits its ability to pay dividends.
Item 6: Management's Discussion and Analysis of Financial Condition and
Results of Operations
This commentary should be read in conjunction with the Financial Statements and
Notes, presented immediately following the signature page of this 10-KSB Report,
for a full understanding of Industrial Rubber's financial position and results
of operations.
FISCAL 1999 COMPARED WITH 1998
Net sales in the year ended December 31, 1999, of $12,985,301 increased 30.1%,
or $3,004,033, when compared to 1998 sales of $9,981,268. The increase is
attributable to the acquisition of TJ Products, on January 20, 1999, and the
acquisition of Irathane Systems, on March 31, 1999. Together, these two
acquisitions accounted for sales of $9,405,836 in 1999. These increases were
partially offset by a decrease in major pipelining projects, which the Company
had none of during 1999.
Although the Company continues to pursue major projects, depressed commodity
(copper and gold) prices make the near-term likelihood of such projects low. The
Company is not projecting any sales from major projects in 2000. Rather, the
Company is projecting sales growth through a full year of the above referenced
1999 acquisitions, which are estimated to produce about $12 million in sales in
2000, and the addition of the Nordberg distributorship. This distributorship
agreement, which was finalized in October of 1999, is expected to result in 2000
sales of more than $4 million.
The Company's order backlog on December 31, 1999, was approximately $2,976,000.
Cost of sales as a percentage of net sales was 81.4% in 1999 compared with 78.0%
in 1998. The increase was the result of the change from new acquisitions. The
Company expects cost of sales in 2000 to improve to levels similar to or better
than 1998 results.
<PAGE>
Selling, general and administrative expenses increased from $2,342,553 in 1998
to $3,984,698 in 1999. The increase is the result of the associated selling,
general and administrative expenses of the 1999 acquisition companies, and the
legal and accounting costs required to complete the acquisitions. Recent
restructuring and consolidation efforts will lead to a reduction in absolute
dollars and a reduction as a percent of sales from just over 30% in 1999 to
under 20% in 2000.
The Company experienced a $505,991 pre-tax provision for restructuring costs
associated with the closing of the Casa Grande, Arizona facility (approximately
$408,000) and the closing and transfer of the Colorado Springs manufacturing to
Hibbing, Minnesota. These closures and consolidations are expected to result in
cost savings, with no impact on sales. Also, the Colorado Springs facility will
be sold on March 31, 2000, for $1.7 million, with the net proceeds to be used
for debt reduction.
Net non-operating expense for 1999 was $429,988, compared to net non-operating
income of $107,466 in 1998. Interest income in 1999 was $41,736, compared to
$245,713 in 1998, which reflected the investment of IPO proceeds from April of
1998 to early 1999. Interest expense increased from $138,247 in 1998, to
$461,475 in 1999. The increase was the result of the $7 million bank borrowing
on March 31, 1999, to finance the Irathane acquisition.
As discussed elsewhere in this Form 10-KSB, the Company was an S
Corporation until March 31, 1998, and as such, was generally not responsible for
income taxes. Instead, the then sole stockholder was taxed on the Company's
taxable income. If the Company had paid income taxes as a C Corporation, its
estimated income taxes during 1998 would have been a credit of $80,000. In 1999,
as a C Corporation, the Company had an income tax credit of $889,000. Additional
information is provided in Note 10. Income Tax Matters, of the Financial
Statements, presented in Item 13 of this 10-KSB Report.
The 1999 net loss of $1,618,635, or $.39 per basic and diluted share, represents
a decrease from the 1998 pro-forma net loss of $168,454, or $.04 per basic and
diluted share of the prior year. This change was due to the increased expenses
and other accounting provisions previously discussed.
FISCAL 1998 COMPARED WITH 1997
Net sales in the year ended December 31, 1998, of $9,981,268 decreased 30.8%, or
$4,440,091, when compared with 1997 sales of $14,421,359. The decrease was
mainly attributable to the decrease in major contracts. In 1997, the Company
<PAGE>
realized nearly $8.1 million in net sales from the Kennecott Utah Copper
pipe-lining project. During 1998 the Company's net sales included two major
projects which totaled approximately $4.1 million. As a result, the Company
experienced a reduction of about $4.0 million in net sales from major projects.
The Company's order backlog on December 31, 1998, was approximately $789,290.
Cost of sales as a percentage of net sales was 78.0% in 1998 compared with 69.0%
in 1997. The increase was primarily the result of a loss in major projects,
which are generally more profitable and provide certain economies-of-scale
benefits.
Selling, general and administrative expenses increased from $1,664,611 in 1997
to $2,342,553 in 1998. Approximately $300,000 of the $677,942 increase was the
result of increased administrative personnel and associated expenses related to
organizing and operating a public company. In addition, the Company recorded a
$280,000 allowance for doubtful accounts to cover the entire trade receivable
balance from Kemess Royal Oak mines, which filed for protection under Canadian
bankruptcy law. The Company also recorded an $81,000 loss in achieving a final
and complete out-of-court settlement with IRM/NAPTech, concerning certain claims
related to the $10 million pipelining project.
The Company experienced a $209,881 pre-tax provision for the restructuring costs
associated with the closing of the Clearfield, Utah facility and the
consolidation of Clearfield operations at the acquired facilities of TJ Products
in nearby West Jordan, Utah.
Non-operating income increased from $3,620 in 1997 to $245,713. This
increase was the result of interest income earned on the net proceeds on the
initial public offering on April 24, 1998, and approximately $81,000 of interest
earned on trade receivable accounts. Interest expense increased from $110,731 in
1997 to $138,247 in 1998. The primary reasons for the increase is higher
short-term borrowing early in the year to fund trade receivables, partially
offset by reduced long-term borrowing early in the year to fund trade
receivables, partially offset by reduced long-term interest due to the early
retirement of equipment loans in 1997.
As discussed elsewhere in the Form 10-KSB, the Company was an S Corporation
until March 31, 1998, and as such, was generally not responsible for income
taxes. Instead, the then sole stockholder was taxed on the Company's taxable
income. If the Company had paid income taxes as a C Corporation, its estimated
income taxes during 1997 would have been $1,038,000. It is estimated that income
taxes for
<PAGE>
1998 would have been a credit of $80,000.
The pro-forma net loss of $168,454, or $.04 per basic and diluted share for
1998, represents a decrease from pro forma net income of $1,663,767 or $.54 per
basic and diluted share of the prior year. This change was due to the reduced
sales and increased costs and expenses previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows provided by operating activities were $166,989 for
1999, which compared with $1,651,198 in 1998. The primary difference was that
1999 included a loss of $1,618,635, while 1998 showed net income of $88,546.
Both periods had favorable working capital of about $1.5 million before debt
reduction in 1999, and $1.1 million in 1998.
Cash flows used for investing activities were $8,564,648 in 1999, compared with
$2,296,703 in 1998. The 1999 investment activity included $9,716,015 for the
acquisitions of TJ Products and Irathane Systems. This was partially offset by
proceeds from marketable securities of $1,642,784. In 1998 $2,467,784 was used
for investment in marketable securities.
The Company's cash flows provided by financing activities were $6,233,752 in
1999. Nearly the entire amount, $6,500,000, was proceeds from bank borrowings.
In 1998, the Company's cash flows provided by financing were $3,229,127. This
was made up of proceeds from the IPO of $5,463,276, partially offset by
repayment of bank borrowings of $1,135,000 and dividends, for tax payments, of
$1,095,000.
In total, the Company had a decrease in cash in 1999 of $2,152,121, leaving a
cash balance of $563,845 as of December 31, 1999.
The Company believes that the recent extension of the line of credit and term
loan to June 30, 2000, reflects the Company's improved financial performance in
January and February of 2000, and the Company's commitment to use the proceeds
of the anticipated sale of its Colorado land and buildings to reduce debt. The
Colorado sale, which is scheduled for March 31, 2000, is expected to generate
proceeds of $1,700,000. The Company voluntarily reduced debt by $500,000 in
November of 1999, and therefore anticipates the Bank note to be $4,800,000 after
the Colorado sale. The Company anticipates that the events outlined above, and
expected profitable performance in 2000 will enable it to continue to extend
their financing with US Bank, and in the future conclude a definitive long-term
loan with US Bank or another lending institution.
<PAGE>
The Company believes that it can fund proposed capital expenditures and
operational requirements from operations, currently available cash and renewed
bank credit lines. Proposed capital expenditures for the year ended December 31,
2000, are expected to total approximately $500,000, and compare with $435,000 in
1999, and $618,000 in 1998.
The Company intends to continue to grow its business through internal growth,
including the maximization of recent acquisitions, and through strategic
alliances.
Year 2000
In the ordinary course of business over the last two years, the Company has
replaced several personal computers and software. These replacements required
minimal expenditures. The Company established formal Year 2000 plans during the
past several years to minimize the potential impact from in-house operating
systems and from suppliers, with regard to the Year 2000 issue. These efforts,
which required minimal expenditures, were successful in that the Company has
experienced no interruptions form internal systems or from suppliers. No
critical projects were deferred because of Year 2000 issues.
Item 7. Financial Statements
The Company's financial statements are filed as a part of this report on Form
10-KSB immediately following the signature page.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company has not, during the past two years and through the date of this
report, had a change in its independent certified public accountants or had a
disagreement with such accountants on any matter of accounting principles,
practices or financial statement disclosure.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act
The response to this item incorporates by reference the information under the
caption "Election of Directors" of Industrial Rubber's Proxy Statement for the
annual meeting of the stockholders held in 2000.
<PAGE>
Item 10. Executive Compensation
The response to this item incorporates by reference the information under the
caption "Executive Compensation" of Industrial Rubber's Proxy Statement for the
annual meeting of the stockholders held in 2000.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The response to this item incorporates by reference the information under the
caption "voting Securities and Principal Holders" of Industrial Rubber's Proxy
Statement for the annual meeting of the stockholders held in 2000.
Item 12. Certain Relationships and Related Transactions
The response to this item incorporates by reference the information under the
caption "Certain Transactions" of Industrial Rubber's Proxy Statement for the
annual meeting of the stockholders held in 2000.
Item 13. Exhibits and Reports from Form 8-K.
Exhibits designated by the symbol * are filed with this Annual Report on Form
10-KSB. All exhibits not so designated are incorporated by reference to a prior
filing as indicated.
(a) Required Exhibits
Industrial Rubber Products, Inc. undertakes to furnish to any shareholder
so requesting a copy of any of the following exhibits upon payment to the
Company of the reasonable costs incurred by the Company in furnishing any such
exhibit.
Exhibits Number
3(a)(1) Restated Articles of Incorporation of Company dated as of January
30, 1998 (Filed as Exhibit 3.1 to Form SB-2 dated February 20, 1998,
File No. 333-46643).
3(a)(2) Restated Bylaws of Company as of January 30, 1998 (Filed as Exhibit
3.1 to Form SB-2 dated February 20, 1998 File No. 333-46643).
10(1)* Employment Agreement between the Company and Daniel O. Burkes dated
January 30, 2000.
<PAGE>
10(2)Management Contract between the Company and Nelson Roofing, Inc.,
dated January 30, 1999 (Filed as Exhibit 10.2 to Form SB-2 dated
February 20, 1998 File No. 333-46643) which contract has been extended
to December 31, 2000.
10(3)Labor Agreement between the Company and United Steelworkers of
America dated May 28, 1998 (Filed as Exhibit 10.4 to Form SB-2 dated
February 20, 1998 File No. 333-46643).
10(4)* Labor Agreement between Irathane Systems and Midwestern Industrial
Council dated June 30, 1999.
10(5)* Labor Agreement between Industrial Rubber Products-Canada Inc. and
International Brotherhood of Painters and Allied Trades Local 1904
dated April 1, 1999.
10(6)Stock Option Plan, Including Specimen Stock Option Agreement as of
January 30, 1999 (Filed as Exhibit 10.5 to Form SB-2 dated February
20, 1998 File No. 333-46643).
10(7)* Stock Bonus Plan adopted on October 12, 1999.
10(8)Credit Agreement between Company and U.S. Bank National Association
dated March 31, 1999 (Filed as Exhibit 10.11 to Form 8-K dated April
12, 1999 File No. 000-24039).
10(9)* First Amendment to Credit Agreement between Company and U.S. Bank
National Association dated September 30, 1999
10(10) Lease Agreement between DGW Enterprises, L.C. and Industrial Rubber
Products - Utah, Inc. dated January 20, 1999 (Filed as Exhibit 10(7)
to Form 10-KSB dated March 29, 1999, File No. 000-24039).
10(11)*First Amendment to Lease Agreement between DGW Enterprises, L.C and
Company dated October 5, 1999.
10(12)*Lease Agreement between Daniel O. Burkes and Irathane Systems, Inc.
dated January 1, 2000.
<PAGE>
10(13) Purchase Agreement between Industrial Rubber Products - Utah, Inc.
and Company and Sonwil Products, Inc., dba T.J. Products and Dean G.
Wilson dated January 20, 1999 (Filed as Exhibit 2.1 to Form 8-K dated
February 4, 1999, File No. 000-24039).
10(14) Purchase Agreement between Illinois Tool Works Inc. and Industrial
Rubber Products, Inc. dated March 25, 1999 (Filed as Exhibit 10.8 to
Form 10-KSB dated March 29, 1999, File No. 000-24039).
10(15) Secrecy Supply Agreement between Illinois Tool Works, Inc. and
Company dated March 31, 1999 (Filed as Exhibit 10.9 to Form 8-K dated
April 12, 1999 File No. 000-24039).
10(16) Non-Competition Agreement between Illinois Tool Works, Inc. and
Company dated March 31, 1999 (Filed as Exhibit 10.10 to Form 8-K dated
April 12, 1999, File No. 000-24039).
21. List of Subsidiaries
Industrial Rubber Products - Utah, Inc., a Utah corporation which does
business as "TJ Products".
Irathane Systems Inc., a Minnesota Corporation.
Industrial Rubber Products-Canada, Inc., an Ontario Canada corporation
which does business as "Irathane/Elliott Systems".
Industrial Rubber Products, Arizona, Inc., an Arizona Corporation.
Industrial Rubber Applicators, Inc., a Minnesota Corporation.
Industrial Rubber Products-Montana, Inc., a Montana Corporation. Currently
inactive.
27. Financial Data Schedule
PERIOD-TYPE Year
FISCAL-YEAR-END DEC-31-1999
PERIOD-START JAN-01-1999
PERIOD-END DEC-31-1999
CASH 563,845
SECURITIES -
<PAGE>
RECEIVABLES 2,541,582
ALLOWANCES 382,000
INVENTORY 1,628,459
CURRENT-ASSETS 4,804,417
PP&E 9,360,013
DEPRECIATION 1,884,460
TOTAL-ASSETS 14,464,220
CURRENT-LIABILITIES 9,172,858
BONDS 291,202
PREFERRED-MANDATORY -
PREFERRED -
COMMON 4,144
OTHER-SE 4,996,016
TOTAL-LIABILITY-AND-EQUITY 14,464,200
SALES 12,985,301
TOTAL-REVENUES 12,985,301
CGS 10,572,259
TOTAL-COSTS 15,062,948
OTHER-EXPENSES -
LOSS-PROVISION 98,653
INTEREST-EXPENSE 461,475
INCOME-PRETAX (2,507,635)
INCOME-TAX (889,000)
INCOME-CONTINUING (1,618,635)
DISCONTINUED -
EXTRAORDINARY -
CHANGES -
NET-INCOME (1,618,635)
EPS-BASIC (0.39)
EPS-DILUTED (0.39)
(b) Reports on Form 8-K
None
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, this registrant has caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
<PAGE>
INDUSTRIAL RUBBER PRODUCTS, INC.
Dated: March 29, 2000 /s/ John M. Kokotovich
- - - - - - - - - - - - - - - - -
Chief Financial Officer
Pursuant to the requirement of the Securities Exchange Act of 1934, this
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Signature Title Date
/s/ Daniel O. Burkes President March 29, 2000
- -------------------- Chief Executive Officer
Daniel O. Burkes And Director
/s/ Christopher M. Liesmaki Vice President March 29, 2000
- --------------------------- Chief Operating Officer
Christopher M. Liesmaki And Director
/s/ Paul A. Friesen Director March 29, 2000
- -------------------
Paul A. Friesen
/s/ James D. Mackay Director March 29, 2000
- -------------------
James D. Mackay
/s/ John R. Ryan, Jr. Director March 29, 2000
- ---------------------
John R. Ryan, Jr.
<PAGE>
INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1999
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of independent auditors 1
Consolidated balance sheets as of December 31, 1998 and 1999 2 - 3
Consolidated statements of operations for the years ended December
31, 1998 and 1999 4
Consolidated statements of stockholders' equity for the years ended
Consolidated statements of cash flows for the years ended December
31, 1998 and 1999 6 - 7
Notes to consolidated financial statements 8 - 22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Industrial Rubber Products, Inc.
Hibbing, Minnesota
We have audited the accompanying consolidated balance sheets of Industrial
Rubber Products, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Industrial
Rubber Products, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Duluth, Minnesota
February 4, 2000, except of the last paragraph of Note 6, as to which the
date is March 28, 2000
<PAGE>
<TABLE>
<CAPTION>
INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999
<S> <C> <C>
ASSETS (Note 6) 1998 1999
- -------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents ................. $ 715,966 $ 563,845
Marketable debt securities (Note 4) ....... 1,642,784
Trade receivables, less allowance for
doubtful accounts 1998 $280,000; 1999
$382,000 947,364 2,159,582
Income tax refund receivable .............. 254,200
Inventories (Note 5) ...................... 408,731 1,628,459
Prepaid expenses .......................... 57,996 115,531
Deferred taxes (Note 10) .................. 133,000 337,000
--------------------------------------------------
Total current assets ........... 6,160,041 4,804,417
--------------------------------------------------
Other Assets
Cash value of life insurance ............. 135,166 180,524
Goodwill, at cost, less accumulated
amortization $68,431 (Note 2) 1,013,520
Prepaid pension costs (Note 11) ........... 11,206
Other ..................................... 23,884
--------------------------------------------------
--------------------------------------------------
159,050 1,205,250
--------------------------------------------------
Deferred Taxes (Note 10) ..................... 207,000 979,000
--------------------------------------------------
Property and Equipment (Note 7)
Land ...................................... 10,000 533,847
Buildings ..................... 572,907 2,057,287
Automotive equipment ...................... 458,759 621,296
Machinery and equipment ................... 2,030,453 6,147,583
--------------------------------------------------
3,072,119 9,360,013
Less accumulated depreciation ............ 1,372,420 1,884,460
--------------------------------------------------
1,699,699 7,475,553
--------------------------------------------------
$8,225,790 $14,464,220
==================================================
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1999
- -------------------------------------------------------------------------------
Current Liabilities
<S> <C> <C>
Bank note payable (Note 6) $ 0 $6,500,000
Current maturities of long-term debt (Note 7) 174,263 24,804
Accounts payable 485,493 1,344,478
Accrued expenses 547,034 1,212,576
Income taxes payable 91,000
----------
----------
Total current liabilities 1,206,790 9,172,858
----------
Long-Term Debt, less current maturities (Note 7) 329,108 291,202
----------
Commitments and Contingencies (Notes 6, 13 and 14)
Stockholders' Equity (Note 8)
Common stock, $.001 par value;
authorized 25,000,000 shares;
issued 1998 - 4,187,500 shares;
1999 - 4,144,000 shares 4,188 4,144
Additional paid-in capital 5,605,832 5,605,832
Retained earnings (deficit) 1,079,872 (617,602)
Accumulated other comprehensive income 7,786
---------
---------
6,689,892 5,000,160
---------
$ 8,225,790 $ 14,464,220
==========
</TABLE>
<PAGE>
<TABLE>
INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1998 and 1999
1998 1999
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales (Notes 2 and 3) $9,981,268 $12,985,301
Cost of Sales 7,784,754 10,572,259
----------
Gross profit 2,196,514 2,413,042
Operating Expenses 2,342,553 3,984,698
Provision for Restructuring of Operations (Note 13) 209,881 505,991
----------
Operating loss (355,920) (2,077,647)
----------
Nonoperating Income (Expense)
Interest and other income 245,713 41,736
Interest expense (138,247) (461,475)
Loss on sale of equipment (10,249)
----------
----------
107,466 (429,988)
----------
Loss before income taxes (248,454) (2,507,635)
Federal and State Income Taxes (Credits) (Note 10) (337,000) (889,000)
----------
Net income (loss) $88,546 $(1,618,635)
==========
Unaudited Pro Forma Information (Note 10)
Loss before income taxes $(248,454)
Provision for income taxes (credits) (80,000)
----------
Net loss $(168,454)
==========
Basic loss per share $ (0.04) $ (0.39)
==========
Diluted loss per share $ (0.04) $ (0.39)
==========
Weighted average shares outstanding 3,803,651 4,167,351
See Notes to Consolidated Financial Statements ==========
</TABLE>
<PAGE>
<TABLE>
INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1999
Accumulated
Additional Retained Other Total Total
Common Stock Paid-in Earnings Comprehensive Stockholders' Comprehensive
-----------------------
Shares Amount Capital (Deficit) Loss Equity Income (Loss)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1997 2,934,000 $2,934 $143,816 $2,097,059 $0 $2,243,809
Sale of 1,260,000
of common stock,
net (Note 8) 1,260,000 1,260 5,462,016 5,463,276
Purchase of 6,500
shares of stock (6,500) (6) -- (10,733) -- (10,739)
Dividends on common
stock (Note 8) -- -- -- (1,095,000) -- (1,095,000)
Net income -- -- -- 88,546 -- 88,546 $88,546
----------------------------------------------------------------------------------------------
Total comprehensive
income $88,546
==========
Balance,
December 31, 1998 4,187,500 4,188 5,605,832 1,079,872 -- 6,689,892
Purchase of 43,500
shares of stock (43,500) (44) -- (78,839) -- (78,883)
Foreign currency
net of tax of
$4,000 -- -- -- -- 7,786 7,786 $ 7,786
Net loss -- -- -- (1,618,635) -- (1,618,635) (1,618,635)
- --------------------------------------------------------------------------------------------------------------------
Total comprehensive
loss $(1,610,849)
===============
Balance,
December 31, 1999 4,144,000 $ 4,144 $5,605,832 $(617,602) $7,786 $5,000,160
==================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1998
1998 1999
- --------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income (loss) $88,546 $(1,618,635)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 394,592 800,744
Amortization 98,431
Provision for bad debts 362,839 98,653
Loss on disposal of property and equipment 41,451 250,736
Deferred taxes (340,000) (980,000)
Changes in working capital components, net
of effects of business combinations:
Decrease in trade receivables 972,434 207,399
(Increase) decrease in income tax refund
receivable (254,200) 254,200
Decrease in inventories 431,632 179,901
Increase in prepaid expenses (4,629) (39,515)
Increase (decrease) in accounts payable
and accrued expenses (41,467) 824,075
Increase in income taxes payable 91,000
-------- --------
Net cash provided by operating activities 1,651,198 166,989
-------- --------
Cash Flows from Investing Activities
Purchase of property and equipment (617,649) (434,714)
Proceeds from sale of equipment 18,655
Disbursements for business combinations (9,716,015)
Disbursement for marketable debt securities (2,467,784)
Proceeds from maturity of marketable debt securities 825,000 1,642,784
Disbursement for other assets (23,884) (30,000)
Increase in cash value of life insurance (12,386) (45,358)
----------- ----------
Net cash used in investing activities (2,296,703)
----------- ----------
Cash Flows from Financing Activities
Net proceeds (repayment) on short-term borrowings (1,135,000) 6,500,000
Proceeds from long-term borrowings 358,800
Principal payments on long-term borrowings (245,385) (187,365)
Proceeds from sale of common stock, net of
issuance costs 5,463,276
Disbursement for common stock reacquired (10,739) (78,883)
Dividends paid on common stock (1,095,000)
Repayment to related party (106,825)
---------- ----------
Net cash provided by financing activities 3,229,127 6,233,752
---------- ----------
Increase in foreign currency translation adjustment 11,786
----------- -----------
Net increase (decrease) in cash and
cash equivalents 2,583,622 (2,152,121)
Cash and cash equivalents:
Beginning 132,344 2,715,966
----------- -----------
Ending $ 2,715,966 $ 563,845
=========== ============
(Continued)
<PAGE>
INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1998
1998 1999
- --------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 136,686 $ 413,111
=========================
Cash payments for income taxes (net of refunds) $ 257,200 $ (254,100)
========= ===========
Supplemental Schedule of Noncash Investing
and Financing Activities
Acquisition of businesses, cash purchase price $9,716,015
============
Accounts receivable $ 1,501,550
Inventory 1,399,629
Other current assets 29,226
Property and equipment 6,387,391
Cost in excess of net assets of businesses acquired 1,081,951
Current liabilities assumed (683,732)
-----------
$ 9,716,015
=============
See Notes to Consolidated Financial Statements.
<PAGE>
INDUSTRIAL RUBBER PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: The Company's operations consist of applying and
vulcanizing rubber and applying urethane (for corrosion and abrasion resistant
purposes) to pipes, pumps and other wear material surfaces. The Company also
produces cast urethane parts and rubber molded parts. The Company's products are
primarily for the mineral processing industry, but are also used in the
aggregate, paper, utility and military and aerospace industries. The Company
extends credit to its customers, all on an unsecured basis, on terms that it
establishes for individual customers.
A summary of the Company's significant accounting policies follows:
Basis of consolidation: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All material
intercompany accounts and transactions are eliminated in consolidation.
Cash and cash equivalents: For purposes of reporting cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. Cash equivalents consist of
money market funds.
The Company maintains its cash in accounts which, at times, may exceed
insured limits. The Company has not experienced any losses in such accounts.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Investment in debt securities: The Company had investments in marketable
debt securities. Management determines the appropriate classification of the
securities at the time they are acquired and evaluates the appropriateness of
such classifications at each balance sheet date. Available-for-sale securities
are stated at fair value, and unrealized holding gains and losses, net of the
related deferred tax effect, are reported as a separate component of
stockholders' equity.
Property and equipment: Property and equipment is stated at cost.
Depreciation is computed using the straight-line method for buildings and
leasehold improvements and a combination of the accelerated and straight-line
methods for equipment over the following estimated useful lives:
Years
- --------------------------------------------------------------------------------
Buildings 19 - 39
Automotive equipment 3 - 5
Machinery and equipment 5 - 10
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
fair value is less than the carrying amount of the asset, a loss is recognized
for the difference.
<PAGE>
Goodwill: Goodwill is the excess of the purchase price over the fair value
of identifiable net assets acquired in business combinations accounted for as a
purchase. Goodwill is amortized on a straight-line basis over the expected
periods benefited of 15 years. The carrying amount of goodwill is reviewed if
facts and circumstances suggest that it may be impaired. If this review
indicates that goodwill will not be recoverable, as determined based on the
estimated undiscounted cash flows of the entity acquired over the remaining
amortization period, the carrying amount of the goodwill is reduced by the
estimated shortfall of cash flows.
Income taxes: Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment. As described in Note 10, the Company changed its income tax
status during 1998.
Employee health benefits self-insurance: The Company is self-insured for
employee health benefits. The Company has purchased reinsurance to limit claim
exposure. The estimated expense from uninsured claims, including incurred but
not reported claims, is accrued as losses occur.
Advertising costs: The Company follows the policy of charging the costs of
advertising to expense as incurred. For the years ended December 31, 1998 and
1999, advertising expense totaled $74,005 and $98,152, respectively.
Revenue recognition: The Company recognizes revenue upon shipment of
product. Returns and allowances are recorded in the period the need for such is
identified.
Foreign currency translation: For the Company's Canadian operation, the
results of operations and cash flows are translated at average exchange rates
during the year, and assets and liabilities are translated at end of year rates.
Translation adjustments are included as a separate component of accumulated
other comprehensive income (loss) in stockholders' equity.
Disclosures about fair value of financial instruments: The carrying amount
of current assets and liabilities approximates fair value because of the short
maturity of those instruments. The carrying amount of long-term debt
approximates fair value since primarily all long-term debt has interest rates
which fluctuates with or approximates the prime rate.
Use of estimates in the preparation of financial statements: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
Earnings per share: The FASB has issued Statement No. 128, Earnings per
Share, which the Company adopted during the first quarter of 1998. Statement No.
128 requires the presentation of earnings per share by all entities that have
common stock or potential common stock, such as options, warrants and
convertible securities, outstanding that trades in a public market. Those
entities that have only common stock outstanding are required to present basic
earnings per-share amounts. All other entities are required to present basic and
diluted per-share amounts. Diluted per-share amounts assume the conversion,
exercise or issuance of all potential common stock instruments unless the effect
is to reduce a loss or increase the income per common share from continuing
operations.
During the year ended December 31, 1998, the Company granted options to
employees to purchase 173,600 shares of common stock at $4.50 per share and
issued underwriters warrants to purchase 126,000 shares of common stock at $6.00
per share. Those options and warrants were not included in the computation of
diluted earnings per share because their effect was antidilutive.
Note 2. Business Combination
During 1999, the Company entered into two business combinations. On January
20, 1999, the Company acquired for cash certain assets and assumed certain
liabilities of Sonwil Products, Inc. (d/b/a TJ Products, Inc.), a company
engaged in the business of producing rubber linings, rubber moldings and
urethane moldings for the mineral processing, electric power, paper, and U.S.
military and aerospace industries to customers located primarily in the Rocky
Mountain area of the United States. The total acquisition cost was $2,330,000.
The excess of the total acquisition cost over the fair value of the net assets
acquired of $860,000 is being amortized over 15 years by the straight-line
method.
On March 31, 1999, the Company acquired for cash certain assets and assumed
certain liabilities of ITW Irathane Systems (a Division of Illinois Tool Works,
Inc.) which produces liquid urethanes, urethane moldings and rubber and urethane
linings for the mineral processing, aggregate, transportation, and power
industries to customers located near its manufacturing facilities in Hibbing,
Minnesota, Colorado Springs, Colorado, and Sudbury, Ontario, Canada. The total
acquisition cost was $8,094,000. The excess of the total acquisition cost over
the fair value of the net assets acquired of $222,000 is being amortized over 15
years by the straight-line method.
The acquisitions have been accounted for as a purchase and results of
operations of since the dates of acquisition are included in the consolidated
financial statements.
Unaudited pro forma consolidated results of operations for the years ended
December 31, 1998 and 1999 as though each company had been acquired as of
January 1, 1998 follows:
1998 1999
- --------------------------------------------------------------------------------
Sales $ 22,500,000 $ 15,303,155
Net loss (333,000) (1,592,024)
Loss per common share (0.05) (0.38)
<PAGE>
Note 3. Revenue by Products and Services
The Company's revenue is attributed to a single reportable segment and
results from the sale of products or services which consist of liquid urethanes,
urethane moldings and rubber and urethane linings for the mineral processing,
aggregate, transportation, and power industries.
The following table presents net sales from external customers for each of
the Company's groups of products and services for the years ended December 31,
1998 and 1999:
1998 1999
- --------------------------------------------------------------------------------
Urethane cast parts $ * $ 5,047,809
Pipe and pipe lining products 6,503,184 3,342,395
Coatings * 363,429
Spray * 385,222
Proprietary engineered products 878,980 891,671
Standard rubber products 2,107,511 2,097,454
Steel cast parts * 315,741
Other 491,593 541,580
----------- -----------
$ 9,981,268 $12,985,301
============================
*Relates to new products and services due to acquisitions in 1999.
The Company's revenue (based on location of the customer) for the years
ended December 31, 1998 and 1999 is as follows:
1998 1999
- --------------------------------------------------------------------------------
United States $ 7,207,417 $11,816,264
Canada 1,808,399 311,895
Other countries 965,452 857,142
----------- -----------
$ 9,981,268 $12,985,301
============================
Net sales for the years ended December 31, 1998 and 1999 include sales to
several major customers, each of which accounted for 10 percent or more of net
sales:
Amount of Net Sales
Year Ended December 31,
--------------------------
Customer 1998 1999
- --------------------------------------------------------------------------------
Customer A $ 1,252,635 $ 1,395,948
Customer B 2,424,942 *
Customer C 1,740,710 *
*The net sales to these customers was under 10 percent of net sales.
<PAGE>
The Company's long-lived assets as of December 31, 1998 and 1999 are
located as follows:
1998 1999
- --------------------------------------------------------------------------------
United States $ 1,699,699 $ 6,864,372
Canada 611,181
-------------------------------
$ 1,699,699 $ 7,475,553
===============================
Note 4. Marketable Debt Securities
The following is a summary of the Company's investment in available for
sale securities in which fair value approximates cost as of December 31, 1998:
Amount
- --------------------------------------------------------------------------------
US government securities $ 448,028
Corporate debt securities 1,194,756
---------------------
$ 1,642,784
=====================
The debt securities matured in 1999.
Note 5. Inventories
Inventories consist of the following as of December 31, 1998 and 1999:
1998 1999
- --------------------------------------------------------------------------------
Raw materials $ 241,756 $ 891,300
Work in process 126,405 40,591
Finished goods -- 654,388
--------------------------
368,161 1,568,279
Raw materials purchased on behalf of customers 40,570 42,180
---------------------------
$ 408,731 $1,628,459
===========================
The Company incurs costs on behalf of its customers for the purchase of
pipes, pumps and launders and is reimbursed for these costs by the customers.
The Company does not receive a commission or recognize gross profit upon sale of
these components; therefore, net sales and cost of sales in the statements of
income do not include amounts for sales and purchases of components.
Note 6. Notes Payable and Liquidity
During 1999, the Company entered into a $2,000,000 revolving line of credit
for working capital financing and a $7,000,000 term loan with a bank which are
due on March 31, 2000 Advances under the line of credit are subject to a
borrowing base of eligible trade receivables and inventories, as defined in the
agreement. Advances under the line of credit and the term loan are
collateralized by trade receivables, inventories, equipment, general
intangibles, assignment of a life insurance policy, and are personally
guaranteed by the majority stockholder. Interest on the revolving line of credit
is payable monthly at the LIBOR Pricing Rate, plus 2.25% (8.73% at December 31,
1999). Interest on the term loan is payable monthly at the Wall Street Journal
Prime Rate (8.5% at December 31, 1999).
At December 31, 1999, $6,500,000 was outstanding under the term loan and
there was no outstanding balance on the revolving line of credit.
Among other things, the agreement requires the Company to:
a. Maintain a tangible net worth of at least $5,500,000.
b. Maintain a current ratio of at least 1.5 to 1.
c. Maintain a leverage ratio of less than 1.75 to 1.
d. Maintain all of its deposits with the bank.
e. Refrain from declaring or paying dividends or redeem any of its common
stock.
f. Refrain from incurring additional interest-bearing indebtedness.
As of December 31, 1999, the Company was in default of certain of the
covenants under the line of credit and term loan with the Bank, which is due on
March 31, 2000. Under the terms of the agreement, the Bank has the right to
declare all amounts immediately due and payable and terminate the agreement. In
addition, the Bank exercised its option under the terms of the agreement to
increase the interest on the line of credit and term loan by 1.5 percent
effective January 1, 2000. The Company has received a waiver from the Bank for
loan covenant violations through December 31, 1999, however, remains in default
subsequent to December 31, 1999. The Company and the lender are in the process
of negotiations. On March 28, 2000, the Company obtained a 90-day extension on
the line of credit and term loan through June 30, 2000. Although they are not
committed to do so, the Bank may extend the maturities of the line of credit and
term notes for an additional 90-day period or periods. It is the Company's plan
to work with the lender to obtain the needed extensions, and to seek alternative
sources of financing. The Company will use the proceeds from the expected sale
of the Colorado facility on March 31, 2000, approximately $1,700,000, to reduce
the term loan with the Bank.
Note 7. Long-Term Debt
A summary of long-term debt as of December 31, 1998 and 1999 is as follows:
1998 1999
- --------------------------------------------------------------------------------
Note payable bank, due in monthly installments of
$1,576 including interest at 8.5% to April 2003,
at which time the remaining balance is due. $ 156,527 $ 150,889
Note payable bank, in participation with the
Iron Range Resources Rehabilitation Board due
in monthly installments of $1,144 including
interest at 3.5% to April 2003, at which time
the remaining balance is due. 154,589 146,214
Other notes payable due through November 2002. 46,715 18,903
Note payable, paid in full during 1999. 145,540 -
--------------------------
503,371 316,006
Less current maturities 174,263 24,804
--------------------------
$ 329,108 $ 291,202
==========================
<PAGE>
The 8.5 percent and 3.5 percent notes payable to the bank are
collateralized by real estate and guaranteed by the majority stockholder. Among
other things, these notes require the Company to:
a. Maintain a current ratio of at least 1.2 to 1.
b. Maintain a ratio of total liabilities to tangible net worth of less than
3 to 1.
c. Maintain a ratio of traditional cash flow to current maturities of
long-term debt of at least 1.5 to 1.
d. Refrain from declaring or paying dividends in excess of 50% of after tax
net income.
e. Limit capital expenditures to $500,000.
f. Obtain bank approval for the issuance of additional debt.
g. Refrain from consolidating, combining or merging with any other
corporation or purchase or acquire the assets of another business.
The Company was in violation of certain covenants of the above bank notes
payable and line of credit agreement as of December 31, 1999; however, these
violations have been waived by the Bank.
Aggregate maturities required on long-term debt as of December 31, 1999 are
as follows:
Years Ending December 31, Amount
- --------------------------------------------------------------------------------
2000 $ 24,804
2001 21,557
2002 20,545
2003 249,100
------------------
$ 316,006
==================
Note 8. Stockholders' Equity
In January 1998, the Company amended its Articles of Incorporation to
increase the number of authorized shares of common stock to 25,000,000 and
declared a stock split so that 2,934,000 shares of common stock were
outstanding.
On April 24, 1998, the Company completed an initial public offering and
issued 1,260,000 shares of common stock (excluding the underwriters' over
allotment option to purchase an additional 189,000 shares of common stock) at an
offering price of $5.00 per share. Proceeds raised from the sale of common stock
amounted to $5,463,276, net of offering expenses of $836,724.
In connection with the initial public offering, the Company issued warrants
to the underwriters to purchase 126,000 shares of the Company's common. The
warrants may not be exercised during the first year after the effective date of
the offering and are exercisable during a period of four years thereafter at a
price equal to $6.00 per share.
The Company made distributions totaling $1,095,000 during 1998 to enable
the stockholder to pay income taxes on the Company's income for the year ended
December 31, 1997 and period ended March 31, 1998.
In November 1998, the Board of Directors authorized a plan that allows the
Company to purchase up to 50,000 shares of the Company's common stock. The
Company repurchased and cancelled 6,500 shares at a cost of $10,739 in 1998 and
43,500 shares were repurchased and cancelled at a cost of $78,883 in 1999. Note
9.
Stock Option and Bonus Plan
At December 31, 1999, the Company has a stock-based compensation plan which
is described below. As permitted under generally accepted accounting principles,
grants under the plan are accounted for following APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
grants under the stock option plan. Had compensation costs for the Company's
stock options been determined based on the fair value method prescribed in FASB
Statement No. 123, net loss and loss per share would have been reduced to the
pro forma amounts shown below:
1998 1999
- -------------------------------------------------------------------------------
Net loss:
As reported $ (168,454) $ (1,618,635)
Pro forma (189,254) (1,641,956)
Basic loss per share:
As reported $ (0.04) $ (0.39)
Pro forma (0.05) (0.39)
Diluted loss per share:
As reported $ (0.04) $ (0.39)
Pro forma (0.05) (0.39)
Options were not included in the computation of diluted earnings per share
because the exercise price of those options exceeded the average market price of
the common shares during the year. The pro forma effects of applying Statement
No. 123 are not necessarily representative of the effects on pro forma
disclosures of future years.
The fair value of stock options used to compute pro forma net loss and loss
per share disclosures is the estimated fair value at grant date using the
Black-Scholes option-pricing model with the following assumptions:
Weighted-average assumptions 1998 1999
- ------------------------------------------------------------------------------
Dividend rate - -
Price volatility - 55.50%
Risk-free interest rate 5.75% 5.60%
Expected lives of options 4 4
<PAGE>
Stock option plan: On January 30, 1998, the Company adopted the 1998 Stock
Option Plan which provided for the granting of stock options to employees,
directors and officers of the Company. The number of shares issued pursuant to
the options granted shall not exceed 400,000 shares. Options are exercisable at
$1.875 and $4.50 per share which approximates fair market value at the date of
grant and expire five years after date of grant. Options at $1.875 vest
immediately. Options at $4.50 generally vest at a rate of 25 percent per year
over a period of four years from the date of grant.
A summary of the stock option plan is as follows:
1998 1999
-------------------------- --------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------
Under option,
beginning of year -- $ -- 169,200 $ 4.50
Granted 173,600 4.50 33,750 1.875
Exercised -- -- -- --
Forfeited (4,400) 4.50 (32,000) 4.50
---------------------------------------------------
Under option,
end of year 169,200 170,950
========= ========
Options exercisable,
end of year -- 44,050
========= ========
Weighted-average fair
value per option
of options granted
during the year $.90 $.46
=========== =========
A further summary of options outstanding as of December 31, 1999 is as follows:
Options Outstanding Options Exercisable
-------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Numger Contractual Exercise Number Exercise
Exercise Price Outstanding Life (Years) Price Exercise Price
- --------------------------------------------------------------------------------
$1.875 3,750 4.80 $ 1.875 3,750 $ 1.875
$4.50 167,200 3.28 4.50 40,300 4.50
------------------------------------------------------------
170,950 4.44 44,050 4.28
======== ========
Subsequent to year end the Company canceled all the $4.50 stock options and
reissued new options at $2.00 per share.
Stock bonus plan: During 1999, the Company adopted a stock bonus plan which
provided for the granting of stock to employees, directors and officers of the
Company. The number of shares which may be issued pursuant to the plan shall not
exceed 50,000 shares. The Company granted 43,205 shares and recognized
compensation expense of $41,944 for the year ended December 31, 1999.
<PAGE>
Note 10. Income Tax Matters
For prior years through the three-month period ended March 31, 1998, the
Company, with the consent of its stockholder, elected to be taxed under sections
of federal and state income tax law, which provide that, in lieu of corporation
income taxes, the stockholder separately account for the Company's items of
income, deductions, losses and credits. On March 15, 1998, the Company's
stockholder terminated this election effective with the period beginning on
April 1, 1998 in connection with the initial public offering of its common
stock.
As a result of the termination, the Company recorded a net deferred tax
asset of $15,000 in 1998 by a credit to income tax expense, for temporary
differences between the financial reporting and the income tax basis.
Deferred taxes credited to income during 1998 consisted of the following:
Amount
- --------------------------------------------------------------------------------
Effect of change in tax status $ 15,000
Change in net deferred tax assets 325,000
-------------------
$ 340,000
===================
Pro forma income taxes for the year ended December 31, 1998 represent the
estimated income taxes that would have been reported had the Company filed
federal and state income tax returns under the asset and liability method of
accounting.
The following summarizes the pro forma provision for income taxes (credits)
as if the Company was taxed as a C Corporation for the year ended December 31,
1998 and the actual tax provision for the period since the S Corporation
termination for the year ended December 31, 1998. The Company was a C
Corporation for the entire year ended December 31, 1999:
Pro forma Actual Actual
-----------------------------------------------------
Year Ended December 31, 1998 1998 1999
- --------------------------------------------------------------------------------
Current:
Federal $ 4,200 $ -- $ --
State 3,800 3,000 1,000
Foreign -- -- 90,000
-----------------------------------------------------
8,000 3,000 91,000
-----------------------------------------------------
Deferred:
Federal (68,000) (265,000) (839,000)
State (20,000) (75,000) (141,000)
Foreign - - -
-----------------------------------------------------
(88,000) (340,000) (980,000)
-----------------------------------------------------
Total $ (80,000) $ (337,000) $ (889,000)
=====================================================
<PAGE>
The income tax provision differs from the amount of income tax determined
by applying the US federal income tax rate to pretax income due to the
following:
Pro forma Actual Actual
----------------------------------------------------
Year Ended December 31, 1998 1998 1999
- -------------------------------------------------------------------------------
Computed "expected" tax expense $(87,000) $(87,000) $(878,000)
Increase (decrease) in income taxes
resulting from:
State income taxes, net of federal
tax benefit (10,700) (14,800) (92,000)
Benefit of income taxed at lower rates 6,800 6,800 25,000
Deferred taxes recorded due to change
in tax status: -- (15,000) --
Effect of S Corporation earnings not
included in taxable income for
first quarter of 1998 -- (241,000) --
Nondeductible expenses and other 10,900 14,000 56,000
----------------------------------------------------
$(80,000) $(337,000) $(889,000)
====================================================
Net deferred tax assets consist of the following components as of December
31, 1998 and 1999:
1998 1999
- --------------------------------------------------------------------------------
Property and equipment, principally due to
differences in accumulated depreciation
and bases of assets $ (30,000) $ (70,000)
Foreign currency translation adjustment -- (4,000)
----------------------------------
Total deferred tax liabilities (30,000) (74,000)
----------------------------------
Additional costs capitalized to inventory
for income tax purposes 12,000 28,000
Accrued expenses not currently deductible
for tax purposes 9,000 156,000
Allowance for doubtful accounts 112,000 153,000
Net operating loss carryforwards 237,000 963,000
Foreign tax credit carryforward -- 90,000
----------------------------------
Total deferred tax assets 370,000 1,390,000
----------------------------------
Valuation allowance for deferred tax assets - -
----------------------------------
Net deferred tax assets $ 340,000 $ 1,316,000
==================================
The deferred tax amounts have been classified on the accompanying balance
sheets as follows:
1998 1999
- --------------------------------------------------------------------------------
Current deferred tax assets $ 133,000 $ 337,000
Noncurrent deferred tax assets 207,000 979,000
----------------------------------
Net deferred tax assets $ 340,000 $ 1,316,000
==================================
The Company has determined that it is more likely than not that the
deferred tax assets will be realized and a valuation allowance for such assets
is not required.
At December 31, 1999, the Company has federal net operating loss
carryforwards of approximately $2,642,000 and state operating loss carryforwards
for Minnesota and Utah of approximately $1,295,000 and $520,000, respectively,
which are available to reduce future taxable income. The net operating loss
carryforwards expire in 2018 and 2019.
Note 11. Retirement Plan
The Company has a Salary Savings Plan and Trust (401(k)) which covers
substantially all employees of the Company. The plan provides for contributions
in such amounts as the Board of Directors may annually determine. Company
contributions for 1998 and 1999 were $49,165 and $29,000, respectively.
In connection with the acquisition of ITW Irathane Systems, the Company
assumed a defined benefit pension plan for ITW Irathane Systems union employees
and retirees. Information relative to the Company's defined benefit pension
plans is presented below:
Amount
- ------------------------------------------------------
Changes in benefit obligations:
Obligations at beginning of year $ 234,750
Service cost 13,602
Interest cost 13,012
Participant contributions
Benefits paid (72,060)
Actuarial gains (34,052)
---------
---------
Obligations at end of year $ 155,252
=========
=========
Changes in plan assets:
Fair value of assets at beginning of year $ 204,455
Actual return on assets (7,647)
Company contributions 26,149
Participant contributions
Benefits paid (72,060)
---------
---------
Fair value of assets at end of year $ 150,897
=========
=========
Funded status at end of year:
Plan assets less than obligations $ (4,355)
Unrecognized gains (34,378)
Unrecognized prior service cost
Unrecognized transition obligation 49,939
---------
---------
Prepaid pension costs $ 11,206
=========
=========
Costs recognized during the year:
Service cost $ 13,602
Interest cost 13,012
Expected return on plan assets (11,411)
Amortization of prior losses (gains)
Amortization of prior service cost
Amortization of transition obligation 3,228
---------
---------
Total costs recognized in expense $ 18,431
=========
=========
Amount
- ------------------------------------------------------------------------------
Assumptions used in computing ending obligations:
Discount rate 8%
Expected return on plan assets 6%
Note 12. Related Party Transactions
The Company had a payable of $25,000 to Nelson Roofing, Inc. as of December
31, 1999, a company owned by the majority stockholder of the Company. The
Company has a receivable of $6,986 and $86,140 as of December 31, 1998 and 1999,
respectively, from Nelson Roofing, Inc. Under the terms of an agreement with
Nelson Roofing, Inc. the Company provides management and administrative services
based upon actual employee cost plus overhead and receives a management fee for
such services.
Management fees received from Nelson Roofing, Inc. amounted to
approximately $90,400 in 1998 and $134,000 in 1999. The Company paid $7,874 and
$7,611 in 1998 and 1999, respectively, to Nelson Roofing, Inc. for construction
services.
The Company rented a house in Utah owned by the majority stockholder on a
month-to-month basis. Total rent paid to the majority stockholder amounted to
$50,760 in 1998 and $33,840 in 1999.
The Company rents warehouse space from a company owned by the majority
stockholder which amounted to $6,700 and $5,500 in 1998 and 1999, respectively.
Effective January 1, 2000, the Company rents a portion of an office and
production facility from the majority stockholder under the terms of a
three-year agreement expiring on December 31, 2003. The lease provides that the
Company pay all property taxes, insurance, and maintenance plus a monthly rental
of $8,400.
On January 30, 1998, the Company entered into a two-year employment
agreement with its president, who is also the majority stockholder. Under the
agreement, the president will receive a base salary of $255,216 and bonuses as
determined by the Board of Directors. On January 30, 2000 the Company entered
into a new two-year agreement in which the president will receive a base salary
of $175,000 in addition to quarterly bonuses, as defined in the agreement, and
annual bonuses based upon the performance of the Company, as determined by the
Board of Directors. The agreement contains certain noncompetition provisions.
The Company accrued unpaid salary of the major stockholder which amounted
to $138,873 as of December 31, 1999.
<PAGE>
Note 13. Business Restructuring and Other Charges
1999 transactions: During the fourth quarter of 1999, the Company approved
a plan to close the Colorado Springs, Colorado production facility and terminate
substantially all employees (nine). Substantially all of the operations will be
consolidated with the Hibbing, Minnesota facilities. The closure is expected to
be completed by April 2000. At December 31, 1999 the Company accrued $98,000 for
employee termination benefits. Subsequent to year end the Company entered into
an agreement to sell the real estate at the site which has a book value of
$1,500,000 for approximately $1,700,000.
Also in the fourth quarter of 1999, the Company approved a plan to close
the Arizona production facility as a result of market conditions. The facility
was opened during 1999 to supply sprayed polyurethane and vulcanized rubber
products to the Arizona mining industries. The facility is under a three-year
lease agreement and the present value of the remaining lease payments of
approximately $95,000 has been expensed as of December 31, 1999. In addition,
equipment and leasehold improvements with a book value of approximately $263,000
were consider impaired as they are not expected to be used in the future.
Accordingly, the Company wrote off the remaining book value of the assets. The
Company accrued $50,000 for other charges to close the facility.
Amount
- -------------------------------------------------------------------------------
Accrued employee termination benefits $ 98,000
Accrued long-term lease and other charges 145,053
Asset impairment 262,938
-----------------
$ 505,991
=================
1998 transactions: The Company leased its Utah production facility under
the terms of an operating lease expiring January 31, 1999. Lease payments
amounted to $13,600 per month at December 31, 1998. The lease provided that the
Company pay all utilities, and property taxes and insurance over certain
amounts.
On December 16, 1998, the Company decided to discontinue the operations of
the Clearfield, Utah facility and relocate certain assets to TJ Products, Inc.
The Company terminated its operating lease effective January 31, 1999. The
estimated loss on closing the facility for the year ended December 31, 1998 is
as follows:
Amount
- --------------------------------------------------------------------------------
Loss on disposal of assets $ 39,881
Operating losses from measurement date to
December 31, 1998 43,000
Estimated expenses to close from January 1, 1999
to anticipated disposal date 127,000
------------------
$ 209,881
==================
<PAGE>
Note 14. Lease Commitments and Total Rental Expense
The Company leases two office and production facilities under noncancelable
agreements which expire in December 2003 and December 2008 and require various
minimum annual rentals. The leases also require the payment of the property
taxes, normal maintenance and insurance on the properties. See Note 13 regarding
Arizona lease.
The Company also leases automobiles and other equipment on annual leases.
Total rent expense, including rent paid to related parties, amounted to
approximately $301,200 in 1998 and $340,000 in 1999.
The total minimum rental commitment at December 31, 1999 is due as follows:
Years Ending December 31, Amount
- --------------------------------------------------------------------------------
2000 $ 296,835
2001 305,290
2002 293,628
2003 156,000
2004 162,000
Due thereafter 648,000
------------------
$ 1,861,753
==================
<PAGE>
EXHIBIT 10(1)
EMPLOYMENT AGREEMENT
THIS AGREEMENT made effective the 30th day of January, 2000, is by and
between Industrial Rubber Products, Inc. a Minnesota corporation (the
"Company"), and Daniel O. Burkes, a resident of the State of Minnesota (the
"Executive").
WHEREAS, the Employment Agreement between the Company and Executive is
scheduled to terminate on January 30, 2000;
WHEREAS, the parties wish to provide for the continued employment of the
Executive by the Company; and
WHEREAS, the Company desires reasonable protection of its confidential
business and technical information, which has been and will be acquired, and
which has been and is being developed by the Company, at substantial expense;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Company and the Executive, each intending to be legally bound, agree as
follows:
1. Employment. Subject to all of the terms and conditions of this
Agreement, the Company agrees to employ the Executive on a full-time basis as
its President and Chief Executive Officer and the Executive accepts this
employment.
2. Duties. The Executive will make the best use of his energy, knowledge
and training in advancing the Company's interests. He will diligently and
conscientiously perform the duties of President and Chief Executive Officer of
the Company, as such duties may be defined by the Company's Board of Directors
and such other tasks as may from time to time be reasonably required to further
the growth of the Company.
3. Term. The term of this contract shall be until January 30, 2002 (the
"Term"). Notwithstanding the foregoing, the Executive is employed on an at-will
basis. The Executive may terminate the employment relationship created by this
Agreement upon sixty (60) days notice to the Company, and with no notice if such
termination is for cause (as defined below). The Company may terminate the
employment relationship created by this Agreement upon sixty (60) days notice to
the Executive, if such termination is without Cause (as defined below), and with
no notice if such termination is for Cause.
As used in this Agreement, the term "Cause" as applied to the Company's
ability to terminate without notice means (i) the Executive's breach of any of
his material duties or obligations under this Agreement, which breach is not
corrected within thirty (30) days of receipt of written notice thereof by the
Executive; (ii) embezzlement or other misappropriation of property of the
Company; (iii) conviction of a felony offense; or (iv) the Executive's
persistent refusal to follow the directions or instructions of the Company's
Board of Directors. The term "Cause" as applied to the Executive's ability to
terminate without notice means any failure to pay or decrease in the Executive's
salary not consented to by the Executive. No termination of the employment
relationship created by this Agreement shall relieve the Executive of his duties
under Sections 5, 6 and 7 hereof.
<PAGE>
4. Compensation.
a. Salary. The Executive will be entitled to a salary of $14,583.33 per
month payable bimonthly beginning February 1, 2000. The Company's Board of
Directors may increase Executive's salary provided that if it has been raised,
the Company may at any time reduce the salary back to $14,583.33 per month.
b. Benefits. The Executive shall be entitled to participate in benefit
plans and other fringe benefits which may be established by the Company's Board
of Directors' for similar executive level executives.
c. Expenses. The Company shall reimburse the Executive for all ordinary and
necessary business expenses the Executive incurs while performing his duties
under this Agreement, provided that the Executive accounts properly for such
expenses to the Company in accordance with the general corporate policy of the
Company as determined by the Company's Board of Directors and in accordance with
the requirements of Internal Revenue Service regulations relating to
substantiation of expenses.
d. Bonuses. Employee shall be entitled to participate in the bonus plans
described in Exhibit A attached hereto. The Executive's participation in the
incentive compensation plan for the second year of the contract shall be subject
to the Board's amendment of the goals and allocation made on a Company-wide
basis. The Board of Directors may, but is not required to, provide for an
additional bonus or other incentive compensation plans.
5. Inventions.
a. "Inventions", as used in this Section 5, means any discoveries, designs,
improvements or software (whether or not they are in writing or reduced to
practice) or works of authorship (whether or not they can be patented or
copyrighted) that the Executive makes, authors, or conceives (either alone or
with others) and that:
i. concern directly the Company's products, research or development; or
ii. result from any work the Executive performs for the Company; or
iii. use the Company's equipment, facilities, or trade secret information.
b. The Executive agrees that all Inventions he makes during his employment
with the Company will be the sole and exclusive property of the Company. The
Executive will, with respect to any such Invention:
<PAGE>
i. keep current, accurate, and complete records, which will belong to the
Company and be kept and stored on the Company's premises while the Executive is
employed by the Company;
ii. promptly and fully disclose the existence and describe the nature of
the Invention to the Company in writing (and without request);
iii. assign (and the Executive does hereby assign) to the Company all of
his rights to the Invention, any applications he makes for patents or copyrights
in any country, and any patents or copyrights granted to him in any country; and
iv. acknowledge and deliver promptly to the Company any written
instruments, and perform any other reasonable acts necessary in the Company's
opinion and at its expense to preserve property rights in the Invention against
forfeiture, abandonment, or loss and to obtain and maintain letters patent
and/or copyrights on the Invention and to vest the entire right and title to the
Invention in the Company, provided that, the Executive makes no warranty or
representation to the Company as to rights against third parties hereunder.
Executive acknowledges that since April 15, 1986, the Executive has been
developing technology for the Company all of which he hereby transfers to the
Company for the considerations stated. Executive agrees that the existing
technology, and all derivations, expansions, improvements, and similar additions
or modifications to the technology whenever developed by him are and shall be
the property of the Company.
The Executive shall disclose to the Company from time to time all
inventions that Executive develops or conceives. The Company shall have
thereafter a reasonable period of time of not less than 90 days in which to
consider and evaluate the inventions and determine whether the Company will
develop the same. The Executive does not have and will not assert any claims to
or rights under any inventions as having been made, conceived, authored, or
acquired by the Executive prior to this Agreement.
c. NOTICE: Minnesota law exempts from this Agreement "AN INVENTION FOR
WHICH NO EQUIPMENT, SUPPLIES, FACILITY OR TRADE SECRET INFORMATION OF THE
EMPLOYER WAS USED AND WHICH WAS DEVELOPED ENTIRELY ON THE EMPLOYEE'S TIME, AND
(1) WHICH DOES NOT RELATE (A) DIRECTLY TO THE BUSINESS OF THE EMPLOYER OR (B) TO
THE EMPLOYER'S ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT, OR
(2) WHICH DOES NOT RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR THE
EMPLOYER."
d. Upon termination of this Agreement, Executive agrees to return to the
Company all property of the Company which Executive has custody and to deliver
to the Company all notebooks and other data relating to research, experiments or
management studies conducted by the Executive or any inventions made by the
Executive.
<PAGE>
6. Confidential Information.
a. "Confidential Information", as used in this Section 6, means information
that is not generally known and that is proprietary to the Company or that the
Company is obligated to treat as proprietary. This information includes, without
limitation:
i. trade secret information about the Company and its products or services;
ii. "Inventions," as defined in subsection 5(a) above;
iii. information concerning the Company's business, as the Company has
conducted it or as it may conduct it in the future; and
iv. information concerning any of the Company's past, current, or possible
future products, including (without limitation) information about the Company's
research, development, engineering, purchasing, manufacturing, servicing,
finances, marketing or selling.
v. information concerning any of the Company's past, current or possible
future customers, including (without limitation) customer lists, information
about the Company's planned advertising campaigns, purchasing plans, methods of
operation, servicing, finances, marketing or sales efforts.
Any information that reasonably can be expected to be treated as
Confidential Information will be presumed to be Confidential Information
(whether the Executive or others originated it and regardless of how he obtained
it).
b. Except as required in his duties to the Company, the Executive will not,
during his employment or after termination of his employment with the Company,
use or disclose Confidential Information to any person not authorized by the
Company to receive it, excluding Confidential Information (i) which becomes
publicly available by a source other than the Executive; or (ii) which is
received by the Executive after termination of his employment hereunder from a
source who did not obtain the information directly or indirectly from Executives
or agents of the Company; or (iii) for which disclosure thereof the Company has
consented in writing. When the Executive's employment with the Company ends, he
will promptly turn over to the Company all records and any compositions,
articles, devices, apparatus, and other items that disclose, describe, or embody
Confidential Information, including all copies, reproductions, and specimens of
the Confidential Information in his possession, regardless of who prepared them.
7. Competitive Activities. Provided that:
(1) If this Agreement is terminated by the Company without Cause, the
Company has paid to the Executive the salary provided under paragraph 4(a) above
for the Term of the Agreement,
<PAGE>
(2) If this Agreement is terminated by the Company for Cause, or
(3) If the Executive terminates this Agreement without Cause,
the Executive agrees that during the Term of this Contract and for a period
of five years thereafter:
a. He will not alone, or in any capacity with another firm, (i) directly or
indirectly engage in the development, design, production, marketing or sale of
any product, technology or services that is competitive with the Company's
business as it exists at the time his employment is terminated, nor will he
participate in the management or operation of, or become a significant investor
in, any venture or enterprise of whatever kind as a principal, officer,
director, Executive, representative, agent or shareholder of any entity whose
business is the design, development, production, marketing, or servicing of any
technology, product or service competitive with the business of the Company as
it exists at the time his employment with the Company is terminated; (ii) in any
way interfere or attempt to interfere with the Company's relationships with any
of their current or potential customers; or (iii) employ or attempt to employ
any of the Company's executives on behalf of any other entity competing with the
Company. Provided that, nothing in this Section 7 shall restrict the Executive's
employment by or association with any entity, venture or enterprise which
engages in a business with a product or service that is not competitive with any
product or service of the Company, so long as it does not, after Executive's
employment, become competitive.
b. He will, prior to accepting employment with any new employer, inform
that employer of this Agreement and provide that employer with a copy of Section
7 of this Agreement, provided that he reasonably believes his new position is or
may be contrary to this Agreement.
8. Conflicting Business. The Executive agrees that he will not transact
business with the Company personally, or as agent, owner, partner, or
shareholder of any other entity, except as specifically approved by the
Company's Board of Directors. The Executive further agrees that during his
employment with the Company he will not engage in any business activity or
outside employment that may be in conflict with the Company's proprietary or
business interests.
9. No Adequate Remedy. Both parties understand that failure to fulfill the
obligations under of this Agreement would cause damage to the other that would
be very difficult to determine. Therefore, in addition to any other rights or
remedies available to the parties at law, in equity or by statute, each party
consents to the specific enforcement of this Agreement, including specifically
Sections 5, 6, 7 or 8, through an injunction or restraining order issued by any
appropriate court.
10. Miscellaneous.
a. Successors and Assigns. This Agreement may not be assigned by the
Executive. Except as provided in the next sentence, this Agreement may not be
assigned by the Company without the Executive's consent, which consent shall not
be unreasonably withheld. In any event, the Company may assign this Agreement
without the consent of the Executive in connection with a merger, consolidation,
assignment, sale or other disposition of substantially all of its assets or
business.
<PAGE>
b. Modification. This Agreement may be modified or amended only by a
writing signed by each of the parties hereto.
c. Governing Law. The laws of the State of Minnesota shall govern the
validity, construction, and performance of this Agreement.
d. Construction. Wherever possible, each provision of this Agreement shall
be interpreted so that it is valid under applicable law. If any provision of
this Agreement is to any extent invalid under applicable law in any
jurisdiction, that provision shall still be effective to the extent it remains
valid. The remainder of this Agreement also shall continue to be valid, and the
entire Agreement shall continue to be valid in other jurisdictions.
e. Non-Waiver. No failure or delay by any of the parties hereto in
exercising any right or remedy under this Agreement shall waive any provision of
the Agreement. Nor shall any single or partial exercise by any of the parties
hereto of any right or remedy under this Agreement preclude any of them from
otherwise or further exercising their rights or remedies, or any other rights or
remedies granted by any law or any related document.
f. Captions. The headings in this Agreement are for convenience only and
shall not affect the interpretation of this Agreement.
g. Notices. All notices and other communications required or permitted
under this Agreement shall be in writing and hand delivered or sent by
registered first-class mail, postage prepaid. Such notices and other
communication shall be effective upon receipt if hand delivered and shall be
effective five (5) business days after mailing if sent by mail to the following
addresses, or such other addresses as either party shall have notified the other
party:
If to the Company: Industrial Rubber Products, Inc.
3804 East 13th Avenue
Hibbing, MN 55746
If to the Executive: Daniel O. Burkes
Hibbing, MN 55746
h. Representation. Executive has been represented by an attorney and
accountant with respect to Executive's entering into this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first above written.
EMPLOYER EXECUTIVE
Industrial Rubber Products, Inc.
By_________________________________ ________________________________
Its________________________________ Daniel O. Burkes
<PAGE>
EXHIBIT A
BONUS PLANS
Quarterly Bonus. The Executive shall be entitled to receive a quarterly
bonus of up to $20,000 payable on April 30, July 31, October 31 and February 28
of each year during the term of this Agreement. The amount of the quarterly
bonus, if any, shall be ten percent (10%) of the Company's Operating Income for
the preceding fiscal quarter as reported on the Company's Forms 10-QSB and Form
10-KSB over $50,000. No additional bonus shall be payable for Operating Income
in excess of $250,000 a quarter. No bonus shall be payable if Operating Income
is less than $50,000 in a quarter. There shall be no carry over or carry back
under this quarterly bonus plan.
Annual Incentive Bonus. The Executive shall be entitled to participate in
the Company Wide Incentive Plan as adopted by the Compensation Committee of the
Board of Directors on January 20, 2000. Specifically, the Executive is eligible,
along with other management personnel, for an annual bonus based on Company
performance. The Company Wide Incentive Plan is attached hereto as Exhibit A-1.
The Executive's maximum bonus for the fiscal year ending December 31, 2000 is
$76,500. The Executive will further be entitled to participate in any Company
wide incentive plans adopted for the fiscal year 2001 on such terms as
determined by the Board of Directors.
<PAGE>
EXHIBIT A-1
COMPANY WIDE INCENTIVE PLAN
General. The bonus pool for the Company Wide Incentive Plan is calculated
based on Company performance. The bonus pool is 20% of Operating Income as
reported on the Company's Form 10-KSB greater than $1,000,000. The maximum bonus
pool would total approximately $225,000 Company Wide. The Company would need to
have Operating Income of $2,125,000 ($1,125,000 x 20%) for the approximate
maximum of $225,000 to be earned.
Operating Income greater than $1,000,000 but less than $2,125,000 would
result in equal proportional bonuses for all qualifying participants. (i.e.
Operating Income of $1,562.520 would result in each participant receiving 50% of
their bonus opportunity from the attached sheet.) If Operating Income is less
than $1,000,000, no annual incentive bonuses will be earned or paid.
Basis for Awards. Management personnel will be allocated bonuses based on a
combination of division and corporate based performance system. Division-based
performance managers must achieve their budget to be eligible.
Each Manager will be eligible for a certain percent of their base salary,
as outlined below. The President and Chief Executive Officer will be eligible
for a bonus of 30% of base salary, including Quarterly Bonuses.
DIVISION-BASED PERFORMANCE
Mid-Level (10% of Base Salary)
Geoff Huaun - IR James Haddow - ISI Brett Valeri - ISI Paul Bernard - ISI Roger
Maki - ISI Randy Jacobson - ISI Joe Ohrn - TJ Lyle Robinson - TJ Gordon Grenon -
Elliot Jim Koshcher - ISI
Upper-Level (20% of Base Salary)
- -------------------------------
Dave Butterfield - TJ
Wayne Paquette - Elliott
Joseph Barach - Irathane
CORPORATE-BASED PERFORMANCE
Mid-Level (10% of Base Salary)
- ------------------------------
Marty Trenberth
James Skalski
Susan Rostvold
Debbie Gustafson
<PAGE>
Upper-Level (25% of Base Salary)
Chris Liesmaki
John Kokotovich
Gary Shapiro
Executive (30% of Base Salary, including Quarterly Bonuses)
Dan Burkes
Date Earned/Paid. To earn a bonus, a participant must be employed on the
date the bonus is paid. Bonuses shall be paid on or about February 28 of the
following year.
<PAGE>
EXHIBIT 10(4)
AGREEMENT
By and Between
IRATHANE SYSTEMS INCORPORATED
HIBBING, MINNESOTA
and
MIDWESTERN INDUSTRIAL COUNCIL
July 1, 1999
through
June 30, 2002
<PAGE>
INDEX
ARTICLE TITLE PAGE
1 GENERAL PURPOSE OF AGREEMENT 1
2 RECOGNITION 1
3 MANAGEMENT 2
4 RESPONSIBILITIES OF PARTIES 3
5 HOURS OF WORK, OVERTIME AND ALLOWED TIME 4
6 HOLIDAYS 6
7 VACATIONS 7
8 SENIORITY 8
9 GRIEVANCE AND ARBITRATION 9
10 DISCHARGE AND DISCIPLINE 12
11 BULLETIN BOARD 12
12 SAFETY AND HEALTH 12
13 LEAVES OF ABSENCE, MATERNITY AND 13
FUNERAL LEAVES
14 JOB POSITIONS, WAGE RATES AND COST OF LIVING 13
15 INSURANCE AND HOSPITALIZATION BENEFITS 18
16 PENSION PROGRAM 19
17 TERM OF AGREEMENT 20
<PAGE>
AGREEMENT
By and Between
IRATHANE SYSTEMS, INCORPORATED
HIBBING, MINNESOTA
and
MIDWESTERN INDUSTRIAL COUNCIL
This Agreement is made and entered into as of July 1, 1999 by and between
Irathane Systems Incorporated of Hibbing, Minnesota, hereinafter referred to as
the Company, and Midwestern Industrial Council, hereinafter referred to as the
Union.
ARTICLE 1
GENERAL PURPOSE OF AGREEMENT
It is the purpose of this agreement to assure the efficient, economical and
profitable operation of the Company to secure and sustain maximum productivity
of each employee covered by this Agreement; to maintain a harmonious
relationship between the employees in the bargaining unit and the Company; to
establish wages, hours and working conditions; to prevent strikes, slowdowns,
and other disturbances which interfere with or interrupt production; and
further, to set forth the entire agreement between the Company, the Union and
the employees covered by this Agreement concerning rates of pay, wages and other
conditions of employment to be observed by the parties hereto.
ARTICLE 2
RECOGNITION
Section 1. The term "employee" as used in this Agreement shall mean all of
the production and maintenance employees of the Company, excluding managers,
office employees, guards, driver salesmen, laboratory technicians, and any
employee defined by the National Labor Relations Ace, as amended, as guards,
professional employees or supervisors.
Section 2. The Company recognizes the Union as the exclusive representative
of all production and maintenance employees for the purpose of collective
bargaining in accordance with the provisions of the National Labor Relations
Act.
Section 3. As a condition of employment, all production and maintenance
employees shall become members of the Union, and must remain in good standing
during the life of this Agreement. All new production and maintenance employees
shall become and remain members of the Union in good standing during the life of
this Agreement beginning on the 91st calendar day following the commencement of
such employment.
<PAGE>
Section 4. For the purpose of this Agreement, the term "good standing"
shall mean the "payment of periodic dues and initiation fees uniformly required
as a condition of acquiring or retaining members".
Section 5. The company agrees to deduct Union dues from such Union members
as may authorize the Company in writing to do so. Such deductions are to be made
monthly and be remitted by the Company to the Secretary of the Union, monthly.
All members of the Union shall remain members in good standing during the life
of the Agreement as a condition of employment.
Section 6. It is agreed by both parties that there shall be no
discrimination of any nature on the part of the employer, the Union, or by the
employees themselves against any employee based of race, creed, color, sex or
age.
ARTICLE 3
MANAGEMENT
The management of the plants and works of the Company and the direction of
the working force and all operations including the hiring, promoting and
rehiring of employees, the suspending, discharging or other disciplining of
employees, the layoff and calling to work of employees in connection with any
reduction or increase in the working forces, the scheduling of work and the
control and regulation of the use of all equipment and other property of the
Company, are the exclusive functions of the Company provided, however, that in
the exercise of such functions, the Company shall not alter any of the
provisions of this Agreement and shall not discriminate against any employee or
applicant for employment because of his membership in or lawful activity on
behalf of the Union.
ARTICLE 4
RESPONSIBILITIES OF PARTIES
Section 1. Each of the parties hereto acknowledges the rights and
responsibilities of the other party and agrees to discharge its responsibilities
under this Agreement. The Union, its officers and representatives of all levels,
and all employees are bound to observe the provisions of this Agreement. The
Company and its officers and representatives of all levels are bound to observe
the provisions of this Agreement.
Section 2. In addition to the responsibilities that may be provided for
elsewhere in this Agreement, the following shall be observed:
a. The Company will not interfere with the rights of its employees to
become members of the Union; there shall be no discrimination, interference,
restraint or coercion by the Company or any of its agents against any employee
in such Union activities while such employees are on Company time.
b. The Union agrees that neither it nor any of its officers or members will
engage in any Union activities on Company time or engage any other employees in
such Union activities while such employees are on Company time.
c. The Union, its officers, agents and members agree that for the duration
of this Agreement, there shall be no strikes, sit-downs, slowdowns, stoppages of
work nor any acts of a similar nature which would interfere with production, no
picketing of any kind or form, however peaceful, and that it will not otherwise
permit, countenance or suffer the existence or continuance of any kind of these
acts.
<PAGE>
d. The Company agrees that for the duration of this Agreement there shall
be no lockouts.
e. The applicable procedures of this Agreement will be followed for the
settlement of all grievances, which shall be considered carefully and processed
promptly in accordance herewith.
Section 3. The parties acknowledge that during the negotiations which
resulted in this Agreement, each had the unlimited right and opportunity to make
demands and proposals with respect to any subject or matter not removed by law
from the area of collective bargaining, and that the understandings and
agreements arrived at by the parties after the exercise of that right and
opportunity are set forth in this Agreement. Therefore, each party voluntarily
and unqualifiedly waives the right and each agrees that the other shall not be
obligated to bargain collectively with respect to any subject matter not
referred to specifically or not covered in this Agreement even though such
subject or matter may not have been within the knowledge or contemplation of
either party at the time that they negotiated or executed this Agreement.
Section 4. If any article or section of this contract or if any rider
thereto should be held invalid by operation of law or by any tribunal of
competent jurisdiction or if compliance with or enforcement of any article or
section should be restrained pending a final determination as to its validity,
the remainder of this persons or circumstances other than those as to which it
has been held invalid or as to which compliance with or enforcement of has been
restrained, shall not be affected thereby.
Section 5. In the event that any article or section is held invalid or
enforcement of or compliance with which has been restrained as above set forth,
the parties affected thereby shall enter into immediate collective bargaining
negotiations upon the request of the Union for the purpose of arriving at a
mutually satisfactory replacement for such article or section during the period
of invalidity or restraint. If the parties do not agree on a mutually
satisfactory replacement, either party shall be permitted all legal or economic
recourse in support of its demands notwithstanding any provision in this
contract to the contrary.
Section 6. Once each month on a designated day, the Union's grievance man
and the plant manager or his designee will meet for one-half hour, 15 minutes of
which will be on Company time and 15 minutes of which shall be on non-Company
time. The purpose of such meeting will be to provide an opportunity to discuss
any shop problems and working conditions.
ARTICLE 5
HOURS OF WORK, OVERTIME AND ALLOWED TIME
Section 1. This Article is intended only to provide a basis of calculating
overtime and shall not be construed as a guarantee of hours of work per day or
per week.
<PAGE>
Section 2. The normal hours of work shall be eight (8) per day and 40 per
week. Daily hours of work shall be consecutive except for unpaid lunch periods
of fifteen (15) minutes. The normal workday shall be from 7:00 a.m. to 3:15 p.m.
When two shifts are routinely scheduled, they will be run from 7:00 a.m. to 3:15
p.m. and 3:15 p.m. to 11:30 p.m. The Company will be exempt from paying double
time for any shift with a startup Sunday evening of 11:00 p.m. or later. The
normal workweek shall be five days from Monday through Friday inclusive. The
normal work pattern may be changed by the Company from time to time to suit
varying conditions of the business; provided, however, that changes deemed
necessary by the Company shall be made known to the Union as far in advance of
such changes as practicable. Employees shall be paid by lunch breach Friday of
ever other week.
Section 3. Overtime (time and one-half) shall be paid for hours worked; a.
in excess of any ten (10) hours in any workday; b. in excess of 40 hours in any
workweek; c. on any Saturday; employees covered herein will be paid overtime at
the rate of twice the employee's regular rate of pay for hours worked on
Sundays. d. All vacation and holiday hours shall count as hours worked in
computing overtime.
Section 4. The company agrees to grant two, fifteen (15) minute rest period
for each shift.
Section 5. Employees who are regularly scheduled or who, with more than 8
hours notice, are notified to report and who do report for work shall e allowed:
a. in the event no work for which they were scheduled or for which they were
notified to report is available for 2 hours at the employees' standard hourly
wage rate; however, any employee called out early by the Company will be
permitted to complete his regularly scheduled sift; b. employees who actually
being work shall be paid for at least four (4) hours of such additional time as
they actually worked. There shall be no duplication of hours paid for whether
worked or allowed. allowed time not worked shall not be paid for as overtime nor
included in computing overtime.
Section 6. Any employee working four hours or unscheduled overtime on a
shift shall have a meal provided by the Company whenever possible, for each
fours hours of unscheduled overtime actually worked. Whenever meals are provided
by the Company, Employees shall be given a ten minute paid rest period. In the
event the Company is unable to provide a meal, then the employee shall be
entitled to a meal allowance up to $5.00 provided a receipt for purchase is
presented.
Section 7. When the Company has reasonable advance knowledge of the
necessity of working overtime, it will give reasonable advance notice to the
employees selected to work overtime. In the event of overtime work extending
four (4) or more hours beyond the compensation of the employees' regular shift,
the employees will be given a one-half hour unpaid rest period.
Section 8. No employees shall be required to work more than six (6)
consecutive days.
ARTICLE 6
HOLIDAYS
Section 1. Legal holidays shall be New Year's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and Christmas
Eve Day. The Company will provide an additional paid holiday; such holiday shall
<PAGE>
be a floating holiday. The Company will designate the floating holiday during
the contract years. All work performed by the employees covered herein on the
legal holidays set forth above will be paid at the rate of twice the employee's
regular rate of pay. On those aforesaid legal holiday on which no work is
performed, employees covered herein shall be compensated at their regular
straight time rate of pay for eight (8) hours. Should any of the above holidays
fall on Sunday, the day observed by decree of proclamation shall be considered
as the legal holiday, and work performed shall be paid for at twice the
employee's regular rate of pay; and if no work is performed, employees shall be
compensated at their regular straight time hourly rate of pay. Sunday and
holiday work shall be option by the employee.
Section 2. If a holiday falls within an employee's vacation period, he
shall receive an additional day's paid vacation or eight (8) hours pay at his
established straight time rate in lieu thereof as follows: If an employee
informs the Company prior to the commencement of his vacation that he desires to
work the day substituted for the holiday rather than receive simply an
additional day's vacation pay, the Company will give consideration to such
request and if allowed, will pay the employee eight (8) hours holiday pay and
eight (8) hours regular pay, each at the straight time hourly rate for such days
worked.
Section 3. In order than an employee be qualified for holiday pay, he must
have completed his probationary period and have worked the scheduled workday
before and the scheduled workday after such holiday or have been excused by the
Company.
Section 4. Holidays falling on a weekend shall be observed on Fridays or
Mondays as designated by the Employer. Such Friday or Monday designated as a day
off shall be with pay.
ARTICLE 7
VACATIONS
Section 1. Employees will be eligible for vacation based on the following
criteria: Completion of their anniversary year and hours of actual and credited
work per the attached schedule. This includes employees on layoff or excused in
accordance with this Agreement. Vacations will be granted by the following
schedule:
Years of Total Vacation Days
Service Not to Exceed:
- ------- -------------
1 1 day for every 360 hours actually 5
worked, including credited hours
2 1 day for every 180 hours actually 10
worked, including credited hours
7 1 day for every 120 hours actually 15
worked, including credited hours
15 1 day for every 90 hours actually 20
worked, including credited hours
20 1 day for each year of service in
excess of 20 years to a maximum
of 5 additional days not to exceed
25 days of vacation 25
Credited hours for the purpose of Article 7, Section 1, means the total of
vacation, holiday and funeral leave hours. Actual hours worked mean regular
straight time hours, but excluding workers compensation lost time hours in
calculations.
Section 2. Vacation pay shall be equal to forty (40) hours for each week.
Section 3. Employees shall receive their vacation pay before leaving on
vacation, provided such request is submitted two weeks in advance in writing.
Section 4. Consistent with the needs of the operation, employees will
receive consideration for their vacation preference based on their respective
length of continuous service.
Section 5. If required by the needs of the operation, the Company may
reschedule an employee's vacation subject to agreement of the affected employee.
Section 6. There shall be no carry over of vacation from year to year
unless approved by the employer.
Section 7. An employee who has been employed by the Company for a minimum
of one year and who voluntarily terminates with two week written notice to the
employer shall receive vacation pay earned per the schedule in Section 1.
An employee on layoff on his anniversary date shall receive pro-rata
vacation pay earned per the schedule in Section 1, provided he is otherwise
eligible for such pay.
ARTICLE 8
SENIORITY
Section 1. Computation of length of continuous service shall be computed
from the date of employment by the Company.
In computing length of continuous service, there shall be no deduction of
any time lost which does not constitute a break in continuous service.
Continuous service shall be broken for any reasons set forth in the following
paragraphs, a, b, c, d, e, f, and g.
a. Voluntarily quitting the service
b. Discharge
c. Failing within five (5) days after being notified in person or receipt
of written notice by the Company, addressed by registered mail to his last-known
address on record with the Company, to report for available work or to obtain a
leave of absence therefrom.
d. Failing to report for work at the termination of a leave of absence or
extension thereof.
<PAGE>
e. If an employee shall be absent because of layoff or non occupational
injury or illness, he shall continue to accumulate continuous service during
such absence for a period equal to seniority, but not to exceed 18 months.
f. Employees injured while on duty shall accumulate credit for continuous
service until the termination of the period for which statutory compensation is
payable, but their continuous service shall be broken if they do not report for
work after the termination of such period.
g. Employees failing to report for work for three (3) days without
reasonable excuse.
Section 2. New employees and those hired after a break of continuous
service will be regarded as probationary employees for the first 90 days of
their employment, and will receive no continuous service credit during such
period. During the period of probationary employment, probationary employees may
be laid off or discharged, as exclusively determined by management. Probationary
employees continued in the service of the Company subsequent to such
probationary period shall receive full continuous service credit from the date
of hiring at the beginning of the probationary period.
Section 3. For the purpose of layoffs, employees with the least continuous
service in each job classification shall be laid off first, provided the
remaining employees are qualified, in management's good faith and judgment, to
perform the necessary work. In the event the lay off exceeds five (5) working
days, the Company shall consider the status of any employee on layoff to
determine whether the employee has the qualifications to perform work then being
performed by an employee in another job classification, with less continuous
service with the Company. If the Company concludes that laid off employee has
such requisite qualifications, he will be recalled and substituted for the more
junior employee, who will then be placed on layoff status. During the period of
a layoff, no new employees shall be hired to perform the same job which a laid
off employee is then able to perform. The employees shall be recalled to work in
the order of their seniority within each job classification with a laid off
employee in each class having the greatest amount of continuous service
receiving the first recall.
Section 4. Designated leadman shall be the last to be laid off in their
respective divisions in the event of a layoff.
Section 5. When the Company has reasonable advance knowledge of a
prospective layoff, it will attempt to notify the affected employee three (3)
days before the commencement of such.
Section 6. If an employee at the plants or works of the Company has been or
shall be promoted to a supervisory position, he shall retain and continue to
accumulate length of service in the seniority unit from which he was or shall be
promoted.
ARTICLE 9
GRIEVANCE AND ARBITRATION
Section 1. The purpose of this section is (1) to provide opportunity for
discussion of any request or complaint, and (2) to establish procedures for the
processing and settlement of grievances as defined in Section 2 of this article.
<PAGE>
Section 2. "Grievance" as used in this Agreement is limited to a compliant
or request of an employee which involves the interpretation of, application of,
or compliance with the provisions of this Agreement.
Section 3.
Step 1. Any employee who believes that he has a justifiable request or
complaint, shall discuss the request or complaint with is supervisor, with or
without the grievance committeeman being present as the employee may elect, in
an attempt to settle same. However, any such employee may instead if he so
desires, report the matter directly to his grievance committeeman, and in such
event the grievance committeeman, if he believes the request or complaint merits
discussion, shall take it up with the employee's supervisor in a sincere effort
to resolve the problem. The employee involved may be present in such discussion
if he so desires. A grievance to be considered beyond Step 1 must be filed in
writing with the supervisor on forms furnished by the Company, promptly and
within five (5) working days after the conclusion of Step 1 discussions. It
shall be dated and signed by the grievance committeeman and the employee (or
other employee affected) and should include such information and facts as may be
of aid to the Company and the Union in arriving at a fair, prompt and informed
decision. The supervisor should write on the grievance form: "The grievance
committeeman and/or employee and I have fully discussed this grievance and I
have determined as follows: ." Indicate the date he received the grievance form,
sign it and deliver it to the Plant Manager.
Step 2. A grievance in this step shall be discussed in an attempt of
settlement at a mutually convenient time between the grievance committeeman and
the Plant Manager or his designee, and answered within ten (10) working dates
from the date of initial filing of the written grievance with the foreman.
Brief minutes of all Step 2 meetings shall be prepared by the Company and
jointly signed by the Company representative and the grievance committeeman. If
the Union representative shall disagree with the accuracy of the minutes as
prepared by the Company, he shall set forth and sign his reasons for such
disagreement or they shall be regarded as agreed to. Two copies of such minutes
shall be handed the grievance committeeman not later than ten (10) days after
the date on which the meeting was held.
If the Plant Manager's decision is not appealed to Step 3, the grievance
shall be considered settled on the basis of the decision last made and shall not
be eligible for further appeal.
Step 3. In order for a grievance to be considered further, written notice
of appeal to arbitration shall be served within ten (10) days after receipt of
the Step 2 minutes by the representative of the International Union, certified
to Management in writing upon the representative of the Company, similarly
certified to the Union by the Company.
The parties shall agree to a system whereby a single arbitrator shall be
designated to hear the cases arising under this Agreement. If the parties are
unable to agree on the designation of an arbitrator to hear any grievance, then
the parties shall request the Federal Mediation and Conciliation Service to
furnish the names of five (5) arbitrators, each of whom shall be a member of the
National Academy of Arbitrators, and the parties shall then proceed to strike
four (4) names from the list, and the arbitrator whose name remains shall be
designated the arbitrator to hear the grievance. The decision of the arbitrator
<PAGE>
on any issue properly before him, in accordance with the provisions of this
Agreement, shall be final and binding upon the Company, the Union and all
employees concerned. The expense and salary incident to the services of the
arbitrator shall be shared equally by the Company and the Union. Awards of the
Arbitrator may or may not be retroactive as the equities of the particular cases
may demand, but in any event that shall be no retroactive award earlier than the
date the grievance was first presented in written form as described in Step 1 of
this article.
a. The arbitrator shall have jurisdiction and authority only to interpret,
apply or determine compliance with the provisions of this Agreement, insofar as
shall be necessary to the determination of grievances appealed to the
arbitrator. The arbitrator shall not have jurisdiction or authority to add to,
detract form or alter in any way the provisions of this Agreement.
b. The grievance procedure may be utilized by the Union in processing
grievances which allege a violation of the obligations of the Company to the
Union as such. In processing such grievances, the Union shall observe the
specified time limits in appealing, and the Company shall observe the specified
time limits in answering.
c. If this Agreement is violated by the occurrence of a strike, work
stoppage or interruption or impeding of work at the plant, no grievances shall
be discussed or processed in the third step level or above in the plant while
such violation continues, but under no circumstances shall any grievance
concerning employees engaged in the violation be discussed or processed while
such violation continues.
d. Notwithstanding the procedure herein provided, any grievance may be
submitted to the arbitrator at any time by agreement of the parties to this
Agreement.
e. If this Agreement is violated by the occurrence of a strike, work
stoppage or interruption or impeding of work at the plant, the arbitrator shall
refuse to consider to decide any cases concerning employees at the plant
involved in such violation while such strike, work stoppage or interruption or
impeding of work is in effect.
f. When arbitration hearings are conducted during regular working hours,
those employees who are necessary witnesses shall suffer no loss of regular
income during the time they testify at such hearings.
g. One copy of the arbitrator's decision shall be sent to each of the
parties thereto and to the office of the International Union.
ARTICLE 10
DISCHARGE AND DISCIPLINE
All employees are expected to abide by any reasonable rules of Management
as outlined in the Irathane Systems Corporate Guidelines for Disciplinary
Action. Any violation of the employer's rules shall be sufficient cause for
discipline of an employee by suspension for three (3) days, and a second
violation of such rules shall be sufficient cause of an immediate dismissal. The
employer shall have the right to immediately discharge an employee without
warning if the cause of such discharge is dishonesty, intoxication, drinking on
duty, or improper use of controlled substances, willful destruction of the
employer's property or recklessness resulting in either the threat of a serious
accident or a serious accident while on duty.
<PAGE>
ARTICLE 11
BULLETIN BOARD
The Union shall have the right to post notices of Union business on the
shop bulletin board.
ARTICLE 12
SAFETY AND HEALTH
Section 1. The Company shall continue to make reasonable provisions for the
safety and health of its employees in the shop, and all employees are required
to comply to these provisions.
Section 2. The Company agrees to provide adequate and decent health and
sanitation facilities including adequate ventilation.
ARTICLE 13
LEAVE OF ABSENCE, MATERNITY AND FUNERAL LEAVES
Section 1. Employees desiring a leave of absence not to exceed thirty (30)
days for the purposes other than non-company employment or the seeking thereof,
may request such from the Company which may allow such leave if the Company
determines that such will not impair the efficiency of the operation. An
additional eave of absence of thirty (30) days may be mutually agreed upon
between the employee and the Company.
Section 2. The Company agrees to provide a funeral leave with pay for the
actual time lost from work, providing employee is absent to attend or make
funeral arrangements for up to three (3) days for the following relations:
Spouse, parents, children, brothers and sisters. Up to two (2) days for:
mother-in-law or father-in-law. Up to one (1) day for: Aunt, uncle, grandparents
or other in-laws.
Section 3. Maternity leave of absence shall be granted to eligible
employees in compliance with applicable State and Federal rules and regulations.
An employee wishing to return from maternity leave shall provide the employer
with her request for reinstatement accompanied by an attending physician's
statement of satisfactory health.
ARTICLE 14
JOB POSITIONS, WAGE RATES AND COST OF LIVING
Section 1. Job positions require that significant facts be recorded on a
job description which shall set forth the identification, location, primary
function, tools and equipment, materials, source of supervision, direction
exercised, and working procedure. It should be written in simple, clear and
meaningful language, and confined to information considered necessary to
describe the principal function of the job. Job descriptions are not intended to
be and rarely are definitive and all inclusive descriptions of working
procedures and tolls used. All the duties and work requirements of a job are not
expected to be cataloged in a job description. Consequently, the fact that a
particular duty is not referred to in a job description is not to be controlling
in determining whether the incumbent of the job may be required to perform that
duty.
<PAGE>
A. Significant details concerning the function and requirements of each job
shall be set forth in a job description and shall:
Provide a means of identifying the job under consideration, the processes,
equipment and products with which it is concerned, and shall serve only as a
basis for which to classify the job.
Reflect the general details considered necessary to describe the principal
functions of the job identified and shall not be construed as a detailed
description of all the work requirements that may be inherent in the job.
Provide, together with the reasons for the classification, the basis from
which to judge changes in job content which may result from new or changed
conditions when such are established from time to time.
B. The job description form shall be completed in the following manner:
IDENTIFICATION DATA shall contain as a minimum, the name of the company,
department and plant in which the job is located, date and job title.
PRIMARY FUNCTION shall be limited to a concise statement of the principal
duties of the job.
TOOLS AND EQUIPMENT are those used in the performance of the job which
actually come under the control of the workman and should be shown in sufficient
detail to identify such tools and equipment.
MATERIALS are those which are produced, consumed or handled in the
performance of the job and should be shown in sufficient detail to assure
correct identity. Only those materials for which the subject job is responsible
should be shown.
EQUIPMENT is considered as material for some jobs. For example, a machine
would be equipment for a Machine Operation, but would be a material for a
Maintenance employee who maintains it.
INCLUSIVE TERMS, such as rubber or urethane plant additions or processes
commonly associated with jobs or processes, should be used where appropriate
instead of detailed lists of such materials.
SOURCE OF SUPERVISION should show the title or titles of managerial
personnel who exercise direct supervision over the job. If an hourly rated job
leads or directs the subject job, its plant title also should be shown.
<PAGE>
DIRECTION EXERCISED should show the title of other jobs, if any, for which
the job being described has responsibility for on-the-job directions, such as
helpers or other positions. Merely relaying information or signaling does not
constitute direction.
WORKING PROCEDURE should not contain a detailed elemental breakdown, but
should contain sufficient information to permit classification of the job in a
factual basis.
Section 2. When it is determined by the Company that a vacancy (other than
a temporary vacancy) exists as set forth in Section 8 of Article 8 of this
Agreement, the Company shall post a notice of such vacancy on the bulletin
boards.
A. The Company may temporarily fill such vacancy during the time required
to give the posted notice stipulated herein, and for such reasonable time as may
be necessary to consider such applications presented without being subject to
grievance.
B. Notice of vacancies shall be posted for five (5) working days and during
this time, applications shall be made in writing on forms provided by the
Company.
C. If no applications are received in the five (5) day period, the Company
may fill such vacancy in any manner it desires. Notice of vacancy posting shall
include the job title and rate of pay.
D. The Company may disregard any employee who has failed to file an
application for a position within the time set forth above, and failure to
consider any such employee for appointment to such position shall not be made
the subject of grievance.
E. In filling permanent vacancies, if the ability to perform the work of
the job to which the promotion is to be made and physical fitness are equal,
applicants shall receive consideration in order of their continuous service.
F. The successful applicant shall have a thirty (30) day trial period in
which to demonstrate his qualifications and ability to perform the job. If
during such period the Company deems the employee unqualified or the employee is
dissatisfied, the employee shall be returned to his former position without loss
of seniority. If an employee is successful in his bid for a posted job of a
higher classification, he will retain his current rate of pay until the
completion of his 30-day trial period.
G. Each employee shall be restricted to one (1) successful bid in any one
year. If an employee is disqualified by the Company, this shall not be deemed a
successful bid. If the employee disqualified himself, this shall be deemed a
successful bid for the purpose of this Agreement.
H. Downward bidding will be permitted only at the discretion of the Company
and for the established rate of the job.
I. Additional vacancies occurring within a period of fifteen (15) calendar
days subsequent to the selection of an applicant may be filled from the list of
applicants for the vacancy and no new notice will be posted unless it is
determined by the Company that such notice is necessary.
Section 3. The job positions and rates of pay during the term of this
Agreement shall be as follows:
<PAGE>
a. Job Classifications and Rate of Pay:
EFFECTIVE EFFECTIVE EFFECTIVE
07/01/99 07/01/00 07/01/01
-------------- -------------- -----------
Casting Machine Operator $15.63 $15.98 $16.28
Casting Machine Helper 14.03 14.38 14.68
Maintenance Mechanic 15.13 15.48 15.78
Warehouse 13.03 13.38 13.68
Utility "A" 13.03 13.38 13.68
Utility "B" 12.03 12.38 12.68
General Labor 11.48 11.83 12.13
Differential Rates:
Leadman $1.00
Afternoon shift .35
Night shift .50
Boiler license .50
Section 4. The rate for summer students shall be established by the
Company, not to exceed the General Labor rate in effect at the time of hire.
Section 5. For all new employees hires, the following progression schedule
shall apply:
Start 70%
After 30 days 75%
After 90 days 80%
After six months 90%
After 2 years 100%
Section 6. Employees working any shift commencing at 3:00 p.m. or later,
shall receive a shift bonus of $.35 per hour for each hour worked on such shift.
Employees working on any shift commencing at 11:00 p.m. or later shall receive a
shift bonus of $.50 per hour for each hour worked on such shift.
Section 7. The employer may designate an employee of its choice from the
bargaining unit as leadman. An employee so designated shall receive $1.00 per
hour in addition to his base rate of pay. In the event no employee is interested
in such designate or lacks the skills, ability and physical fitness to perform
such lead function, the employer may hire an employee to fill such leadman
position. The company shall not use this position to defeat the seniority
provisions of this Agreement.
<PAGE>
a. An employee who is in the position of Maintenance Mechanic shall receive
a premium of $.50 per hour for the boiler license that they hold.
Section 8. The plant manager and other supervisors shall not perform work
on a job normally performed by employees in the bargaining unit; provided
however, this provision shall not be construed to prohibit supervisor from
performing the following type of work:
a. Experimental work.
b. Demonstration work performed for the purpose of instructing and training
employees.
c. Work required of the supervisors by emergency conditions which if not
performed might result in interference with operations, bodily injury or loss or
damage to material or equipment.
Section 9. Employees may be assigned or transferred to such jobs and such
work areas as management in its good faith discretion determines is necessary
for the efficient operation of the business. Employees will not be assigned out
of their regular work areas on a permanent basis unless their previous job is
changed or discontinued.
Section 10. Job transfers due to daily fluctuations in work load and
operations:
a. Employees who actually being work and are later transferred during the
shift to a position with a lower or higher rate of pay, shall be paid for all
hours on that shift at his standard rate. However, if on the succeeding day
(regular scheduled shift) he is assigned to the position with the lower or
higher rated pay, he will be paid the job class rate for al hours worked on that
and all succeeding days until transferred back to his regular position.
b. Job transfers due to layoffs: Employees will be assigned to the
remaining positions according to qualifications. Qualifications and ability to
perform the work will be made in good faith judgment of management. The job
class rate application to the position assigned will be paid.
c. Job vacancies: Employees transferred by the Company to temporarily fill
a job vacancy being posted as outlined in Section 2 of this Articles shall in
the event the job class of the vacant job is lower, receive his standard job
class rate.
Section 11. COST OF LIVING ADJUSTMENT: NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED HEREIN, THE APPLICATION OF ANY COST OF LIVING ADJUSTMENT
DURING THE TERM OF THIS AGREEMENT SHALL BE NULL AND VOID.
Cost of living adjustments shall be an "add on" and shall not be part of
the employees standard hourly wage scale. Such adjustment shall be payable only
for hours actually worked and for reporting allowance and shall be included in
the calculation of overtime, but shall not be used in the calculation of any
other pay, allowance or benefit.
ARTICLE 15
INSURANCE AND HOSPITALIZATION BENEFITS
<PAGE>
Section 1. The Company shall provide medical insurance and hospitalization
benefits for eligible employees. The Company will pay the premium of the above
group insurance plan. Employees shall share the cost by contributing up to a
maximum amount as follows:
Single coverage: $10 per month
Family coverage: $65 per month
The terms and conditions of the Plan are not subject to grievance or
arbitration and shall be determined by the Company and controlled by the Trust
Agreement. Further, the Company retains the right to amend and change the Plan
providing such changes do not discriminate against Union employees.
Section 2. The Company shall provide dental insurance to eligible
employees. The terms and conditions of the Plan are not subject to grievance or
arbitration and shall be determined by the Company and controlled by the Plan
Agreement. Further the Company retains the right to amend and change the Plan
providing such changes do not discriminate against the Union employees.
Section 3. The Company will provide a Sickness & Accident benefit which
will pay $325 per week for all union employees and for a maximum of 13 weeks.
Benefits commence on the eighth calendar day of certified disability.
Section 4. The Company will provide a Long Term Disability benefit which
will equal 60 percent of your monthly earnings prior to your disability, not to
exceed a maximum of $5,000 per month. Monthly earnings do not include any
bonuses, overtime pay or other extra compensation. The employees must meet the
eligibility requirements as stated in the plan to qualify.
Section 5. The Company will provide a Life and Accidental Death and
Dismemberment benefit to the employees. This plan provides basic life insurance
coverage equal to $50,000. The employee will have an option to acquire
additional life insurance based on the rates established by our insurer. Also,
the Accidental Death and Dismemberment benefits are subject to the provisions of
the Company's plan.
Section 6. The company will provide a Safety Glass program for the
employees. This plan provides for the following expense reimbursement on an
annual basis:
Exam Only: $38.00
Exam & Single Vision Glasses: $58.00
Exam & Bi-focal glasses: $78.00
ARTICLE 16
PENSION PROGRAM
Article 1. The Company agrees to continue the current pension program, on
the same basis as outlined in prior agreements and at a retirement income of
$200.00 times years of credited service from date of employment.
<PAGE>
Effective July 1, 1993, the Company will provide an additional $25 benefit
per year of credited service from July 1, 1993.
Effective July 1, 1994, the Company will provide an additional $25 benefit
per year of credited service from July 1, 1994.
Effective July 1, 1995, the Company will provide an additional $25 benefit
per year of credited service from July 1, 1995.
Effective July 1, 1996, the Company will provide an additional $25 benefit
per year of credited service from July 1, 1996.
Section 2. The Company agrees to implement a 401(k) plan for the employees.
All people employed by Irathane Systems and a member of the union who have
completed sixty (60) days of service and have attained at least the age of 20
may join the first of the month after their sixty day anniversary. As a Plan
participant, you may authorize payroll deductions of 1% up to 18% of your gross
salary for investment in the Plan. You may increase or decrease your deposit
percentage on January 1, April 1, July 1 or October 1. You may stop making
contributions at any time. As of this time, there will be no company
contribution made to this Plan.
ARTICLE 17
TERM OF AGREEMENT
Section 1. The term of this Agreement shall be from the first day of July
1999 and remain in full force and effect through June 30, 2002.
Section 2. Any party has the right to terminate or amend this Agreement by
giving notice to the other party, sixty (60) days before the expiration of this
Agreement. Failure to give such notice shall cause this Agreement to be renewed
automatically for a further period of twelve (12) months.
Section 3. In the event such written notice is given and a new Agreement is
not signed before the expiration date of this Agreement, then this Agreement
shall continue in force until a new agreement is signed, negotiations are
formally broken off or until a strike or lockout occurs.
IN WITNESS WHEREOF, we have set our hands and seals this day of June 1999.
IRATHANE SYSTEMS INCORPORATED MIDWESTERN INDUSTRIAL
COUNCIL
/s/ Daniel O. Burkes /s/ Lowell Schultz
/s/ John Kokotovich /s/ Albert A. Guddeir
/s/ Deb Gustafson /s/ John Koslucher
/s/ Ernie ?
<PAGE>
EXHIBIT 10(5)
AGREEMENT
between
ITW IRATHANE / ELLIOTT
"A DIVISION OF ITW CANADA"
3015 CKSO ROAD, SUDBURY, ONTARIO
and
THE INTERNATIONAL BROTHERHOOD
OF
PAINTERS AND ALLIED TRADES
LOCAL, 1904
SUDBURY, ONTARIO
Effective
June 1, 1999 - May 31, 2001
<PAGE>
AGREEMENT
ITW IRATHANE / ELLIOT, "a Division of ITW Canada", hereinafter referred to
as "The Company" and The International Brotherhood of Painters and Allied
Trades, Local 1904, hereinafter referred to as "The Union" as the bargaining
agent for the employees covered by this agreement, agree as follows:
ARTICLE 1
DEFINITION OF EMPLOYEE
1.01 The terms of "Employee" and "Employees" as used in this Agreement
(except where the context clearly indicates otherwise) shall mean an employee or
employees within the bargaining unit represented by the Union.
1.02 The Company may hire temporary employees with the following
provisions:
a) This Company agrees to advise the Union of the nature and duration of
the work and the number of temporaries that the Company expects to hire.
b) All employment mentioned in 1.02 shall be subject to the Union
membership as outlined in Article 3 with the exception that the Union will allow
work permits for jobs of less than six (6) months duration.
c) They shall not receive any benefits as laid out in Article #21.
d) A temporary position will become regular subject to all terms and
conditions of the Agreement if it continues beyond six (6) months of that time
or is reactivated within six (6) months of that time.
e) None of the conditions under 1.02 will result in the reduction of full
time positions or hours normally worked by regular full time employees.
ARTICLE 2
DESCRIPTION OF UNIT
2.01 The Company recognizes that the Union is certified as the sole
collective bargaining agent of all its employees at Sudbury, save and except the
supervisors, guards, persons above the rank of supervisor, office and sales
staff.
ARTICLE 3
UNION SECURITY
3.01 All Employees covered by this Agreement shall, as a condition of
continued employment, become a member of the Union within thirty (30) days of
ratification of this Agreement. All employees hired after the ratification of
this Agreement shall, as a condition of continued employment, become a member of
the Union within thirty (30) days of his/her hiring date. However, employees
hired under the provisions of Article 1.02 are exempt from Union membership and
will work under work permits issued by the Union. It if further agreed that all
aforementioned employees shall maintain such membership or work permits in good
standing as a condition of continued employment.
<PAGE>
3.02 Employees hired under the provisions of Article 1.02 are exempt from
Union membership and will work under work permits issued.
3.03 The Company will, commencing with the date of signing this Agreement,
honor an authorization for the deduction and remittance of an amount equivalent
to the regular weekly Union dues and initiation fees, when applicable, of any
employee who instructs the Company to make such a deduction on a form provided
by the Union.
3.04 The Company will remit the monies so deducted to the office of the
Union prior to the twentieth (20th) day of the month following the month in
which deductions are made and will name the employees from whose pay such
payment has been deducted.
3.05 Except in cases of emergency, production difficulties, instruction,
experimental or research work, or situations where no qualified employee within
the bargaining unit is available to do such work, supervisory employees shall
not work on any job normally performed by an employee in the bargaining unit.
3.06 In cases involving the training of employees, senior employees shall
be entitled to preference subject to the following factors:
a) seniority;
b) physical fitness of the employee to do the job;
c) the ability, knowledge, state of training, and skill of the individual;
Where factors b) and c) are relatively equal, then seniority shall govern.
ARTICLE 4
DISCRIMINATION
4.01 It is agreed by both parties that there shall be no discrimination of
any nature on the part of the employer, the Union or by the employees themselves
against any employee on the ground of: race, ancestry, place of origin, colour,
ethnic origin, citizenship, creed, sex, sexual orientation, handicap, age,
marital status, family status, the receipt of public assistance, record of
offenses, or any other provision of the Human Rights Code, 1981.
ARTICLE 5
UNION NOTICES
5.01 At the request of the Union, the Company shall let the Union post on
the Company bulletin boards, located in the shop, Union notices that have been
approved by the Company.
ARTICLE 6
NO STRIKES OR LOCKOUTS
6.01 During the life of this agreement the Union shall not cause or
support, nor shall any employee or employees take part in any action against the
Company such as a strike, international slowdown in rate of production, or any
other, interference with or stoppage for the Company's work. The Company shall
not conduct a lockout during the term of the Agreement.
<PAGE>
ARTICLE 7
SAFETY AND HEALTH
7.01 The Company will make safety equipment available to its employees in
accordance with job requirements and existing safety legislation.
7.02 The Company welcomes from the Union, its members, or any employees,
suggestions regarding safety and health.
7.03 Employees shall abide by and obey reasonable safety rules and
regulations established by the Company.
7.04 The Company will supply one (1) pair of C.S.A. approved safety
footwear per year, per employee, based on the employees anniversary date of
hire. In the event the employee elects to purchase alternate (Company approved)
footwear the Company will reimburse up to the amount of sixty-five ($65.00)
dollars upon proof of purchase.
ARTICLE 8
WORKING CONDITIONS
8.01 The Company agrees that its policy is to provide proper safety
facilities, proper ventilation and heat in accordance with the standards set by
the laws of the Province of Ontario and/or Canada.
ARTICLE 9
WORK SCHEDULES
9.01 The regular work shift shall consist of:
a) Five (5) consecutive days of eight (8) hour shifts, Monday through
Friday or;
b) Four (4) consecutive daysof ten (10) hour shifts within Monday through
Friday.
These shifts will be scheduled as follows:
Day shift
Afternoon shift
Night shift
9.02 The Company may change the above work schedule but will confer with
the Union Representative before making any changes.
9.03 The Company may establish a special work schedule to meet:
1) The special requirements arising out of the inherent characteristics of
any job or
2) Any temporary work situation.
<PAGE>
9.04 The Company does not guarantee to provide work for any regular
schedule or for any other schedules.
ARTICLE 10
OVERTIME
10.01 The Company's policy will be to keep overtime to a minimum. If
conditions arise necessitating overtime, the overtime will be given to the
employees in a fair and equitable manner, with regard to skill and ability of
the employee to perform the work available.
10.02 Overtime at the rate of one and one-half (1 + 1/2) times the regular
rate shall be paid for all work performed in excess of the hours scheduled per
day, under Article 9.01, sections a) and b) and in excess of forty (40) hours
per week, or for work on a Saturday.
10.03 Overtime at the rate of double time the regular rate shall be paid
for all work performed on Sundays and Statutory Holidays, there shall be no
pyramiding of overtime pay.
10.04 Employees reporting to work at the regular starting time who have not
been told in advance not to report will be given work for at least four (4)
hours or shall be paid at their hourly rate for any portion of said four (4)
hours during which work is offered to them.
10.05 The above provisions do not apply if the employee is prevented from
working because of power shortage or failure of power supply or other conditions
beyond the control of the Company.
ARTICLE 11
PAID HOLIDAYS
11.01 The following Statutory Holidays will be paid during the 1998-2001
contract. Canada Day, Christmas Day, August Civic Holiday, Boxing Day, Labour
Day, New Years Day, Thanksgiving Day, Victoria Day, Good Friday, and Remembrance
Day.
Two (2) Floating Holidays for employees hired prior to June 1, 1992.
11.02 Should any of the above mentioned holidays fall on a Saturday or a
Sunday, either Monday immediately following or the Friday immediately preceding
such holiday shall be considered as the holiday as may be determined by the
Company.
ARTICLE 12
JURY DUTY
12.01 An employee will be excused for jury duty and the Company will
reimburse the difference between jury pay and the employee's regular wages.
<PAGE>
ARTICLE 13
FUNERAL LEAVE PAY
13.01 The Company will pay employees for time lost at the employee's
straight time rate for the number of hours in his/her regular scheduled work
time three (3) days when there is a death in the immediate family (defined as
Father, Mother, Sister, Brother, Spouse, Children, Mother-in-law, Father-in-law)
for the purpose of attending funeral services.
13.02 One day absence shall be paid to an employee for the purpose of
attending the funeral of a Sister-in-law, Brother-in-law, Grandmother or
Grandfather.
ARTICLE 14
SENIORITY
14.01 The purpose of seniority is to provide a fair and equitable policy
governing layoff, rehires, and job promotion. Job promotions are offered based
on ability to perform the job responsibility. Seniority will prevail if there is
more than one candidate qualified.
14.02 In the event of a reduction of the work force, Company service shall
be applied by job classifications group so senior employees shall be retained
provided they have the qualifications, capability and experience to
satisfactorily perform the remaining jobs in that group.
14.03 Employees with the least continuous service in each job
classification shall be laid off first, provided the remaining employees are
qualified, in management's good faith and judgement, to perform the necessary
work. In the event of layoff exceed five (5) working days (this will be two (2)
weeks on field jobs), the Company shall consider the status of any employee on
layoff to determine whether the employee has the qualifications to perform work
then being performed by an employee in another job classification, with less
continuous service with the Company. If the Company concludes that a laid off
employee has such requisite qualifications, he/she will be recalled and
substituted for the more junior employee, who will then be placed on layoff
status. During the period of a layoff, no new employees shall be hired to
perform the same job which a laid off employee is then able to perform. The
employees shall be recalled to work in the order of their seniority within each
job classification with a laid off employee in each class having the greatest
amount of continuous service receiving first recall. Recall from layoff will be
made with the same consideration as those used in the workforce reduction.
14.04 For the purpose of this Agreement a "probationary employee" is an
employee whose length of employment with the Company is less than six (6)
months. Such employee has no seniority rights and his/her retention as an
employee is entirely within the discretion of the Company.
14.05 The Company agrees that probationary employees shall be the first
laid off.
14.06 An employee shall be considered to have lost all seniority and
continuous service with the Company if:
a) He/She voluntary quits the employ;
<PAGE>
b) Is discharged for just cause and such discharge is not reversed through
the grievance procedures;
c) If on a continuous layoff in excess of nine (9) months;
d) The employee retires.
14.07 In the event of a layoff situation, employees will be given notice
five (5) working days notice prior to layoff.
ARTICLE 15
PAID VACATIONS
15.01 An employee will be entitled to an annual vacation with pay in
accordance with the following schedule based on his/her continuous service with
the Company to December thirty-first (31st) preceding the year in which the
vacation is to be taken.
15.02 a) Less than one year of continuous service, the employee shall
receive four percent (4%) of gross earnings.
b) One or more years of continuous service but less than four (4) years,
two (2) weeks vacation remunerated at either (i) 4% of the employee's total
earnings for the preceding calendar year or (ii) eighty (80) hours of pay at the
employee's hourly rate at the time of taking his/her vacation, whichever is
greater.
c) Four (4) or more years of continuous service, three (3) weeks vacation
remunerated at either (i) 6% of the employee's total earnings for the preceding
year, or (ii) one- hundred-twenty (120) hours of pay at the employee's hourly
rate at the time of taking his/her vacation, whichever is greater.
d) Twelve (12) or more years of continuous service, four (4) weeks vacation
remunerated at either (i) 8% of the employee's total earnings for the preceding
calendar year, or (ii) one-hundred-sixty (160) hours of pay at the employee's
hourly rate at the time of taking his/her vacation, whichever is greater.
If any employee has performed no work for the Company for four (4) months
or longer during the preceding vacation year, option "ii" in paragraphs "b" "c"
and "d" will not apply.
15.03 Vacations shall be taken at a time which is mutually satisfactory to
the employee and the Company, with the understanding that vacations shall not
interfere with production. For all employees subject to this Agreement, the
vacation schedule shall be determined and posted prior to April15th each year
during the term of this Agreement.
ARTICLE 16
GRIEVANCE PROCEDURES
16.01 It is the mutual desire of parties to this agreement that complaints
and grievances of the employees shall be adjusted as quickly as possible. The
Union Steward and/or Business Representative will take any matter up directly
with the Supervisor for the purpose of adjusting the condition causing the
complaint before lodging a formal grievance, in writing, within the next five
(5) working days if a settlement is not reached. Any grievance regarding
discharge must be presented within 24 hours or it will be barred.
<PAGE>
16.02 If a settlement is not reached, within the next fifteen (15) days,
the grievance may be referred to the General Manager or a delegate appointed by
him/her who will meet with the Union Steward and/or Business Representative for
the final decision.
16.03 If no settlement can be reached within the next fifteen (15) working
days following this meeting, the grievance may be referred within the next
thirty (30) working days to a sole Arbitrator for final and binding decision as
provided in Article 17 - Arbitration. Upon receipt of the request to arbitrate,
the General Manager or a delegate appointed by him/her and the Union
Representative will meet to decide upon a mutually acceptable Arbitrator.
ARTICLE 17
ARBITRATION
17.01 Both parties to this Agreement agree that any alleged
misinterpretation or violation of the provision of this Agreement, including any
grievances which has been carried through the grievance procedures outlined in
Article 16 and which has not been settled, may be referred to a board of
Arbitration at the written request of the party instituting the grievances
providing such notice shall state the specific issues to be arbitrated and the
provisions of the Agreement alleged to be violated. The notice shall be given
not later than thirty (30) days after final grievance proceedings failed to
settle the issue.
(a) If within ten (10) days after their first meeting, the two parties have
been unable to agree upon a mutually acceptable Arbitrator, the Ministry of
Labour, for the Province of Ontario shall be requested to appoint an Arbitrator.
17.02 the referral of grievance(s) to a sole Arbitrator shall be subject to
the following rules:
a) The Arbitrator shall afford the parties reasonable opportunity to submit
briefs;
b) The Arbitrator shall render his/her decision as soon as possible;
c) The Arbitrator, in rendering a decision shall be bound by the Principles
of Law to the interpretation of contracts followed by Ontario Provincial Courts;
d) The Arbitrator shall have jurisdiction and authority only to interpret,
apply or determine compliance with the provisions of this Agreement, insofar as
shall be necessary to the determination of grievances appealed to the
Arbitrator. The Arbitrator shall not have jurisdiction or authority to add to,
or detract from or alter in any way, the provisions of the Agreement.
e) The expenses of the Arbitrator shall be born equally by both parties in
arbitration;
f) No person may be appointed as an Arbitrator who has been involved in an
attempt to negotiate or settle the matter at issue.
ARTICLE 18
UNION REPRESENTATIVE
18.01 The Union shall furnish the Company with the names of the Union
Officers and the company agrees that the Union shall have the right to appoint a
Steward. The Steward shall be recognized as being a representative of the Union
on the job. The Company shall be notified, in writing, of any changes. The
Company shall not recognize any employees as a Steward or Union officer without
such notice.
<PAGE>
18.02 No Steward or other Union Representative may be absent from his/her
work except for the purpose of investigating or handling grievances in the
manner specifically provided for in this Agreement, and then only provided that,
before absenting himself/herself from his/her job, he/she notified his/her
supervisor for such purpose. After each absence, such representatives shall
report to the supervisor in charge at the time he/she returns to work.
ARTICLE 19
LEAVE OF ABSENCE
19.01 The Company will grant time off without pay to the elected Steward
and/or Union Officer in order to attend conventions in connection with the
Union's activities.
19.02 Leave of absence shall mean an absence from work requested by an
employee in writing anc consented to by the Company. Leave granted shall be in
writing covering a specified period of time. Leave of absence shall be
permissive only and shall be without pay or any other form of compensation, and
the employee shall not work any other position during such leave unless agreed
to by the Company in writing. No such leave of absence will affect any
employee's seniority rights when used for the purpose granted provided he
returns to work at the expiration of his/her leave.
ARTICLE 20
METHODS OF PAY IN WAGES AND TERMINATIONS OF EMPLOYMENT
20.01 Wages shall be paid one each week on or before Friday, no later than
one (1) hour before the regular quitting time. Method of payment will be by
direct deposit.
20.02 When an employee is laid off, discharged for cause, quits or
otherwise leaves the Company, he/she shall receive all wages due on the next
regular pay day.
20.03 Continuous service and the employment relationship shall be
considered terminated when:
a) An employee voluntarily quits or is discharged for proper cause;
b) an employee who has been laid-off fails to report to work when recalled
by registered mail to his last known address within a period of five (5) working
days;
c) An employee is absent for more than three (3) days without notifying the
company for reasons of such absence.
ARTICLE 21
GENERAL BENEFITS
The benefits provided under ITW Irathane / Elliott, a unit of ITW Canada,
Inc. In Sudbury, are in effect at the signing of the Agreement and will not be
changed during the life of this Agreement except as may be required by law.
<PAGE>
21.01 Benefits and plans referred to in this article are necessarily
qualified in their entirety by reference to the underlying policies of contracts
of insurance.
21.02 The Company will pay one-hundred (100%) percent of the premium costs
for the following benefit plans for seniority employees. (1) ITW Life/A.D. & D.
Insurance (2) Dependent Life (3) Weekly Indemnity Coverage (4) O.H.I.P. standard
coverage for employees and dependents (5) ITW Major Medical Coverage (6) ITW
Dental Plan (7) The Company will continue to make RRSP contributions to each
full-time employee's account on an accrual basis to a maximum of $550.00 per
year for all contract years through May 31st, 2001.
ARTICLE 22
WAGES AND JOB CLASSIFICATION
22.01 The Company agrees to pay and the Union agrees to accept the pay
scale as shown in Attachment "A" which is made part of this Agreement.
22.02 With the Union and the Company's mutual agreement new employees may
start at a higher rate than indicated in Attachment "a" in recognition of
previous working experience.
22.03 The Company will pay authorized accommodation and transportation
costs for hourly employees required to travel from their normal place of
employment to perform field assignments. Employees will be paid one (1) dollar
per hour premium while performing field work at the customer's premise. This
premium does not apply to truck drivers.
ARTICLE 23
GENERAL PROVISIONS
23.01 The parties acknowledge that during the negotiations which resulted
in this Agreement, each had the unlimited right and opportunity to make demands
and proposals with respect to any subject or matter not removed by law from the
area of collective bargaining, and that the understandings and agreements
arrived at by the parties after the exercise of that right and opportunity are
set forth in this Agreement. Therefore, each party voluntarily and unqualifiedly
waives the right and agrees that the other shall not be obligated to bargain
collectively with respect to any subject matter not referred to specifically or
not covered in this Agreement even though such subject or matter may not have
been within the knowledge or contemplation of either party at the time they
negotiated or executed this Agreement.
23.02 If any article or section of this contract or if any rider thereto
shall beheld invalid by operation of law or by any tribunal of competent
jurisdiction or if compliance with or enforcement of any article or section
should be restrained pending a final determination as to its validity, the
remainder of this contract and of any rider thereto or the application of such
article or section to persons or circumstances other than those as to which it
has been held invalid or as to which compliance with or enforcement of has been
restrained, shall not be affected thereby.
<PAGE>
23.03 In the event that any article or section is held invalid or
enforcement of or compliance with which has been restrained as above set forth,
the parties affected thereby shall enter into immediate collective bargaining
negotiations upon the request of the Union for the purpose of arriving at a
mutually satisfactory replacement for such article or section during the period
of invalidity or restraint. If the parties do not agree on a mutually
satisfactory replacement, either party shall be permitted all legal or economic
recourse in support of its demands notwithstanding any provision in this
contract to the contrary.
ARTICLE 24
DURATION
24.01 This Agreement shall become effective on the first (1st) day of June
1998 and shall remain in effect until May 31, 2001. It shall be binding for a
further period of one (1) year unless either party shall have been given the
other written notice of the termination of the Agreement, not less than thirty
(30) days and not more than sixty (60) days before the last day of the period
prescribed by this Agreement.
SIGNED FOR THE COMPANY:
/s/ 6/29/99 /s/
- ------------------------------------ ------------------------------------
Wayne Paquette Date Chuck Brown Date
Operations Manager, ITW Controller, ITW
SIGNED FOR THE UNION
/s/ 6/29/99 /s/ 06/29/99
- ------------------------------------ -----------------------------------
Bill Laberge Date Michael McKerral Date
Union Steward, ITW Business Representative, L.U. 1904
<PAGE>
ATTACHMENT "A"
Effective June 1, 1998
Position Indicates Time Percentage Variance Maximum
Advancement Increase Increase Wage
1st Class 6 months 100 % $ 17.26
Level #1 3 months 50 % $ 0.19 $ 17.08
2nd Class 12 months 100 % $ 16.89
Level #3 9 months 75 % $ 0.71 $ 16.19
Level #2 6 months 50 % $ 0.70 $ 15.48
Level #1 3 months 25 % $ 0.71 $ 14.78
Utility Operator 18 months 100 % $ 14.07
Level #2 12 months 66 % $ 1.07 $ 12.99
Level #1 6 months 33 % $ 1.05 $ 11.93
Trainee Starts at this Wage $ 10.88
Trainee 6 months Probation Only $ 9.59
Shift Premium 2nd Shift - $0.20/hr 3rd Shift = $0.30/hr
**Temporary** Start: $8.00/hr Maximum: $8.50/hr
**Student Help** Minimum Wage as per Current Canadian Government Levels.
Approvals
FOR THE COMPANY FOR THE UNION
/s/ 6/29/99 /s/ 6/29/99
- ------------------------------- ---------------------------------------
Wayne Paquette date Bill Laberge date
N/A /s/ 06/29/99
- ------------------------------- ---------------------------------------
Charles Brown date Michael McKerral date
<PAGE>
ATTACHMENT "A"
Effective June 1, 1999
Position Indicates Time Percentage Variance Maximum
Advancement Increase Increase Wage
1st Class 6 months 100 % $ 17.66
Level #1 3 months 50 % $ 0.20 $ 17.50
2nd Class 12 months 100 % $ 17.31
Level #3 9 months 75 % $ 0.73 $ 16.59
Level #2 6 months 50 % $ 0.73 $ 15.87
Level #1 3 months 25 % $ 0.73 $ 15.14
Utility Operator 18 months 100 % $ 14.42
Level #2 12 months 66 % $ 1.10 $ 13.31
Level #1 6 months 33 % $ 1.36 $ 12.23
Trainee Starts at this Wage $ 11.15
Trainee 6 months Probation Only $ 9.83
Shift Premium 2nd Shift - $0.20/hr 3rd Shift = $0.30/hr
**Temporary** Start: $8.20/hr Maximum: $8.71/hr
**Student Help** Minimum Wage as per Current Canadian Government Levels.
Approvals
FOR THE COMPANY FOR THE UNION
/s/ 6/29/99 /s/ 6/29/99
- ------------------------------- ---------------------------------------
Wayne Paquette date Bill Laberge date
N/A /s/ 06/29/99
- ------------------------------- ----------------------------------------
Charles Brown date Michael McKerral date
<PAGE>
ATTACHMENT "A"
Effective June 1, 2000
Position Indicates Time Percentage Variance Maximum
Advancement Increase Increase Wage
1st Class 6 months 100 % $ 18.13
Level #1 3 months 50 % $ 0.20 $ 17.94
2nd Class 12 months 100 % $ 17.74
Level #3 9 months 75 % $ 0.74 $ 17.00
Level #2 6 months 50 % $ 0.74 $ 16.26
Level #1 3 months 25 % $ 0.74 $ 15.52
Utility Operator 18 months 100 % $ 14.78
Level #2 12 months 66 % $ 1.14 $ 13.64
Level #1 6 months 33 % $ 1.10 $ 12.54
Trainee Starts at this Wage # 12.43
Trainee 6 months Probation Only $ 10.08
Shift Premium 2nd Shift - $0.20/hr 3rd Shift = $0.30/hr
**Temporary** Start: $8.41/hr Maximum: $8.93/hr
**Student Help** Minimum Wage as per Current Canadian Government Levels.
Approvals
FOR THE COMPANY FOR THE UNION
/s/ 6/29/99 /s/ 6/29/99
- -------------------------------- ---------------------------------------
Wayne Paquette date Bill Laberge date
N/A /s/ 06/29/99
- -------------------------------- ---------------------------------------
Charles Brown date Michael McKerral date
<PAGE>
ASSIGNMENT AGREEMENT
This Agreement made this 1st day of April 1999.
BETWEEN:
INDUSTRIAL RUBBER PRODUCTS - CANADA INC. (carrying on business as
IRATHANE/ELLIOT SYSTEMS), having an office in Sudbury, in the Province of
Ontario (hereinafter called "Irathane/Elliott Systems")
- and -
INTERNATIONAL BROTHERHOOD OF PAINTERS & ALLIED TRADES, LOCAL 1904, a trade
union, having members employ in the Province of Ontario ("hereinafter called the
Union")
WHEREAS the union and ITW Canada are currently parties to a union contract
covering certain employees of Irathane/Elliott Systems.
NOW, THEREFORE THIS AGREEMENT WITNESSETH THAT:
1. The Irathane/Elliott Systems has accepted an assignment of the existing
union contract between the Union and ITW Canada and hereby agrees with the Union
that it shall be bound by, observe and perform all the terms and conditions
contained in the existing union contract for the period commencing on April 1,
1999 and ending on the termination of such contract.
2. The Union does hereby consent to the assignment of the existing union
contract by ITW Canada to Irathane/Elliott Systems, accepts Irathane/Elliott
Systems as a party to the existing union contract and covenants and agrees that
Irathane/Elliott Systems shall be entitled to hold and enforce all the rights
and privileges under the existing contract.
IN WITNESS WHEREOF the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
Industrial Rubber Products - Canada Inc., International Brotherhood of Painters
carrying on business as & Allied Trades.
IRATHANE/ELLIOTT SYSTEMS
Per:/s/ 4/2/99 Per:/s/ 04/02/99
--------------------------------- -----------------------------------
Wayne Paquette Mike McKerral
Director Business Manager, Local 1904
<PAGE>
EXHIBIT 10(7)
STOCK BONUS PLAN
OF
INDUSTRIAL RUBBER PRODUCTS, INC.
1. Purpose. The purpose of this Stock Bonus Plan (the "Bonus Plan") is to
reward management of Industrial Rubber Products, Inc. (the "Company") with a
proprietary interest in the Company, thereby creating an additional incentive to
such personnel to promote the Company's best interests and to continue in its
employ, and further to provide an additional inducement for the acquisition of
the services of persons capable of contributing to the future success of the
Company. Stock granted under this Plan will be unregistered, Rule 144, stock.
2. Administration.
a. This Bonus Plan shall be administered by the Stock Bonus Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). The
Committee shall be comprised of the entire Board or, if the Board so determines,
of two or more "non-employee directors" as defined in Rule 16b-3 of the General
Rules and Regulations under the Securities Exchange Act of 1934.
b. The Committee shall have full authority and discretion to determine,
consistent with the provisions of the Bonus Plan, the employees to be granted
awards and the times at which awards shall be granted. The Committee shall also
have full authority and discretion to adopt and revise such rules and procedures
as it shall deem necessary for the administration of this Bonus Plan.
c. The Committee's interpretation and construction of any provisions of
this Bonus Plan or any award granted hereunder shall be final, conclusive and
binding on the Company and all other persons.
3. Eligibility.
a. The Committee shall from time to time determine the individuals who
shall be granted awards under this Bonus Plan. Bonus stock awards may only be
granted under this Bonus Plan to any full or part-time employee (which term
includes, but is not limited to, officers and directors who are also employees)
of the Company or of its present and future subsidiary corporations. The term
"subsidiary corporation" shall, for the purposes of this Bonus Plan, be defined
in the same manner as such term is defined in Section 425(f) of the Internal
Revenue Code.
b. An individual who has been granted an award may be granted an additional
award under this Bonus Plan if the Committee shall so determine, with the
restriction that no individual employee may receive stock awards for shares
having an aggregate Fair Market Value (determined as of the time the award is
granted) in excess of $100,000.
c. The granting of an award under this Bonus Plan shall not affect any
stock award previously granted under this Bonus Plan or any other plan of the
Company.
4. Shares of Stock Subject to This Bonus Plan. The number of shares which
may be issued pursuant to the awards granted by the Committee under this Bonus
Plan shall not exceed fifty thousand (50,000) shares of the common voting stock
of the Company (the "Common Stock"), subject to adjustment as provided in its
Bonus Plan.
5. Issuance and Terms of Award Agreements. Each award granted under this
Bonus Plan shall be evidenced by a written Award Agreement, which shall be
subject to the provisions of this Bonus Plan and to such other terms and
conditions as the Committee may deem appropriate.
6. Terms of Awards. Each award under this Bonus Plan shall be unregistered
restricted, Rule 144 stock.
<PAGE>
EXHIBIT 10(9)
FIRST AMENDMENT
TO
CREDIT AGREEMENT
This First Amendment to Credit Agreement dated as of September 30,1999, is
by and between INDUSTRIAL RUBBER PRODUCTS, INC., a Minnesota corporation (the
"Borrower") and U.S. BANK NATIONAL ASSOCIATION, a national banking association
(the "Lender").
RECITALS
A. The Borrower and the Lender have entered into a Credit Agreement dated
as of March 30, 1999 (the "Credit Agreement")
B. The Borrower and the Lender wish to make certain amendment to this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein set forth
and for other good and valuable consideration, the Borrower and the Lender agree
as follows:
Section 1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the Credit
Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Credit Agreement is hereby amended as follows:
2.1 Commitments. Section 2.1(a) of the Credit Agreement is amended in its
entirety to provide as follows:
2.1(a) Revolving Credit. A revolving loan (the "Revolving Loan") to the
Borrower available as Advances at any time and from time to time from the
Closing Date to March 31, 2000 (the "Revolving Maturity Date"), during which
period the Borrower may borrow, repay and reborrow in accordance with the
provisions hereof, provided, that the unpaid principal amount of revolving
Advances shall not at any time exceed $2,000,000 (the "Revolving Commitment
Amount"); and provided, further, that no revolving Advance will be made if,
after giving effect thereto, the unpaid principal amount of the Revolving Note
would exceed the Borrower Base.
Section 3. Conditions and Effectiveness. This Amendment shall become
effective on the date hereof, only upon satisfaction of the following
conditions:
(a) The Borrower shall have executed and delivered too the Lender this
First Amendment.
(b) The Lender shall have received an amended and restated Revolving Note
executed by the Borrower in form and substance satisfactory to the Lender.
<PAGE>
(c) The Lender shall have received an amended and restated Term Note
executed by the Borrower in form and substance acceptable to the Lender.
(d) The Lender shall have received an executed consent and reaffirmation
from each guarantor in form and substance acceptable to the Lender.
(e) The Lender shall have received an executed reaffirmation of security
agreement from each of the Borrower's subsidiaries in form and substance
acceptable to the Lender.
(f) The Lender shall have received such other documents as the Lender may
reasonably request.
Section 4. Acknowledgment. The Borrower and the Lender acknowledge and
agree that as hereby amended the Credit Agreement remains in full force and
effect. All referenced in the Credit Agreement to "this Agreement," "herein" or
similar references shall mean the Credit Agreement as amended herein. The
Borrower represents and warrants that the Borrower has the power and legal right
and authority to enter into this Amendment and has duly authorized as
appropriate the execution and delivery of this Amendment and other agreements
and documents executed and delivered by the Borrower in connection herewith or
therewith by proper corporate action. The Borrower acknowledges and agrees that
the security interests granted to the Lender pursuant to the Security Agreement
secure all liabilities and obligations of the Borrower to the Lender and this
Agreement, as hereby amended.
Section 5. Counterparts. This Amendment may be executed in one or more
counterparts and by separate parties on separate counterparts with the same
effect as if the signatures thereto were on the same instrument and shall become
effective when counterparts executed by all parties have been received by the
Lender.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
Credit Agreement to be executed by their officer thereunto duly authorized as of
the date first above written.
INDUSTRIAL RUBBER PRODUCTS, INC.
By: /s/
Its: President
U.S. BANK NATIONAL ASSOCIATION
By: /s/
Its: VP
<PAGE>
REVOLVING NOTE
$2,000,000 September 30, 1999
Hibbing, Minnesota
FOR VALUE RECEIVED, INDUSTRIAL RUBBER PRODUCTS, INC., a corporation
organized under the laws of the State of Minnesota, hereby promises to pay to
the order of U.S. BANK NATIONAL ASSOCIATION (the "Lender") at its main office in
Hibbing, Minnesota, in lawful money of the United States of America in
immediately available funds on the Revolving Maturity Date (as such term and
each other capitalized term used herein are defined in the Credit Agreement
hereinafter referred to) the principal amount of TWO MILLION DOLLARS AND NO
CENTS ($2,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender under the Credit Agreement, and to pay
interest (computed on the basis of actual days elapsed and a year of 360 days)
in like funds on the unpaid principal amount hereof from time to time
outstanding at the rates and times set forth in the Credit Agreement.
This note is the Revolving Note referred to in the Credit Agreement dated
as of March 30, 1999 as amended by that First Amendment to Credit Agreement of
even date (as the same may be hereafter from time to time amended, restated or
modified, the "Credit Agreement") between the undersigned and the Lender. This
note is secured, it is subject to certain permissive and mandatory prepayments
and its maturity is subject to acceleration, in each case upon the terms
provided in said Credit Agreement. This note is issued in substitution,
extension and replacement of, but not in payment of, a Revolving Note in the
original principal amount of $2,000,000 dated as of March 30, 1999 from the
Borrower to the Lender.
In the event of default hereunder, the undersigned agrees to pay all costs
and expenses of collection, including reasonable attorneys' fees. The
undersigned waives demand, presentment, notice of nonpayment, protest, notice of
protest and notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF
THE UNITED STATES APPLICABLE TO NATIONAL BANKS.
INDUSTRIAL RUBBER PRODUCTS, INC.
By: /s/
Title: President
<PAGE>
TERM NOTE
$7,000,000 September 30, 1999
Hibbing, Minnesota
FOR VALUE RECEIVED, INDUSTRIAL RUBBER PRODUCTS, INC., a corporation
organized under the laws of the State of Minnesota, hereby promises to pay to
the order of U.S. BANK NATIONAL ASSOCIATION (the "Lender") at its main office in
Hibbing, Minnesota, in lawful money of the United States of America in
immediately available funds on March 31, 2000, the principal amount of SEVEN
MILLION DOLLARS AND NO CENTS ($7,000,000), and to pay interest (computed on the
basis of actual days elapsed and a year of 360 days) in like funds on the unpaid
principal amount hereof from time to time outstanding at the rate and times set
forth in the Credit Agreement.
This note is the Term Note referred to in the Credit Agreement dated as of
March 30, 1999 as amended by that First Amendment to Credit Agreement of even
date as the same may hereafter be from time to time amended, restated or
otherwise modified, the "Credit Agreement") between the undersigned and the
Lender. This note is secured and its maturity is subject to acceleration, in
each case upon the terms provided in said Credit Agreement. This note is issued
in substitution, extension and replacement of, but not in payment of, a Term
Note in the original principal amount of $7,000,000 dated as of March 30,1999
from the Borrower to the Lender.
In the event of default hereunder, the undersigned agrees to pay all costs
and expenses of collection, including reasonable attorneys' fees. The
undersigned waives demand, present, notice of nonpayment, protest, notice of
protest and notice of dishonor.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA WITHOUT GIVING EFFECT TO
THE CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF
THE UNITED STATES APPLICABLE TO NATIONAL BANKS.
INDUSTRIAL RUBBER PRODUCTS, INC.
By: /s/
Title President
<PAGE>
EXHIBIT 10(11)
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and
executed as of the 5th day of October, 1999, by and between DGW ENTERPRISES,
L.C., a Utah limited liability company ("Lessor"), and INDUSTRIAL RUBBER
PRODUCTS-UTAH, INC., a Utah corporation ("Lessee"), and this Amendment is
executed in connection with the following facts:
A. Lessor and Lessee entered into that Lease Agreement, dated January 20,
1999, between Lessor and Lessee (the "Lease"), for the lease of certain real
property located in Salt Lake County, Utah, and described therein.
B. Lessor and Lessee desire to amend the terms of the Lease in accordance
with the terms of this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee hereby amend the
Lease as follows:
1. Definitions. Except as otherwise set forth in this Amendment, the
capitalized terms appearing herein shall have the meanings set forth in the
Lease.
2. Purchase Option. The exercise period for exercise at the Initial
Purchase Price referred to in Section 16.2 of the Lease is hereby extended to
December 31, 2000, and for purposes of defining the Initial Purchase Price under
Section 16.5 of the Lease, the parties also to use the date of December 31,
2000. Further, under Section 16.5 of the Lease, the Initial Purchase Price for
all three (3) parcels comprising the Premises shall be $1,100,000.00 and,
alternatively, the Initial Purchase Price for that portion of the Premises
consisting of the two (2) parcels located on the north side of Leo Park Road
shall be $725,000.00. Thus, the Option shall permit Lessee to exercise a right
to purchase the entire Premises or until December 31, 2000, only a portion
thereof in the form of such two (2) parcels, at Lessee's election. Lessee may
only exercise the Option once, and if Lessee exercises the Option as to such two
(2) northern parcels, the Option and the Lease shall automatically terminate for
all other purposes.
3. Consistency. Except as set forth in this Amendment, the terms and
provisions of the Lease shall remain unchanged and in full force and effect.
4. No Defaults. Lessor and Lessee hereby represent to each other that as of
the date of this Amendment there are no defaults or breaches existing under the
Lease and no events have occurred that, but for the passage of any applicable
cure period, will constitute a default or breach under the Lease.
<PAGE>
IN WITNESS WHEREOF, Lessee and Lessor have executed this Amendment as of
the day and year first set forth above.
DGW ENTERPRISES, L.C., a Utah limited liability
By________________________________
Dean G. Wilson, manager
INDUSTRIAL RUBBER PRODUCTS-UTAH,
INC., a Utah corporation
By__________________________________
Daniel O. Burkes, president
2
<PAGE>
EXHIBIT 10(12)
LEASE
THIS LEASE, made and entered into as of the 1st day of January, 2000, by
and between DANIEL O. BURKES, the "Landlord," and IRATHANE SYSTEMS, INC., a
Minnesota corporation, the "Tenant",
WITNESSETH:
ARTICLE 1. PREMISES AND TERM. The Landlord, in consideration of the rentals
herein agreed to be paid by the Tenant and the other conditions, agreements, and
stipulations of the Tenant herein expressed and agreed to be kept and performed
by the Tenant, does hereby demise and lease unto Tenant a portion of the
following described property, with a portion of the building and improvements
thereon as shown on the attached Exhibit "A" attached hereto and made a part
hereof, situated in the City of Hibbing, County of St. Louis, State of
Minnesota, and described as follows:
Lots 6 and 8, Block 4, Hibbing Industrial Park
The portion of said land and premises, together with the portion of the
building and improvements located therein, including 90% of the parking lot,
being hereinafter collectively called the "demised premises"; and
Subject, however, to the encumbrances, and all zoning ordinances and
resolutions affecting the demised premises now or hereinafter in force; to any
state of facts which an accurate survey would show; to restrictive covenants of
record, if any.
TO HAVE AND TO HOLD the demised premises for a term of three (3) years from
and after January 1, 2000, to and including December 31, 2002, unless this Lease
shall sooner end and terminate as hereinafter provided, said term including the
portion thereof as shortened by any earlier termination of this Lease or as
extended, being hereafter called the "demised term".
ARTICLE 2. RENT. Landlord reserves and Tenant covenants to pay to Landlord,
without demand, and without offset, at 3804 13th Avenue, Hibbing, Minnesota, or
at such other address as the Landlord may from time to time designate in
writing, in advance, rent in successive equal installments of NINE THOUSAND
NINETY AND NO/100THS--($9,090.00)-- DOLLARS per month.
ARTICLE 3. ADDITIONAL RENT/TAXES. Tenant agrees to pay, as additional rent
hereunder, before the last day on which they may be paid without penalty or
interest, Seventy five percent (75%) of the real estate taxes and special
assessments, and other governmental charges, e.g. County Landfill charges, which
shall be levied, assessed, or which become liens upon the demised premises or
any part thereof, during the demised term with respect to any tax year, or any
portion thereof, beginning with those taxes and special assessments, if any,
payable in 2000; provided, however, that if any such tax, assessment, or charge
may be payable in installments, Tenant may pay each such installment before the
last day upon which it may be paid without penalty or interest. Payment shall be
made to the Landlord.
<PAGE>
Anything contained herein to the contrary notwithstanding, if Tenant deems
any such tax, assessment or charge illegal or excessive, Tenant may defer
payment thereof so long as the validity or amount thereof is contested by the
Tenant in good faith, and Tenant adequately secures the Landlord against the
nonpayment of such taxes.
In case Tenant fails to make any of the payments to be made by the Tenant
under this Article as aforesaid, Landlord may pay the amount of any such tax
assessment, or charge, without penalty and interest thereon, if any, and the
amount so paid by Landlord with interest thereon at the rate of ten percent
(10%) per annum from the date of payment thereof by the Landlord shall be added
to and become part of the next monthly installment of rent.
If at any time during the term of this Lease, under the laws of the State
of Minnesota or any political subdivision thereof, in which the demised premises
are situated, a tax or excise on rents or other tax, however described, is
levied or assessed by said state or political subdivision against the Landlord,
or the annual or monthly rent expressly reserved under this Lease, the Tenant
covenants to pay and discharge such tax or excise tax on rents, or other tax,
but only to the extent of the amount thereof which is lawfully assessed or
imposed upon the Landlord and which was so assessed or imposed as a direct
result of the Landlord's interest in the demises premises, or of this Lease, or
of the rentals accruing under this Lease, it being the intention of the parties
hereto that the rent to be paid hereunder shall be paid to Landlord absolutely
net, without deduction of any nature whatsoever, foreseeable or unforeseeable,
except as in this Lease otherwise expressly provided. Nothing contained herein
shall require Tenant to pay any estate, inheritance, succession, capital levy,
or transfer tax imposed on the Landlord, or any income, excess profits, or other
tax.
ARTICLE 4. NET LEASE. It is the intention and purpose of the respective
parties hereto that this Lease shall be a "Net Net Net Lease" to Landlord, all
costs or expenses of whatever character or kind, general and special, ordinary
and extraordinary, foreseen or unforeseen, and of every kind and nature
whatsoever, save and except as otherwise expressly provided for herein, that may
be necessary in or about the operation of the demised premises, and the Tenant's
authorized use thereof during the entire term of this Lease, shall be paid by
Tenant, and all provisions of this Lease relating to expenses are to be
construed in the light of such intention or purpose to construe this Lease as a
"Net Net Net Lease".
ARTICLE 5. BUSINESS USE. The demised premises shall be used and occupied by
Tenant for the purpose of the manufacturing of urethane products including cast
parts and pipe lining and coating and all other related uses in conformity with
all building codes and zoning requirements of the City of Hibbing, State of
Minnesota, and such use and occupancy shall be in compliance with all applicable
laws, ordinances, and governmental regulations including but not limited to
hazardous waste disposal and buried fuel tanks. The demised premises shall not
be used in such manner that in accordance with any requirement of law or of any
public authority, the Landlord shall be obligated, on account of the purpose or
manner of said use, to make any addition or alteration to or in the building.
ARTICLE 6. SUBORDINATION. Tenant agrees that this lease shall be
subordinate to any first mortgage or trust deed or contract for deed now
existing or hereafter placed upon the demised premises and to any and all
advances to be made thereunder and to the interest thereon and all renewals,
replacements, and extensions thereof, provided the mortgagee or trustee or
seller namedin said mortgages or trust deeds or contracts for deed shall agree
to recognize the Lease of Tenant in the event of foreclosure or cancellation if
Tenant is not then in default.
<PAGE>
Tenant agrees that in the event any proceedings are brought for the
foreclosure of or for the exercise of any sale under any mortgage made by the
Landlord covering the premises or any part thereof or the cancellation of the
contract for deed, to attorn to and to recognize such transferee, purchaser,
mortgagee or contract vendor as Landlord under this lease.
ARTICLE 7. UTILITIES. Tenant agrees to pay, when due, all gas, water,
electric, or other utility service used in the demised premises. Landlord shall
not be liable in damages or otherwise if the furnishing of utility services be
interrupted or contained for any cause.
ARTICLE 8. CARE OF PREMISES. Tenant shall, at its own expense, keep the
interior of the demised premises and all parts thereof used by it in a clean,
safe, sanitary, and first class condition, conforming to applicable laws,
ordinances, regulations and codes; store and remove regularly all trash and
garbage; forthwith replace broken glass in interior windows and doors with glass
(and exterior windows and doors if breakage is caused by tenant, its employees,
agents or invitees) of the same quality except where the breakage is caused by
occurrences covered by the insurance taken out as hereinafter provided. Without
Landlord's consent, Tenant shall not deface, injure, waste, damage, or alter the
demised premises. Tenant shall not conduct business on the demised premises
which is extra hazardous or so as to constitute a nuisance to other tenants or
occupants, if any; burn trash or garbage within the demised premises; overload
any floor or facility; make any alterations except as provided in this Lease;
throw foreign substances in plumbing facilities or use the same for any purpose
other than that for which constructed. Tenant shall also remove all ice and snow
from abutting sidewalks and entrances. Tenant shall also cut the grass and
maintain the grounds of the demised premises so that said premises are neat and
well kept.
ARTICLE 9. REPAIRS. After the Tenant has accepted the premises pursuant to
Article 13; Landlord shall have no obligation for making any replacements to any
of the equipment or appurtenances, or any repairs or improvements, to the
interior of the demised premises, or to any of the equipment, machinery, or
appurtenances. Tenant agrees to comply with all orders, regulations, rules and
requirements of every kind and nature relating to the premises, now or hereafter
in effect, of any federal, state, municipal, or other governmental authority
having power to enact, adopt, impose, or require the same, whether they be usual
or unusual, ordinary or extraordinary and whether they or any of them relate to
structural changes or requirements of whatever nature, or to changes or
requirements incident to, or as a result of, any use or occupation thereof or
otherwise, and Tenant agrees to pay all costs and expenses incidental to such
compliance, and shall indemnify and save harmless the Landlord from all expense,
and damages by reason of any notices, orders, violations, or penalties filed
against or imposed upon the demised premises or against the Landlord as the
owner thereof because of the failure of the Tenant to comply with this covenant.
If Tenant refuses or neglects to replace, if required, or to repair the
demised premises, any structural portions thereof, or any of the plumbing,
heating, electrical, or any of the appurtenances of the demised premises as
required hereunder to the reasonable satisfaction of Landlord as soon as
reasonably possible after written demand, Landlord may make such replacements
and/or repairs without liability to Tenant for any loss or damage that may
accrue to Tenant's merchandise, fixtures, or other property or to Tenant's
business by reason thereof, and upon completion thereof, Tenant shall pay the
Landlord's cost for making such repairs, plus fifteen percent (15%) for
overhead, upon presentation of a bill therefor, as additional rent. The
obligation of the Tenant to repair or replace under this article shall not
extend to any latent defects.
<PAGE>
ARTICLE 10. ALTERATIONS, INSTALLATIONS, FIXTURES. Tenant shall not make any
alterations in or additions to the demised premises without the written consent
of Landlord which will not be unreasonably withheld. If alterations become
necessary because of the application of laws or ordinances or of the directions,
rules, or regulations of any regulatory body to the business carried on by
Tenant, or because of any act or default on the part of Tenant, or because
Tenant has overloaded any electrical or other facility, Tenant shall make such
alterations at its own cost and expense after first obtaining Landlord's written
consent to the plans and specifications and furnishing such indemnification
against liens, costs, damages, and expenses as Landlord may reasonably require.
Tenant shall not, without the advance written consent of Landlord, install any
exterior lighting or plumbing fixtures, canopies, marquees, or any exterior
decorations or painting or similar devices on the roof or exterior walls of the
building.
ARTICLE 11. GENERAL LIABILITY INSURANCE. During the occupancy of the
demised premises by the Tenant, Tenant shall keep in full force and effect at
its expense a policy or policies of public liability insurance with respect to
the demised premises and the business of Tenant and any subtenant, on terms and
with companies approved in writing by Landlord, in which both Tenant and
Landlord shall be adequately covered by being named as insured parties under
reasonable limits of liability not less than One Million Dollars ($1,000,000.00)
for injury or death to one or more persons and for damage to property. Tenant
shall furnish Landlord with certificates or acceptable evidence that such
insurance is in effect. Said insurance and any other insurance required to be
maintained by Tenant, as hereinafter provided, shall contain a certificate from
the insurance carrier that it will not terminate or cancel said insurance
without giving at least ten (10) days written notice to the Landlord.
ARTICLE 12. COVENANTS TO HOLD HARMLESS. All property placed on or moved to
the demised premises shall be solely at the risk of the Tenant or owner thereof,
and Landlord shall not be liable for any damage to said property, or to Tenant,
arising from any cause whatsoever, whether from the bursting, stoppage, or
leaking of water pipes, gas pipes, or sewer pipes, floods, storms, explosions,
leaks in the roof, downspouts, walls, or natural causes or otherwise, whether
causing property damage or damage because of interruption in business or
otherwise, nor shall Landlord be liable for any act or omission or negligence of
any other tenant or occupant of other portions of the building of which the
demised premises are a part, or area, or of any other person whomsoever.
Tenant agrees to defend, indemnify and hold the Landlord, its agents and
employees, harmless from any liability or expense for damage to any person or
property in or about the demised premises, including the adjacent sidewalks,
including the person and property of Tenant, its employees and all persons in
the building or the demised premises at its or their invitation from any cause
or claim whatsoever. Tenant agrees to pay all sums of money in respect of any
labor, services, materials, supplies, or equipment furnished or alleged to have
been furnished to Tenant in or about the demised premises and not furnished on
order of Landlord, which may be secured by any mechanic's, materialman's or
other lien against the demised premises or the Landlord's interest therein and
will cause each such lien to be discharged at the time performance of any
obligation secured thereby matures, provided that Tenant may contest such lien,
but if such lien is reduced to final judgment and if such judgment or process
thereon is not stayed, or, if stayed and such stay expires, then and in such
<PAGE>
event, Tenant shall forthwith pay and discharge said judgment. Landlord shall
have the right to post and maintain on the demised premises notice of
nonresponsibility under the laws of the State of Minnesota.
ARTICLE 13. CONDITION OF PREMISES AT TIME OF LEASING. The taking of
possession of the demised premises by the Tenant shall be conclusive evidence
that the same were in good and satisfactory condition at the time possession was
taken.
ARTICLE 14. ASSIGNMENT OR SUBLETTING. The Tenant shall not assign or sublet
this Lease without the Landlord's prior written consent. Such consent, if given,
shall not release Tenant.
Every assignee or sublessee of this Lease shall be subject to and be bound
by all of the covenants, provisions and conditions of this Lease and shall be
entitled to all of the benefits of this Lease, to the same extent as the
original Tenant.
Landlord's rights to assign this Lease are and shall remain unqualified.
Upon any sale of the demised premises, and providing the purchaser assumes all
of the obligations under this Lease, Landlord shall thereupon be entirely freed
of all obligations of the Landlord hereunder and shall not be subject to any
liability resulting from any act or omission or event occurring after such
conveyance, except that any covenant or obligation of Landlord hereunder
affecting land owned by Landlord shall continue for its term during such
ownership, but no longer.
ARTICLE 15. ACCESS TO PREMISES. Landlord reserves the right to enter upon
the demised premises during normal business hours to inspect the same or to make
repairs, additions or alterations to the demised premises or other property, or
to exhibit the premises to prospective tenants, purchasers, or others; to enter
at any time in the event of an emergency; and to display during the last ninety
(90) days of the term, without hindrance or molestation by Tenant, "For Rent" or
similar signs on windows or doors in the leased premises. Tenant may designate
specific areas of the demised premises as "top secret" and such areas may be
entered by Landlord, prospective tenants, purchasers or others only after
reasonable notice to Tenant and after all such persons sign a statement agreeing
to maintain the confidentiality of anything which the Landlord, prospective
tenants, purchasers or others might observe.
ARTICLE 16. EMINENT DOMAIN. In the event of eminent domain proceedings
commenced by the filing of a petition in respect to the demised premises during
the term hereof, or in the event that the premises are sold in lieu of
condemnation, the following provisions shall apply:
(a) Total Condemnation of the Demised Premises. If the whole of the demised
premises shall be acquired or condemned by eminent domain for any public or
quasi-public use or purpose or sold to the condemning authority in lieu thereof,
then the term of this Lease shall cease and terminate as of the date possession
shall be taken in such proceedings, and all rentals shall be paid up to that
date and Tenant shall have no claim against Landlord nor the condemning
authority for the value of any unexpired term of this Lease. Landlord shall be
entitled to and shall receive the award or payment therefor, and Tenant shall
assign and does hereby assign and transfer to the Landlord such award or payment
as may be made therefor.
<PAGE>
(b) Partial Condemnation. If any part of the demised premises shall be
taken or condemned as aforesaid, and in the event that such partial taking or
condemnation shall render the demised premises unsuitable for the business of
the Tenant in the reasonable opinion of the Landlord then the term of this Lease
shall cease and terminate as of the date possession shall be taken in such
proceedings. Tenant shall have no claim against Landlord nor the condemning
authority for the value of any unexpired term of this Lease, and the rent shall
be adjusted to the date of such termination. In the event of a partial taking or
condemnation which is not extensive enough to render the premises unsuitable for
the business of the Tenant in the reasonable opinion of the Landlord, then
Landlord shall promptly restore the demised premises so as to constitute the
remaining premises a complete architectural unit, and this Lease shall continue
in full force and effect with a proportionate abatement of rent based on the
portion of the demised premises taken. The rent shall also abate during
restoration as to the portion of the demised premises rendered untenantable. If
the parties are unable to determine the amount of rent to be paid after the
taking, the same shall be referred to a board of arbitration composed of three
(3) arbitrators, each of the parties being entitled to appoint one (1)
arbitrator and the two arbitrators so appointed shall appoint the third
arbitrator. If the two arbitrators are unable to select a third arbitrator, then
the third arbitrator shall be selected by the Senior Judge of the District Court
of St. Louis County, Minnesota, and in any event a decision of a majority of the
arbitrators shall be binding upon the parties hereto.
(c) Landlord's Damages. In the event of any condemnation or taking as
aforesaid, whether whole or partial, the Tenant shall not be entitled to any
part of the award paid for such condemnation, and the Landlord is to receive the
full amount of such award, the Tenant hereby expressly waiving any right or
claim to any part thereof.
(d) Tenant's Damages. Although all damages in the event of any condemnation
are to belong to the Landlord, whether such damages are awarded as compensation
for diminution in value of the leasehold or to the fee of the leased premises,
Tenant shall have the right to claim and recover from the condemning authority,
but not from the Landlord, such compensation as may be separately awarded or
recoverable by Tenant in Tenant's own right for and on account of any damage to
cost or loss to which Tenant might be put in removing Tenant's merchandise,
furniture, fixtures, and equipment.
ARTICLE 17. DAMAGE.
(a) Partial or Total Destruction. Damage to or destruction of all or a
portion of the demised premises by fire or any other casualty insured against
shall not terminate this Lease or entitle Tenant to surrender the demised
premises. The rent provided for herein shall not be abated during such period of
time as such premises are being restored or repaired. Tenant may, if it so
desires, carry rent insurance to reimburse it for the amount of rent it pays
during the period of time the premises are being restored. In case of damage or
destruction by fire or other casualty insured against to the demised premises,
Landlord agrees to promptly repair, restore and rebuild such improvements in
such manner that the value thereof shall be not less than the value of such
improvements immediately prior to such damage or destruction, and so that the
condition of such improvements will be the same or as nearly the same as
possible as their condition immediately prior to such damage or destruction;
provided, however, if the improvements located on the demised premises are
totally destroyed by fire or other casualty at any time during the last year of
the term hereof, then anything hereinabove to the contrary notwithstanding, this
Lease shall terminate and Landlord shall not have any obligation to repair or
restore such building and improvements, nor shall the Landlord be obligated to
utilize any of the insurance proceeds for any such purpose.
<PAGE>
All insurance proceeds, if any, actually recovered by Landlord with respect
to any particular casualty resulting in damage or destruction, less any cost to
Landlord of such recovery (such proceeds less such cost and such amount being
herein termed "net proceeds") shall be retained by the Landlord and applied by
it to the payment of the cost of repairing, restoring and rebuilding the
improvements located on the demised premises (herein in this Article referred to
as the "work"), and shall be paid out from time to time as the work progresses,
(i) to the contractors, subcontractors, materialmen, and other persons who have
rendered services or furnished materials for the work, or is then due and
payable to one or more of such persons; and (ii) no part of the cost of the work
has been paid out of insurance proceeds not required to be paid by Landlord.
Upon completion of the work, if any part of the net insurance proceeds has not
been paid out and all of the work has been paid for, the net proceeds shall be
retained by the Landlord. The obligations of the Landlord under this Article to
repair, restore, and/or rebuild is not conditioned upon the recovery of
insurance proceeds from any insurance company.
(b) Fire Insurance Provisions.
(1) Tenant shall not carry any stock of goods or do anything in or about
the demised premises which will in any way impair or invalidate the obligation
of any policy of insurance on or in reference to the demised premises or the
building in which the demised premises are situated. Landlord agrees that it
will, during the term of this Lease, keep the building and the improvements now
standing upon the demised premises, insured against loss by fire and extended
insurance coverage, together with an endorsement for vandalism and malicious
mischief with solvent insurance companies authorized and licensed to do business
in the State of Minnesota.
(2) Tenant covenants and agrees at its own cost and expense to procure and
keep in force and effect at all times, with premiums paid, general liability
insurance, as above set forth, and boiler and machinery insurance, all of said
insurance to insure both the Landlord and the Tenant as their respective
interests may appear. Tenant shall assign any policy for boiler and machinery
insurance procured pursuant to this lease to Landlord as security for the
replacement of any building that may be destroyed by any of the hazards insured
against. All policies shall provide for thirty (30) days' notice for insurers to
Landlord of any cancellation or amendment to any of the insurance policies.
Tenant agrees to insure its own property and its leasehold improvements in such
manner as it may desire.
(3) Tenant hereby waives and releases all claims, liabilities and causes of
action against Landlord and its agents, servants and employees or other tenants
in the building for loss or damage to, or destruction of, any of the
improvements, fixtures, equipment, supplies, merchandise and other property
whether that of Tenant or of others in, upon, or about the leased premises or
the buildings or improvements of which the leased premises are a part resulting
from fire, explosion or the other perils included in standard boiler and
machinery insurance, whether caused by the negligence of any of said persons or
otherwise. This waiver shall remain in force whether or not the Tenant's insurer
shall consent thereto without additional premium. If additional premium is
charged for this waiver, Tenant shall pay for same.
<PAGE>
(4) Landlord hereby waives and releases all claims, liabilities and causes
of action against Tenant and its agents, servants and employees or other tenants
in the building for loss or damage to, or destruction of, any of the
improvements, fixtures, equipment, supplies, merchandise and other property
whether that of Tenant or of others in, upon, or about the leased premises or
the buildings or improvements of which the leased premises are a part resulting
from fire, explosion or the other perils included in standard extended coverage
insurance, whether caused by the negligence of any of said persons or otherwise.
This waiver shall remain in force whether or not the Landlord's insurer shall
consent thereto without additional premium. If additional premium is charged for
this waiver, Landlord shall pay for same.
ARTICLE 18. SURRENDER. On the last day of the term demised or on the sooner
termination thereof, Tenant shall peaceably surrender the demised premises in
good order, condition, and repair, broom- clean, fire and other unavoidable
casualty, reasonable wear and tear only excepted. On or before the last day of
the term or the sooner termination thereof, Tenant shall, at its own expense,
remove its trade fixtures, personal property (including at its option carpeting)
and equipment and signs from the demised premises and any property not removed
shall be deemed abandoned. Any damage caused by Tenant in the removal of such
items shall be repaired by and at Tenant's expense. All alterations, additions,
improvement, and fixtures (other than Tenant's trade fixtures and equipment)
which shall have been made or installed by either Tenant or Landlord upon the
demised premises and all flooring, except carpeting, shall remain upon and be
surrendered with the demised premises as a part thereof, without disturbance,
molestation or injury, and without charge, at the expiration or termination of
this Lease. If the demised premises be not surrendered at the end of the term or
the sooner termination thereof, Tenant shall indemnify Landlord against loss or
liability resulting from delay by Tenant in so surrendering the premises,
including, without limitation, claims made by any succeeding tenant founded on
such delay. Tenant shall promptly surrender all keys for the demised premises to
Landlord at the place then fixed for payment of rent and shall inform Landlord
of the combination of any locks and safes on the demised premises.
ARTICLE 19. COVENANT OF QUIET ENJOYMENT. Landlord covenants and agrees that
Tenant, on paying the rents and observing and keeping the covenants, agreements,
and stipulations of this Lease, on its part to be kept, shall lawfully,
peaceably and quietly hold, occupy, and enjoy the demised premises during the
demised term.
ARTICLE 20. DEFAULT OF TENANT AND REMEDIES.
(a) Right to Reenter. In the event of any failure of Tenant to pay any
rental due hereunder within ten (10) days after the same shall be due, or any
failure to perform any other of the terms, conditions, or covenants of this
Lease to be observed or performed by Tenant for more than thirty (30) days after
written notice of such default shall have been given to Tenant, or if Tenant or
an agent of Tenant shall falsify any report required to be furnished to Landlord
pursuant to the terms of this Lease, or if Tenant shall become bankrupt or
insolvent, or file any debtor proceedings or take or have against Tenant in any
court pursuant to any statute either of the United States or of any state a
petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of all or a portion of Tenant's property,
or if Tenant makes an assignment for the benefit of creditors, or petitions for
or enters into an arrangement, or if Tenant shall abandon said premises or
suffer the Lease to be taken under any writ of execution, then Landlord, besides
other rights or remedies it may have, shall have the immediate right of re-entry
and may remove all persons and property from the demised premises and such
<PAGE>
property may be removed and stored in a public warehouse or elsewhere at the
cost of, and for the account of, Tenant, all without service of notice or resort
to legal process and without being deemed guilty of trespass, or becoming liable
for any loss or damage which may be occasioned thereby.
(b) Right to Relet. Should Landlord elect to reenter, as herein provided,
or should it take possession pursuant to legal proceedings or pursuant to any
notice provided for by law, it may either terminate this Lease or it may, from
time to time, without terminating this Lease, make such alterations and repairs
as may be necessary in order to relet the premises, and relet said premises or
any part thereof for such term or terms (which may be for a term extending
beyond the term of this Lease) and at such rental or rentals and upon such other
terms and conditions as Landlord in its sole discretion may deem advisable. Upon
each such reletting all rentals received by the Landlord from such reletting
shall be applied first to the payment of any indebtedness other than rent due
hereunder from Tenant to Landlord; second, to the payment of any costs and
expenses of such reletting, including brokerage fees and attorney's fees and of
costs of such alterations and repairs; third, to the payment of rent due and
unpaid hereunder, and the residue, if any, shall be held by Landlord and applied
in payment of future rent as the same may become due and payable hereunder. If
such rentals received from such reletting during any month be less than that to
be paid during that month by Tenant hereunder, Tenant shall pay any such
deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No
such reentry or taking possession of said premises by Landlord shall be
construed as an election on its part to terminate this Lease unless a written
notice of such intention be given to Tenant, or unless the termination thereof
be decreed by a court of competent jurisdiction. Notwithstanding any such
reletting without termination, Landlord may at any time hereafter elect to
terminate this Lease for such previous breach. Should Landlord at any time
terminate this Lease for any breach, in addition to any other remedies it may
have, it may recover from Tenant all damages it may incur by reason of such
breach, including the cost of recovering the demised premises, reasonable
attorney's fees, and including the worth at the time of such termination of the
excess, if any, of the amount of rent and charges equivalent to rent reserved in
this Lease for the remainder of the stated term over the then reasonable rental
value of the demised premises for the remainder of the stated term, all of which
amounts shall be immediately due and payable from Tenant to Landlord.
(c) Landlord's Rights to Cure Tenant's Default. Landlord may, at its
option, instead of exercising any other rights or remedies available to it in
this Lease or otherwise by law, statute or equity, spend such money as is
reasonably necessary to cure any default or covenant herein and the amount so
spent, and costs incurred, including attorney's fees, in curing such default,
shall be paid by Tenant, as additional rent, upon demand.
(d) Legal and Other Expenses.. In case suit shall be brought for recovery
of possession of the demised premises, for the recovery of rent or any other
amount due under the provisions of this Lease, or because of the breach of any
other covenant herein contained on the part of Tenant or Landlord to be kept or
performed, and a breach shall be established, Tenant or Landlord, as the case
may be, shall pay to Landlord or Tenant, as the case may be, all expenses
incurred therefor, including a reasonable attorney's fee.
(e) Waiver of Rights of Redemption. Tenant hereby expressly waives any and
all rights of redemption granted by or under section 504.02 of Minnesota
Statutes Annotated, or any other present or future laws in the event of Tenant
being evicted or dispossessed for any cause, or in the event of Landlord
<PAGE>
obtaining possession of the demised premises, by reason of the violation by
Tenant of any of the covenants or conditions of this Lease, or otherwise. Tenant
also waives any demand for possession of the demised premises, and any demand
for payment of rent and any notice of intent to reenter the demised premises or
of intent to terminate this Lease, other than the notices above provided in this
Article, and waives any and every other notice or demand prescribed by any
applicable statutes or laws.
(f) Cumulative Remedies. No remedy herein or elsewhere in this Lease or
otherwise by law, statute or equity, conferred upon or reserved to Landlord or
Tenant shall be exclusive of any other remedy, but shall be cumulative, and may
be exercised from time to time and as often as the occasion may arise.
ARTICLE 21. GENERAL. This Lease does not create the relationship of
principal and agent or of partnership or of joint venturer or of any association
between Landlord and Tenant, the sole relationship between Landlord and Tenant
being that of Landlord and Tenant. No waiver of any default of Tenant hereunder
shall be implied from any omission by Landlord to take any action on account of
such default if such default persists or is repeated, and no express waiver
shall affect any default other than the default specified in the express waiver
and that only for the time and to the extent therein stated. One or more waivers
by Landlord shall not be construed as a waiver of a subsequent breach of the
same covenant, term, or condition. The consent to or approval by Landlord of any
act by Tenant requiring Landlord's consent or approval shall not waive or render
unnecessary Landlord's consent to or approval of any subsequent similar act by
Tenant. Each term and each provision of this Lease performable by Tenant shall
be construed to be both a covenant and a condition. No action required or
permitted to be taken by or on behalf of Landlord under the terms or provisions
of this Lease shall be deemed to constitute an eviction or disturbance of
Tenant's possession of the demised premises. The marginal or topical headings of
the several articles, paragraphs, and clauses are for convenience only, and do
not define, limit, or construe the contents of such articles, paragraphs, or
clauses. All preliminary negotiations are merged into and incorporated in this
Lease. The laws of the State of Minnesota shall govern the validity, performance
and enforcement of this Lease.
(a) Entire Agreement. This Lease and the exhibits, if any, attached hereto
and forming a part hereof, set forth all the covenants, promises, agreements,
conditions, and understandings between Landlord and Tenant concerning the
demised premises and there are no covenants, promises, agreements, conditions,
or understandings, either oral or written, between them other than are herein
set forth. Except as herein otherwise provided, no subsequent alteration,
amendment, change, or addition to this Lease shall be binding upon Landlord or
Tenant unless reduced to writing and signed by them.
(b) Partial Invalidity. If any term, covenant, or condition of this Lease
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this lease, or the application of
such term, covenant, or condition to persons or circumstances other than those
as to which it is held invalid or unenforceable, shall not be affected thereby
and each term, covenant, or condition of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
<PAGE>
ARTICLE 22. LANDLORD'S CONSENT NOT TO BE UNREASONABLY WITHHELD. Landlord
covenants and agrees that wherever and whenever Landlord's consent, permission,
or approval shall be required hereunder, Landlord shall not unreasonably
withhold or delay such consent, permission, or approval.
ARTICLE 23. HOLDING OVER. In the event Tenant remains in possession of the
premises herein leased after the expiration of this Lease and without the
execution of a new Lease, it shall be deemed to be occupying said premises as a
tenant from month to month, subject to all the conditions, provisions, and
obligations of this Lease insofar as the same can be applicable to a
month-to-month tenancy.
ARTICLE 24. TERMINATION BY TENANT. Tenant hereby reserves the right to
terminate this Lease and surrender the demised premises by giving nine (9)
months written notice to the Landlord from any rent due date provided that the
Tenant intends to and will by the expiration of the nine (9) month period
relocate its business outside the State of Minnesota.
ARTICLE 25. NOTICES. Any notice, demand, or request which under the terms
of this Lease or by any statute or ordinance now or hereafter in force is
provided or required to be given, may be given personally or by Registered or
Certified mail (return receipt requested) by enclosing such notice in a
postage-paid envelope directed as follows:
(a) To Tenant at the demised premises at Hibbing, Minnesota, or at such
other address as the Tenant may from time to time designate in writing;
(b) To Landlord at:
Daniel O. Burkes
3805 13th Avenue
Hibbing, Minnesota 55746
or at such other address as the Landlord may from time to time designate in
writing.
Any demand, notice, or request which shall be served upon the Landlord or
the Tenant in the manner aforesaid shall be deemed sufficiently served at the
time such notice, demand, or request shall have been mailed to such party at the
address herein designated for such service.
ARTICLE 26. SHORT FORM LEASE. A Short Form Lease suitable for recording in
the office of the Register of Deeds or Registrar of Titles shall be executed and
delivered at the request of either party.
ARTICLE 27. SUCCESSORS AND ASSIGNS. The terms, covenants, and conditions
hereof shall be binding upon and inure to the successors in interest and assigns
of the parties hereto.
ARTICLE 28. TERM. The initial term of this Lease is from January 1, 2000,
to and including December 31, 2002.
<PAGE>
ARTICLE 29. OPTION TO PURCHASE. Tenant shall have the right and option to
purchase the demised premises, and all of the structures, buildings, and other
improvements constructed by Landlord not belonging to the Tenant for the
purchase price determined below. Tenant may exercise this option by giving
notice to Landlord at any time during the term of this Lease, or any renewal or
extension hereof. Upon exercise of this option, Tenant will deposit $10,000 in
cash with the escrow agent hereinafter designated; and in such event all terms,
conditions and provisions herein contained shall serve as a binding purchase
agreement between the parties hereto.
If Tenant shall exercise this option, Landlord shall give Tenant a good,
clear and marketable title to the demised premises, free and clear of all
tenancies, liens, encumbrances, encroachments, restrictions, reservations,
conditions of record, and easements, except: (1) those existing as of December
31,1999 other than the contract for deed from Landlord to Mesaba Realty, Inc.
which shall be satisfied and discharged before or at closing; (2) taxes due but
not yet payable; (3) zoning ordinances, if any; and (4) any lease of the portion
of the premises not being leased to Tenant which has a term ending on or before
December 31, 2002. Transfer of the demised premises shall be made by general
warranty deed with dower rights, if any, released, and revenue or documentary
stamps, if required, affixed and canceled thereon, conveying title therein to
Tenant, in fee simple. If there is any lien or encumbrance of record against the
demised premises, Tenant may elect to take the demised premises subject to any
such lien or encumbrance; in such event, the full amount thereof, together with
any interest and penalties accrued thereon as of the date of transfer, shall be
deducted from the purchase price herein; and Tenant will thereafter indemnify
and save Landlord harmless from all further liability thereunder.
Within 30 days after Tenant exercises this option, all documents and monies
required hereunder shall be deposited by the respective parties with the escrow
agent, which shall be either any reputable title company licensed to do business
in the state wherein the demised premises are located or the law firm of
Johnson, Killen & Seiler of Duluth, Minnesota. This agreement shall serve as the
escrow instructions, subject to the escrow agent's usual condition of acceptance
where not contrary to any of the terms hereof. Real estate taxes, insurance, and
any other prepaid or accrued charged customarily prorated shall be prorated as
of the date of transfer according to the calendar year. Landlord, at Landlord's
expense, shall furnish Tenant with an owner's or fee policy of title insurance,
issued by a title insurance company first approved by Tenant, in the amount of
the above purchase price, as evidence or assurance that there has been conveyed
to Tenant, the title required to be conveyed hereunder. The escrow agent shall
cause title to the demised premises to be searched, and if and when the required
evidence of title can be issued and the escrow agent has received all funds and
documents required to be deposited hereunder, the escrow agent shall cause the
deed to be filed of record and the funds disbursed in accordance herewith.
The escrow agent shall charge Landlord with the cost of the owner's or fee
policy of title insurance, including premium, location survey, and title
examination charges; revenue or other documentary stamps, if required; any
transfer, or similar tax or charge, imposed by reason of this sale and
conveyance of the demised premises; and one half of the escrow fee. The escrow
agent shall charge Tenant with the recording fees and one half of the escrow
fee. However, in the event Landlord shall be unable to convey title to Tenant,
as hereinbefore required, then Tenant shall have the right to terminate and
rescind the exercise of this option without any liability; and in such event,
any and all sums that Tenant deposited in escrow hereunder shall be forthwith
returned to Tenant by the escrow agent.
<PAGE>
The purchase price of the demised premises, shall be SIX HUNDRED AND FIFTY
THOUSAND AND NO/100 DOLLARS ($650,000.00)
IN WITNESS WHEREOF, the parties comprising "Landlord" herein have hereto
set their hands as of the day and year first above written, and Tenant has
caused this lease to be executed by its duly authorized officers as of the day
and year first above written.
LANDLORD:
---------------------------
Daniel O. Burkes
TENANT:
Irathane Systems, Inc.
By:
Its:
CONSENT
Nancy J. Burkes, spouse of Daniel O. Burkes, hereby consents to this Lease
for the sole purpose of subjecting her interest in the premises to the terms and
conditions of this Lease.
Nancy J. Burkes
ACKNOWLEDGEMENTS
STATE OF MINNESOTA )
) ss.
COUNTY OF ST. LOUIS )
On this _____ day of ___________, 2000, before me, a Notary Public within
and for said County, personally appeared Daniel O. Burkes, to me personally
known, who being duly sworn did say that he signed this instrument as his own
free act and deed.
--------------------------
Notary Public
<PAGE>
STATE OF MINNESOTA )
) ss.
COUNTY OF ST. LOUIS )
On this _____ day of ____________, 2000, before me, a Notary Public within
and for said County, personally appeared ______________, to me personally known,
who being duly sworn did say that he is the ___________ of Industrial Rubber
Applicators, the corporation named in the foregoing instrument, and that said
instrument was signed 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
STATE OF MINNESOTA )
) ss.
COUNTY OF ST. LOUIS )
On this _____ day of ___________, 2000, before me, a Notary Public within
and for said County, personally appeared Nancy J. Burkes, to me personally
known, who being duly sworn did say that she signed this instrument as her own
free act and deed.
-----------------------------
Notary Public
THIS INSTRUMENT DRAFTED BY:
Johnson, Killen & Seiler, P.A.
By: John N. Nys
811 Norwest Center
230 West Superior St.
Duluth, MN 55802
(218) 722-6331
<PAGE>
