U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE REGISTRATION STATEMENT
ON
FORM 10-SB-A4
Registration Statement on Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
NORTHPORT INDUSTRIES, INC.
--------------------------
(Name of Small Business Issuer as specified in its charter)
NEVADA 93-0947269
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(State or other jurisdiction of (I.R.S. incorporation or
organization) Employer I.D. No.)
Spur 239 & Alderete Road
Del Rio, Texas 78840
P. O. Box 1428
Del Rio, Texas 78841
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(Address of Principal Executive Office)
Issuer's Telephone Number, including Area Code: (830) 775-0734
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
$0.001 par value common stock
-------------------------------
Title of Class
DOCUMENTS INCORPORATED BY REFERENCE: None.
<PAGE>
PART I
Item 1. Description of Business.
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Business Development.
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Organization and Charter Amendments
-----------------------------------
Northport Industries, Inc. (the "Company" or "Northport")) was
organized under the laws of the State of Nevada on April 20, 1987, under the
name "Environmental Pyrogenics, Inc." The Company was formed to engage in any
lawful activity.
The Company has spent its life trying to acquire an operating
business. The Company had no success until early 1998, and hence had no
operations until beginning of 1998. Then, the Company effected a
reorganization with Versatech Manufacturing, Inc., a Texas corporation
("VMI"), on December 24, 1997, in a transaction accounted for as a "reverse
merger" using the purchase method of accounting. See the heading
"Reorganizations" below under this Item, for a more detailed description of
this reorganization. The stockholders of VMI controlled the Company following
the completion of the reorganization, and VMI was treated as acquiring entity
for accounting purposes. There was no adjustment to the carrying value of the
assets or liabilities of VMI in the reorganization; the Company is the
acquiring entity for legal purposes; and VMI is the surviving entity for
accounting purposes. The Company changed its name to "Northport Industries,
Inc." following the completion of the reorganization, on January 8, 1998, as
outlined below.
VMI was incorporated under the laws of the State of Texas on
December 27, 1997, under the name "Hawk Systems, Inc.; it changed its name to
"Versatech Manufacturing, Inc." in June, 1997. The discussion of all business
operations of the Company in this Registration Statement are comprised of the
current and prior operations of VMI and its subsidiaries only. See the
caption "Business" below.
The Company's authorized capital consists of 25,000,000 shares of
$0.001 par value common voting stock and 12,500,000 shares of $0.25 preferred
stock.
The following amendments to the Company's Articles of
Incorporation were duly adopted and filed with the Secretary of State of
Nevada in accordance with the Nevada Revised Statutes from inception to the
date hereof, to wit:
* Changed name to "Northport Industries, Inc." and a
reverse split of both the common and preferred shares
on a basis of one for 157.7668, while retaining the
authorized capital and par value, and with appropriate
adjustments in the stated capital and capital surplus
accounts of the Company(1/8/98).
* Authorized Series A Non-Voting Preferred Stock
(12/1/98). See the heading "Series A Non-Voting
Preferred Stock" of the caption "Description of
Securities," Part II, Item 8.
All computations in this Registration Statement take into account
this reverse split.
Copies of the Initial Articles of Incorporation of the Company and
these amendments were attached to the initial 10-SB Registration Statement and
are incorporated herein by reference. See Part III, Item 1.
This Registration Statement is being filed on a voluntary basis to
maintain the Company's quotation on the OTC Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD"). See the heading
"Effects of Existing or Probable Governmental Regulations," Part I, Item I.
Limited Public Offerings
------------------------
(1) Conducted an initial limited offering pursuant to Rule 504
of Regulation D of the Securities and Exchange Commission
(1987).
(2) Also sold 280,000 shares of its common stock as a limited
offering pursuant to Rule 504 (8/98).
Reorganizations
---------------
The Company has been party to the following reorganizations since
its inception:
(1) On December 24, 1997, the Company acquired 100% of VMI (the "VMI
Plan") in exchange for 3,000,000 shares of the Company's common stock,
designated as "restricted securities."
The VMI Plan was adopted, ratified and approved by the Boards of
Directors of the Company and VMI, and by all of the stockholders of VMI.
The source of the consideration used by the VMI stockholders to
acquire their respective interest in the Company was the exchange of the
outstanding securities of VMI.
The basis of the "control" by the VMI stockholders was stock
ownership.
The former controlling stockholders of the Company prior to the
completion of the VMI Plan were Michael Silvey, William A. Silvey, Jr. and W.
Scott Thompson, directors and executive officers. William A. Silvey, Jr. was
a beneficial owner of approximately 1,900 pre-VMI Plan outstanding voting
securities of the Company, and received 135,000 shares of the Company's common
stock for services related to the VMI Plan, which were designated as
"restricted securities." W. Scott Thompson was a beneficial owner of 6 pre-
VMI Plan outstanding voting securities of the Company, and received 135,000
shares of the Company's common stock for services related to the VMI Plan,
which were designated as "restricted securities."
No director or executive officer of the Company had any interest in
VMI prior to the completion of the VMI Plan.
A copy of the VMI Plan, together with all material exhibits, was
attached to the initially filed 10-SB Registration Statement and is
incorporated herein by reference. See Part III, Item 1. Also, see the
caption "Recent Sales of Unregistered Securities," Part II, Item 4; and Note 3
of the financial statements, Part F/S.
(2) On July 8, 1998, the Company acquired 100% of the outstanding
securities of JOH Rubber, Inc., an Ontario corporation ("JOH" and the "JOH
Purchase"), in exchange for 193,767 shares of the Company's common stock,
designated as "restricted securities."
400,000 shares of Series A Non-voting Preferred Stock were also
issued to the JOH stockholders on January 8, 1999.
No director or executive officer of the Company had any interest in
the JOH Purchase prior to the completion of the JOH Purchase, except Matt
Baumgartner, an executive officer and director of the Company, who owned
approximately 40% of JOH at the time of the JOH Purchase.
The sole asset of JOH consists of 193,767 shares of Gecamex
Technologies, Inc.("GTI"), which by agreement with VMI are to be transferred
to VMI in exchange for their remaining 367,500 shares of Northport. Because
this share exchange agreement is an integral part of the transaction, there is
no intrinsic value remaining in the JOH corporate entity, and it is shown on
the Company's statements as having no value.
A copy of the JOH Purchase, together with all material exhibits,
was attached to the initially filed 10-SB Registration Statement and is
incorporated herein by reference. See Part III, Item 1. Also, see the
caption "Recent Sales of Unregistered Securities," Part II, Item 4; and Note 2
of the financial statements, Part F/S.
Changes of Control During the Past Three Years
----------------------------------------------
Pursuant to the Bylaws and the Nevada Revised Statues, the
following changes of control have occurred during the past three years:
* Michael Silvey, William A. Silvey, Jr. and W. Scott Thompson
were elected to serve as directors; and William A. Silvey, Jr.
was elected President; and W. Scott Thompson was elected
Secretary/Treasurer (10/2/92).
* Messrs. Silvey, Silvey and Thompson resigned, in seratim, and
designated Robert L. Michelini, Len Baker, Bradley D. Osgood
and Matt Baumgartner, to serve as directors, and Robert L.
Michelini was elected President, Len Baker was elected Vice
President and Treasurer and Bradley D. Osgood was elected
Secretary (12/24/97).
* Bradley D. Osgood resigned as Secretary and Matt Baumgartner
was elected Secretary. (2/15/98).
See the caption "Security Ownership of Certain Beneficial Owners
and Management," Part I, Item 4.
Sales of "unregistered" and "restricted" securities over the past three
years
-----
See the caption "Recent Sales of Unregistered Securities," Part
II, Item 4.
Business.
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The Company is an original equipment manufacturer ("OEM") of sports
and golf bags and a supplier to U.S. corporate clients with three divisions:
automotive, cut and sew and golf equipment. The "cut and sew" services
provided by the Company overlap each of these divisions; the "cut and sew"
services are considered a "Division" because they are operated in separate and
distinct facilities from the other divisions. See the discussion below.
These three divisions are operated as three separate Maquiladoras in Mexico
(and "in-bond" plant in Mexico), which allows the Company to export from the
United States to Mexico, raw materials in-bond, thereby avoiding the payment
of any Mexican duty. When assembly (or repair) is finished, the product is
returned to the United States where a duty is levied only on the cost of the
labor and overhead in Mexico, as well as those raw materials of a non-United
States origin.
Automotive Division
-------------------
The automotive division's principal business is to design, engineer
and manufacture hand and machine sewed products and electrical harnesses.
Once a design is completed, the designer prepares a pattern for the particular
product; prototypes of each product are then manufactured; then each prototype
product is tested and inspected. On acceptance by the Company's Quality
Assurance Department, the product is sent to the customer for approval. Once
approved, the Company's purchasing department secures materials to manufacture
the product from approved sources selected by the automotive industry, by
purchase order, usually on a yearly basis, with weekly deliveries of the
materials, as needed. Parallel to securing the materials for production, the
patterns are placed in production. Each employee is cross-trained for work on
all products. The products are sewn on industrial sewing machines owned by
the Company, except that with respect to the gear shift handles, no equipment
is necessary as each is hand sewn, with fixtures being required only to hold
the product. The "boots" (vinyl or leather material under the gear shift
handles) are machine sewn. The products of this division include hand-sewn
vinyl and leather wrapped steering wheels, door handles, gear shifts and
boots. The Company provides "full gear shift wraps," meaning the Company
wraps the plastic gear shift part in foam and then sews on the leather or
vinyl cover. Principal customers are Regal Plastics and May and Scofield;
payment terms are net, 30 days, FOB the Company's plant, meaning the customer
is responsible for freight and shipping to final destination; the Company's
customers supply the automotive industry with these products.
The Company also intends to produce wire harnesses utilized in the
manufacture of seat heaters for automobile seats for W.E.T. Automotive
Systems, Inc. ("W.E.T."). Under the parties Agreement, the Company must
maintain agreeable and acceptable quality, price and delivery rating for all
parts produced, or the Agreement between the parties is terminable by W.E.T.
All of these requirements shall be specified to the Company by W.E.T; sample
parts are also supplied by W.E.T. with the purchase order, for determining
quality requirements. The Company must warrant that all parts produced shall
be fit for the intended purpose; and non-conforming parts shall be returned to
the Company at its expense and risk. The Company shall be given a "preferred
supplier" status, and the parties agree to negotiate a long term arrangement
in accordance with commercially reasonable terms usual to the automotive
industry for similar supplier agreement. Purchase orders shall be delivered
by W.E.T. and shall set out the price, delivery, payment and credit terms, and
shall be subject to acceptance by the Company; prices are subject to increases
for W.E.T. approved engineering changes, and deductions for lower costs of
manufacture by the Company, with the Agreement providing for a cost plus 10%
fee. The Agreement shall be reviewed annually. W.E.T. shall supply, on a
consignment basis, all material and component parts required by the Company to
the Company's Texas facilities; the Company shall be responsible for delivery
of these items to its plant in Mexico, and the delivery of the finished
product to W.E.T's facilities in Mexico. W.E.T. shall also provide and retain
ownership of all necessary equipment for these services, by delivery of the
equipment to the facilities of the Company in Mexico. In the event of a
failure to timely supply the Company with the needed materials, W.E.T. shall
pay the Company $4.40US per hour down time for the number of employees of the
Company utilized in these operations.
The Company will also be developing, with Even Flo,, Inc. ("Even
Flo") a booster seat for children weighing between 40 to 80 pounds. This
product will be developed to meet the new automotive safety requirements for
juveniles.
Cut and Sew Division
--------------------
This division is provided with a pattern/drawing for a child or
infant seat pads or a sports bag. The Company's prototype department will
manufacture (sew) the product based upon the pattern or drawing. The material
utilized is polycotten, fire retardant cloth, supplied by the customer; the
customer is the owner of the material at all times; and the materials are sent
to the Company on consignment only. The completed product is then inspected,
and on acceptance by the Company's Quality Assurance Department, will be sent
to the customer for approval. Once approved, the patterns or drawings are
turned over to production. In the case of pads for child or infant seats,
they are sewn on the Company's industrial sewing machines; and the finished
product is sent to customers on common carriers arranged by the customer. The
Company may personally arrange for shipment of samples only, or rush or late
orders, by United Parcel Service. The principal products of this division are
infant car seat pads manufactured for Even Flo, and travel and sports bags
manufactured for Martha Elizabeth and Linda Jones companies.
Golf Bag Division
-----------------
The Company produces eight styles and sizes of golf bags, from
junior to professional, for various Original Equipment Manufacturing ("OEM")
customers. The Company's designer develops a design for a particular golf
bag, and with the assistance of the Engineering Department, prices the cost of
manufacturing the golf bag. If the cost is within the targeted range set by
management, the designer will develop patterns, and the prototype department
will build a prototype of the golf bag from the pattern. The sample bag is
then tested , inspected and reviewed by management for design and public
acceptability. The product is then carried to a select group of customers for
their comments, and if comments are positive, the patterns and products are
again reviewed by the Engineering Department for cost savings and ease of
production. Once this is completed, the patterns are turned over to
production for the manufacture of a limited number, about 50. The products
are then photographed and put into the Company's Golf brochure. The Golf bags
are primarily sold to distributors and large manufacturers who want a private
label (a product manufactured by others with their name on it) product. Golf
bags are also shipped by common carrier. The Company contacts a minimum of
three carriers to obtain the best price for delivery; this is done on a daily
basis, as shipping prices change continuously.
Revenues for 1998 totaled $3,766,930, with the Automotive Division
accounting for $1,550,383 (41%); the Cut and Sew Division accounting for
$2,087,819 (55%); and the Golf Division accounting for $128,728 (.034%) of
this total. Revenues for the first quarter ended March 31, 1999 totaled
$1,279,953, with the Automotive Division accounting for $339,279 (26%); the
Golf Division accounting for $25,722 (.02%); and the Cut and Sew Division
accounting for $914,952 (71%) of this total. Of the total sales for the first
quarter ended March 31, 1999, Even Flo, which is the Company's major customer,
accounted for 71% of all sales.
Also see the heading "Status of any Publicly Announced New Product
or Service," below.
Year 2000
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The Company has been advised by BusinessVision Management Systems,
Inc., who is the supplier of the Company's management systems and accounting
software, that it is Year 2000 compliant in all areas.
BusinessVision Management Systems has not agreed to pay for any
expenses that might be caused if the Company is not compliant. They have
provided the Company with a letter informing the Company that they have
developed an "update" that ensures that all BusinessVision products are Year
2000 compliant in all areas. The Company has installed the "update."
The Company can give no assurance that third parties with whom it
does business (e.g., banks and utilities) will ensure Year 2000 compliance in
a timely manner or that, if they do not, their computer systems will not have
an adverse effect on the Company. However, the Company does not believe that
Year 2000 compliance issues of such third parties will result in a material
adverse effect on its financial condition or results of operations.
The Company has received compliance letter from its bank and all of
its major suppliers respecting Year 2000 compliance. Management does not
believe that Year 2000 compliance issues will have any material adverse effect
on it financial condition or results of operations.
Principal Products and Services.
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The Company is an OEM of sports and golf bags and a supplier to U.S.
corporate clients with three divisions: automotive, cut and sew and golf
bags. The Automotive Division services range from assembly only to total
turnkey, meaning from concept design to completed product. Major products
produced are leather wrapped gear shift handles and gear shift boots (the
leather or vinyl material under the gear shift handle). The major customers
for these products are Regal Plastics and May and Scofield. These customers
in turn sell these products to the automotive industry. The Cut and Sew
Division primarily sews pads for infant car seats for the Even Flo, and sports
bags for Martha Elizabeth and Linda Jones companies. The Golf Bag Division
produces eight styles and sizes of golf bags, from junior to professional, for
various OEM customers. The Company also sells these products under its own
brand, Ever-Green.
For a further description of the Company's products and services,
see the caption "Business" above. Also see the heading "Status of any
Publicly Announced New Product or Service," below.
Distribution Methods of the Products or Services.
- -------------------------------------------------
The Company uses direct trucking contracts, (i.e., delivery direct
to the customer) to distribute their products, primarily common carriers, and
some customers provide their own trucks for products ordered.
The Company is a sub-supplier to other manufacturers; the Company
uses common carriers or customer trucks to deliver their products to its
customers; the principal customers are Even Flo, Regal Plastics or May and
Scofield.
Services are provided on site, and are solicited by direct contact
to potential clients or by reference from other clients.
The Golf bags are primarily sold to distributors and large
manufacturers who want a private label (a product manufactured by others with
their name on it) product. Golf bags are also shipped by common carrier.
All cut and sew services are provided at the Company's plant in
Allende, Coahuila, Mexico, on industrial sewing machines owned by the Company.
The Company repairs its own machines, and its employees are trained by the
machine manufacturers.
For a further description of the distribution methods of the
Company's products and services, see the caption "Business" above. Also see
the heading "Status of any Publicly Announced New Product or Service," below.
Status of any Publicly Announced New Product or Service.
- --------------------------------------------------------
Pursuant to the JOH Purchase, the Company acquired all of the
outstanding securities of JOH and the U.S. Patent for a vulcanized-in-place
sealing system for automotive engines and transmissions. This is a process
for bonding an elastromeric gasket material to a metal cover such as an engine
valve cover, anticipated to provide a superior leak-free engine sealing system
for automobile engines. The state of the current technology involves the
replacement of all metal for the cover through the use of a composite material
having less weight and lower cost, and assisting in noise reduction. Ideally,
the technology would eliminate all oil and similar leaks in engines and
promote longer life in the use of engines and less repairs resulting from
leaks. Management believe the technology is presently complete and available
for marketing.
The Company does not plan on selling any vulcanized-in-place
business during fiscal 1999. In the automotive business, contracts are
usually awarded two to three years in the future. The Company had not
received any requests for quotations on this line of business, and does not
anticipate being in a position to solicit quotations until the last quarter of
2000, and will use the operations discussed in the following paragraph to
present these products to potential customers and to solicit quotations. The
Company has hired an independent representative to market these products.
The Company has completed three rubber molding application in a
Joint Venture with Elastomeros Technicos Mundiales S.A. de C.V. ("ETM") made
in July of 1999; these parts will be used on the Volkswagon Beetle. The
Company will provide ETM with direct labor employees to support ETM's product
requirements, and will invoice ETM for the costs of these employees at an
agreed upon hourly rate, and for a prorated amount of overhead, depending upon
the amount of facilities utilized in providing services for ETM. ETM will
provide five molding machines, three rubber moldings and two plastic molding
machines under this Joint Venture. The products to be produced are comprised
of 40 different rubber and plastic parts for the Volkswagon Beetle; the molded
parts are sound reduction devices for interior trim parts, as well as clips to
hold wire harnesses in place. These products are presently being manufactured
in Germany; however, ETM's equipment will be relocated to Mexico in August,
1999, and production for Volkswagon Mexico will commence in mid-September.
These products can be utilized by the entire automotive industry, and
depending upon the success of this Joint Venture, will be marketed to the
entire automotive industry. A copy of the Agreement with ETM is attached
hereto and incorporated herein by reference. See Part III, Item 1.
Competitive Business Conditions.
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Even Flo has committed 80% of its North American soft trim
requirements to the Company. Any cut and sew operation (a company that
provides cut and sew services to this industry) with a minimum of 200 sewers
would be considered to be a competitor of the Company, and the Company
estimates there are approximately 10 such companies presently in operation in
the area of the Company. Price, delivery and quality are key factors, and the
Company believes it is competitive in all three areas.
Wrapping gear shift handles is a niche market. The largest
competitor is Custom Trim, which has approximately 80% of the market. The
Company has approximately 5% of this market. The remainder of the wrapped
gear shift handles market are handled in-house by plastic molding companies.
Golf and sports bags are manufactured by almost every sporting goods
company and clothing manufacturing company in the world; every department
store, sporting goods store, catalog, general store or outlet carry various
golf and sports bags of every kind and description. The Company's present
competitive position in this industry is insignificant.
Sources and Availability of Raw Materials and Names of Principal
Suppliers.
- ----------
The Company's major raw material/supplies required include thread,
material for golf bags and child infant seat pads, leather and various plastic
components. In all cases, there is a minimum of three sources for supplies. A
list of major suppliers includes, but is not limited to the following
companies: Even Flo, American & Efrid, Brookwood Rolls Goods, Seiler Plastics,
Tape Craft, Seton, Coat's Bell and Creative Foam.
Industrial sewing machines, new and used are readily available, and
have changed little in the past 30 years.
Dependence on One or a Few Major Customers.
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The Company's major customer is Even Flo, for which it cuts and sews
the soft pad inserts of infant car seats, and the loss of this customer would
have a material adverse effect on our financial condition; for the quarter
ended March 31, 1999, Even Flo accounted for approximately 71% of the
Company's revenues. The Company has a new written three year agreement that
will end in 2002, unless renewed, effective May 21, 1999. A copy of this
Agreement is attached hereto and incorporated herein by reference. See Part
III, Item 1. Even Flo is also dependent upon the Company for its products.
The Company's current strategy is to reduce its reliance on Even Flo so that
by the end of 1999, Even Flo will account for approximately 30% of the
Company's total revenues. For the year ended December 31, 1998, Even Flo
accounted for approximately $2,087,819 (55.4%) of total revenues; and Regal
Plastics accounted for approximately $1,527,393 of total revenues (40.5%).
The Company has utilized purchase orders from Even Flo in the past.
Patents, Trademarks, Licenses, Franchises, Concessions, Royalty
Agreements or Labor Contracts.
- ------------------------------
The Company recently acquired JOH and its vulcanized-in-place
sealing system for automotive engines and transmissions. JOH owned Patent
#4,819,953, dated April 11, 1989.
The Company has material contracts with Even Flo, W.E.T. Automotive
Systems, Inc. and Elastomeros Technicos Mundiales S.A. de C.V. ("ETM").
Copies of these Agreements are attached hereto and incorporated herein by
reference. See Part III, Item 1.
Need for any Governmental Approval of Principal Products or
Services.
- ---------
There are no material governmental regulations which affect the
current business operations of the Company.
Effect of Existing or Probable Governmental Regulations on
Business.
- ---------
Effective January 4, 1999, the NASD adopted rules and regulations
requiring that prior to any issuer having its securities quoted on the OTC
Bulletin Board of the NASD that such issuer must be "reporting issuer" which
is required to file reports under Section 13 or 15(d) of the Securities and
Exchange Act of the 1934, as amended (the "1934 Act"). The Company is not
currently a "reporting issuer," and this Registration Statement will bring the
Company into compliance with these listing provision of the OTC Bulletin Board
and prevent the NASD from delisting quotations of the Company's common stock.
Under the "phase-in" schedule of the NASD, the Company has until February,
2000, within which to become a "reporting issuer." See Part II, Item 1.
Research and Development.
- -------------------------
The Company's predecessor, VMI, which was a closely-held corporation
prior to its acquistion by the Company, did not maintain a separate account
for research and development expenses during fiscal 1997 or during the
calendar year ended December 31, 1998; however, the Company estimates that
approximately $86,400 was expended in connection the development of three
products, wire harnesses, heating steering wheels and leather wrapping of
steering wheel shafts. Only the wire harnesses have developed into a product
currently being manufactured and marketed by the Company. The Company
presently maintains a "research and development" account, and anticipates
spending approximately 5% of gross sales of the Automotive Division on
research and development of products for this division.
Cost and Effects of Compliance with Environmental Laws.
- -------------------------------------------------------
Since the nature of the Company's business is to cut and sew, the
Company does not have an environmental problem. The foam that the Company
brings into Mexico to cut is either returned as part of the product to the
U.S. or, if scrap material, is returned to the U.S. from Mexico and is
disposed of appropriately.
Number of Employees.
- --------------------
As of April 19, 1999 there were 608 full-time employees.
Item 2. Management's Discussion and Analysis or Plan of Operation.
- --------------------------------------------------------------------
Plan of Operation.
- ------------------
The Company will be adding two new significant customers within the
next 12 months, W.E.T. Automotive Systems, Inc. ("W.E.T.") and Elastomeros
Technicos Mundiales S.A. de C.V. ("ETM"). See the caption "Business," and the
heading "Status of any Publicly Announced New Product or Service," above,
under Item 1, Part I.
The Company in the next 12 months expects to grow from $3,366,892 to
over $6,000,000 in revenues, based upon estimates given to the Company by its
customers, based upon their 1999 needs; no assurance can be given that these
results will occur. The cut and sew division will continue to grow over the
next twelve months from $1,543,280 to $2,500,000 in revenues; this growth will
be primarily additional business from the Even Flo. The Company anticipates
that the automotive division will grow from $1,543,280 to $3,000,000 in
revenues; this growth will be in electric harnesses for heated seats for cars.
W.E.T., a new customer and the largest supplier of heated seats to the
automotive industry, with approximately 80% of the North American market, will
be the entity the Company will be supplying with electric harnesses. Another
new customer is ETM; the Company will be producing both rubber and plastic
parts for use by Volkswagen. In addition, the Company will be wrapping gear
shift handles and sewing gear shift boots for May & Scofield, for end use by
Chrysler and Saturn; and, Regal Plastics for end use by General Motors.
Management expects that the remainder of the growth will be from sewing high
fashion luggage and bags for the Linda Jones Collection and Martha Elizabeth.
During the next 12 months, the Company's foreseeable cash
requirements will be met by bank financing. The Company has a secured
revolving credit line from the CIT Group of New York, effective July 19, 1999,
with no present expiration date. This line bears interest at prime + 1 3/4 %,
plus 3/4% for the factoring and allows the Company to factor up to 85% of all
customer account receivable less than 90 days old. The Company is allowed to
borrow 50% on its inventory up to $250,000. As of July 19, 1999, receivables
which were less than 90 days old amounted to $379,427; and as of March 22,
2000, similar receivables were $1,580,256.
The Company plans on continuing to do research in the "JOH Rubber"
area, primarily in the composite polymoric material in either thermosetting or
thermoplastic. The nature of the research is confidential and can not be
discussed in a public document. The new technology, if successful, will
provide a better sealing, lighter weight, lower noise and less costly product
for automotive power trains.
The Company also plans on upgrading its auto CAD (computer aided
design) system at an approximate cost of $25,000, in addition to improving its
manufacturing plant at a cost of $250,000.
The Company has the option to purchase the facility in Allende (see
Part I, Item 3) within the next 14 months, or until the end of February 2000;
however, there are no plans at this time to purchase this facility. The
purchase price under the option is $850,000, with all lease monies paid being
credited to the purchase price.
The Company is investigating the possibility of purchasing its own
embroidery equipment at an approximate cost of $25,000.
The Company also expects its work force to grow by 10% over the next
12 months.
Results of Operations.
- ----------------------
Northport operates in two industry segments: automotive components
and child transportation and safety products. The automotive segment is
active in the design; engineering and manufacturing of automotive parts while
the child transportation and safety products operations are carried on
exclusively in our cut and sew division. In the 12 months ended December 1998
the Company did not have "segments" under SFAS 131, 17. Nor did it keep
separate profit centers for the different products. Management estimates that
approximately 55% came from the child transportation and safety products, 5%
from golf bags and miscellaneous products and the remaining 40% from
automotive. Golf bags is not an industry segment due to its low volume.
Management feels that golf bag sales will be less than 1% of 1999 revenue.
The sales of automotive parts are derived from the sale of gearshift
handles, boots (the part under the gearshift). Northport typically receives
purchase orders to produce and deliver specific quantities of the product,
which are issued in advance of anticipated delivery dates. The actual volume
of parts produced under the order in any given year is dependent upon the
actual number of vehicles produced in which the part is incorporated.
Contract prices are generally adjusted annually for material price increases
and for stipulated price reductions relating to expected improvements in
productivity. Any increase or decrease, as the case may be, affects the gross
margin percentage because a portion of the cost of sales is represented by
fixed overhead costs.
Northport is engaged as a single source supplier to Regal Plastics
and May & Scofield. These companies in turn are engaged as a single source
supplier under all of the current major programs with General Motors and
Chrysler.
It has been Northport's experience that once it has received a
commercial production order to produce a part, it will usually continue to
produce the part throughout the time such part is utilized by the customer.
All sales of child transportation and safety products were to Even
Flo Corporation. These sales were made pursuant to an agreement entered into
in October of 1998. All sales to Even Flo during the 12 months ended December
1998 were for labor only. Even Flo supplied all material with the exception
of thread. In the future, it is anticipated that Northport will begin to
purchase material from approved suppliers.
Salaries.
- ---------
There are no present plans to pay salaries to any director or
executive officer of the Company except Messrs. Michelini and Baker.
Sales.
- ------
Consolidated sales for the 12 month period ended December 31, 1998,
increased $2,026,028 or 188% to $3,766,930 from $1,740,902 for the year ended
December 31, 1997.
Sales of automotive parts amounted to approximately $1,506,772 for
the 12 month period ended December 31, 1998 as compared to approximately
$1,000,000 for the year ended December 31, 1997. Of the increase, $425,000
was a new contract with May & Scofield for the Saturn boot and a Chrysler
gearshift handle. The additional sales were increased demands from Regal
Plastics.
Sales of child transportation and safety products amounted to
approximately $2,260,158 for the 12 month period ended December 31, 1998 as
compared to approximately $250,000 for the period ended December 31, 1997.
This was all the result of new programs awarded to Northport during the 12
months ended December 1998.
Gross Profit.
- -------------
Gross profit for the 12 month period ended December 31, 1998 was
$812,325 or 21% as a percentage of consolidated sales as compared to
($410,477) or (24%) for the year ended December 31, 1997. This increase of
45% of consolidated sales is due to two main factors: (1) production
efficiencies in both automotive and child transportation and safety products;
(2) higher sales as compared to the prior year and fixed overhead costs had
not increased at the same rates as the sales increases.
Selling, General and Administrative Expenses.
- ---------------------------------------------
Selling, general and administrative expenses for the 12 month period
ended December 31, 1998 were $688,490 or 19% as a percentage of consolidated
sales as compared to $425,813 or 24% in the year ended December 31, 1997. The
percentage of cost did not increase at the same rate as the increase sales.
There was a recovery of $11,225 of bad debt that was recovered in addition due
to purchasing a patent and an amortization cost of $20,578 was added.
Interest Expense.
- -----------------
Interest on debt for the 12 month period ended December 31, 1998 was
$17,767 compared to $62,522 in the year ended December 31, 1997. The decrease
of $44,755 was due primarily to less money borrowed.
Income Tax.
- -----------
The Company had an income tax of $4,751 for the 12 month period
ended December 31, 1998 as compared to zero income taxes for the year ended
December 31, 1997. As of December 31, 1998, the Company had accumulated
losses for income tax purposes of approximately ($639,464). These losses were
available to reduce taxable income in future years.
Net Income.
- -----------
Northport's profit for the 12 month period ended December 31, 1998
was $102,195 or $0.02 per share as compared to a loss of ($836,290) or ($0.28)
per share in the year ended December 31, 1997.
Liquidity.
- ----------
At the year ended December 31, 1998, the Company had $12,038 in
cash, current assets of $573,618, with current liabilities of 486,321. The
Company secured a revolving line of credit from Del Rio National Bank on
October 27, 1998; this line matured in mid 1999. The Company now has a new
secured revolving credit line from the CIT Group of New York on July 19, 1999.
This line bears interest at prime + 1 3/4 %, plus 3/4% for the factoring and
allows the Company to factor up to 85% of all customer account receivable less
than 90 days old. Present accounts receivable within 90 days amount to
$1,580,256. The Company has not identified any other sources of long term
cash or financing and its present long term liquidity is dependent upon this
line of credit. Without other liquid sources or funds for operations, the
growth of the Company may be severely limited.
The Company has three notes payable, two to GMAC for two Chevrolet
vans totaling $31,490 with monthly payments of $1,056 until December 2000; and
one to Clark Credit for a forklift for $11,807, with monthly payments of $573
until September 2000. The Company also has related party debt which consists
of $33,528 to Fairfax and $28,471 to Robert L. Michelini, the Company's
President. Based upon present customer demands, management believes its cash
requirements for 1999 can be met with this line of credit and from present
operations.
Mexican law requires, in addition to federal payroll taxes,
termination pay for employees who are laid off. Such payment is based on a
formula including pay rate and years of service. The Company has not set up a
reserve for such payments, contending that they are unlikely to ever be due.
If an employee quits, he or she is not entitled to any such termination pay.
The Company estimates its maximum theoretical exposure to such a liability, as
if all employees had been laid off on December 31, 1998, at $150,000.
During 1998, the Company engaged a consultant to effect a limited
offering of common stock pursuant to 504 of Regulation D of the Securities and
Exchange Commission. A dispute arose regarding performance and compensation
and this contract was canceled; however, the Company had received $61,200 in
consideration for the sale of 235,752 shares of common stock pursuant to this
offering.
The Company also sold an additional 51,750 shares of its common
stock ("restricted securities") during 1998 for $78,500.
Item 3. Description of Property.
- ---------------------------------
The Company leases several properties.
* 20,000 square foot office and warehouse at Spur 277 and 239
Alderete Lane, Del Rio, Texas, which is leased for $1,650
per month with the lease ending January 31, 1999. The space
is being leased on a month to month basis until the Company
determines its long-term needs.
* 52,000 square foot plant at 4 Carretera Presa in Acuna,
Coahuila, Mexico, which is leased for $5,000 per month, with
the lease ending November 1999.
* Building in Coahuila, Mexico, for $3,440 per month, with the
lease being renewable.
* The Company leases a 39,000 square foot facility in Allende,
Mexico for $9,806 per month (plus a value added tax of
$1,471 which will be returned to the Company), with an
option to purchase any time during the first fourteen months
of the lease. All lease monies paid would be applied to the
purchase price of $850,000.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners.
- ------------------------------------------------
The following table sets forth the share holdings of those persons
who own more than five percent of the Company's common stock as of the date
hereof with the number of outstanding shares at 5,709,402, which includes
400,000 shares into which outstanding Series A Non-Voting Preferred Stock is
convertible, based upon a conversion price of $1.00 per share, which is
commensurate with the present bid prices for the common stock of the Company
on the OTC Bulletin Board (see the heading "Preferred Stock," Item Part I,
Item 8:
<TABLE>
<CAPTION>
Number of Shares Percentage
Name and Address Beneficially Owned of Class
- ---------------- ------------------ --------
<S> <C> <C>
Fairfax Industries, Inc.(1) 1,488,000 26.00%
46641 Arboretum
Plymouth, Michigan 48170
Cenote Plastics(2) 900,000(4) 15.70%
P. O. Box 421812
Del Rio, Texas 78842-1812
Matt Baumgartner(2) 1,230,948 21.56%
P. O. Box 421812
Del Rio, Texas 78842-1812
Robert L. Michelini(3) 2,493,589 27.91%
P. O. Box 1438
Del Rio, Texas 78841
Bradley D. Osgood(4) 1,488,000 26.00%
P. O. Box 1438
Del Rio, Texas 78841
</TABLE>
(1) Robert L. Michelini and Bradley D. Osgood each own 40% of Fairfax
Industries, Inc., and the entire beneficial ownership of this entity is
included as being beneficially owned by each. Also, see the heading
"Securities Ownership of Management," below.
(2) Matt Baumgartner owns 50% of Cenote Plastics, and the entire
beneficial ownership of this entity is included as being beneficially by Mr.
Bamgartner. Also, see the heading "Securities Ownership of Management,"
below.
(3) Includes all of Fairfax Industries, Inc.'s stock ownership in the
Company; 10,089 shares common indirectly owned by Jeanne Michelini; and 95,500
shares of common stock in to which Mr. Michelini's 95.500 shares of Series A
Non-Voting Preferred Stock are convertible.
(4) Includes all of Fairfax Industries, Inc.'s stock ownership in the
Company.
Security Ownership of Management.
- ---------------------------------
The following table sets forth the share holdings of the Company's
directors and executive officers as of the date hereof with the number of
outstanding shares at 5,709,402, which includes 400,000 shares into which
outstanding Series A Non-Voting Preferred Stock is convertible, based upon a
conversion price of $1.00 per share, which is commensurate with the present
bid prices for the common stock of the Company on the OTC Bulletin Board (see
the heading "Preferred Stock," Item Part I, Item 8:
Number of Shares Percentage of
Name and Address Beneficially Owned(1,(2) of Class
- ---------------- ------------------ -------------
[S] [C] [C]
Matt Baumgartner(2) 1,230,948 21.56%
P. O. Box 421812
Del Rio, Texas 78842-1812
Robert L. Michelini(3) 2,493,589 27.91%
P. O. Box 1438
Del Rio, Texas 78841
Bradley D. Osgood(4) 1,488,000 26.00%
P. O. Box 1438
Del Rio, Texas 78841
Fernando Gonzales Garza -0- -0-
P. O. Box 1438
Del Rio, Texas 78841
Len Baker -0- -0-
P. O. Box 1438
Del Rio, Texas 78841
All Directors and 5,212,537 91.29%(1), (2), (3) and
Officers (5) as a (4)
Group.(1), (2), (3) and
(4)
- ---
(1) Robert L. Michelini and Bradley D. Osgood each own 40% of Fairfax
Industries, Inc., and the entire beneficial ownership of this entity is
included as being beneficially owned by each. Also, see the heading
"Securities Ownership of Management," below.
(2) Matt Baumgartner owns 50% of Cenote Plastics, and the entire
beneficial ownership of this entity is included as being beneficially by Mr.
Bamgartner. Also, see the heading "Securities Ownership of Management,"
below.
(3) Includes all of Fairfax Industries, Inc.'s stock ownership in the
Company; 10,089 shares common indirectly owned by Jeanne Michelini; and 95,500
shares of common stock in to which Mr. Michelini's 95.500 shares of Series A
Non-Voting Preferred Stock are convertible.
(4) Includes all of Fairfax Industries, Inc.'s stock ownership in the
Company.
See the caption "Directors, Executive Officers, Promoters and
Control Persons," below, Part I, Item 5, for information concerning the
offices or other capacities in which the foregoing persons serve with the
Company.
Changes in Control.
- -------------------
There are no present arrangements or pledges of the Company's
securities which may result in a change in control of the Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
- -------- -------------------------------------------------------------
Identification of Directors and Executive Officers.
- ---------------------------------------------------
The following table sets forth the names of all current directors
and executive officers of the Company. These persons will serve until the
next annual meeting of the stockholders or until their successors are elected
or appointed and qualified, or their prior resignation or termination.
<TABLE>
Date of Date of
Positions Election or Termination
Name Held Designation or Resignation
- ---- ---- ----------- --------------
<S> <C> <C> <C>
Robert L. Michelini President, 12/24/97 *
Chairman, 12/24/97 *
CEO 12/24/97 *
and Director 12/24/97 *
Matt Baumgartner Secretary 2/15/98 *
and Director 12/24/97 *
Bradley D. Osgood Director 12/24/97 *
Secretary 12/24/97 2/15/98
Len Baker Vice President 12/24/97 3/20/00
Treasurer 12/24/97 3/20/00
Director 12/24/97 3/20/00
Assistant Sec 12/24/97 3/20/00
General Manager12/24/97 3/20/00
Automotive Division
Fernando Gonzalez
Garza Director 10/2/98 *
</TABLE>
* These persons presently serve in the capacities indicated.
Business Experience.
- --------------------
Robert L. Michelini, President, Chairman, CEO and a director. Mr.
Michelini is 61 years of age and graduated with a B.B.A. from Western Michigan
University, with a minor in Math and an MBA from the University of Detroit.
He began his business career as a Systems, Analyst with I.B.M. Corporation
where he set up and designed computer systems (February, 1960-December 1963)
and from there moved on to Bendix Corporation as the Director of Corporate
Computer Systems (January, 1963-August, 1970). From September, 1970 to
November, 1979, Mr. Michelini worked for Lear Corporation as the President of
Acts Computing and as Vice President of the corporation. During this time, he
developed, set up and ran the online lotto for the State of Michigan and
managed the facility management contract on the largest computer in the world.
Beginning his career as an entrepreneur, Mr. Michelini opened the doors on
Computer Alliance. As Chairman and 60% owner of the Company, his leadership
was instrumental to it being designated as the fastest growing company in
Michigan and 18th in the United States in 1984 (November, 1979-December,
1985). As President and 50% owner of Fair Haven Industries (August, 1983-
December, 1990), Mr. Michelini's expertise resulted in automotive sales that
increased from $2,000,000 to $22,000,000, with an eventual buy-out by Lear
Corporation. From March, 1990-October, 1994, Mr. Michelini acted as President
of the Bauerhim division of Gecamex Industries, Inc. ("Gecamex"), while
simultaneously holding the position of Vice President of Gecamex. Gecamex was
engaged in similar "cut and sew" services as those provided by the Company,
related to sewing seats for children and automobile seats for infants. Mr.
Michelini acted as President of the Company's predecessor, VMI, from November,
1994, to December, 1997; and he was elected President of the Company in
January, 1998, following the acquisition of VMI.
Matt Baumgartner, Secretary and a director. Mr. Baumgartner is 57
years of age and graduated with a Bachelor of Science in Chemical Engineering
and an MBA from the University of Windsor. He worked as a process engineer
for a supplier of automotive plastics from 1964 to 1967, and taught college
mathematics from 1967 to 1980. Since 1980, through the present, Mr.
Baumgartner was the co-founding manager (from February, 1985 through December,
1998), looking after all aspects of managing the start-up of the Canadian
manufacturing facilities for the following companies: Kautex (now part of
Textron), which produced blow-molded plastic fuel tanks; Kuester (now part of
Magna), which produced cable-drive window lifters; Rasmussen (still
independent), which produces quick-connect hose mechanisms and hose clamps.
In January of 1989, he started JOH (now part of the VMI group of Companies),
which produces power-train composite cover/sealing systems; In February, 1989,
he started Bauerhin (now part of the VMI group of Companies), which produces
interior trim assemblies and electric seat heaters; In March, 1990, he started
Knapp Plastics (now part of LDM Technologies), which produces interior and
exterior molded plastic automotive parts. He was appointed President of
Gecamex in June, 1989(now part of the VMI group of Companies), which was a
merger of the JOH and Bauerhin companies taken public on the Toronto Stock
Exchange in 1993. From January of 1993, he has been Chairman and CEO of
Gecamex, until his resignation in February, 1996. Since that time, he has
been semi-retired, but has consulted with various German companies desiring to
open facilities in Mexico, Canada and the United States.
Bradley D. Osgood, director. Mr. Osgood is 59 years of age and
graduated from Hillsdale College with a degree in Business Administration and
received a M.B.A. in Finance from the University of Michigan at Ann Arbor.
In 1983, he co-founded Fair Haven Industries, Inc. and served as Chairman of
Fair Haven Industries, which was eventually bought out by Lear Corporation
1990. He also co-founded Fairfax Industries, Inc. in 1986 and serves as
Chairman of the Board. In 1994, he became President of Red River Company, a
manufacturer's representative business out of Austin, Texas, primarily working
on behalf of Mexican maquiladoras, selling services to automotive suppliers,
sporting good manufacturers and other businesses utilizing expertise in cut
and sew manufacturing; he still serves as its President.
Len Baker, Vice President, Treasurer, Assistant Secretary and
director. Mr. Baker is 37 years of age and graduated from the Manufacturing
engineering program at St. Clair College in Windsor, Ontario, Canada, and has
continued his education by completing one year in the St. Clair College
Architectural Engineering Technology program; received certification from
completion from the Ontario Management Development Program; received a Human
Resources Certificate through part-time studies; and, completed two years of
study toward a Business of Commerce degree at the University of Windsor. From
August 1983 through March 1993, Mr. Baker held positions as Quality Control
Inspector, Quality Control Supervisor/Statistical Process Control Coordinator,
Plant Manufacturing Engineer, and Quality Control Manager at various
automotive manufacturing companies in Canada. He was personally responsible
for ensuring the quality conformance of stamped automotive parts, training in
the use of S.P.C. and various inspection methods and for the preparation of
Initial Sample Inspection Reports. From March 1993 through December 1997, Mr.
Baker has held positions as General Manager for an Ontario facility that
manufactured seating for Chrysler and was accountable for the profitability of
the operations; Vice President of Manufacturing for manufacturing facilities
for two locations in Canada, one operation in Michigan and the Del Rio,
Texas/Ciudad Acuna operations. Mr. Baker accepted the position of General
Manager of Gecamex in October of 1994, a position he held through the recent
reorganization and continues to hold for VMI.
Fernando Gonzales Garza, Director. Mr. Gonzales is 43 years of age and
graduated with a degree in Business Administration from Universidad
Regiomontana in Monterrey, Nuevo Leon, Mexico and continued his education at
Texas A & M International University, Laredo, Texas, receiving a Master of
Business Administration on International Trade. He founded AFRASA
International in 1977. Mr. Gonzalez in President and CEO of AFRASA, a company
engaged in retailing and distributing auto parts. The company employs 44
people and maintains six retail stores and two warehouses. Mr. Gonzalez is
and has been actively involved in politics in Acuna, and is a member of the
Chamber of Commerce on both sides of the border.
Significant Employees.
- ----------------------
The Company has no significant employees who are not executive
officers.
Family Relationships.
- ---------------------
None.
Involvement in Certain Legal Proceedings.
- -----------------------------------------
During the past five years, no present or former director,
executive officer or person nominated to become a director or an executive
officer of the Company:
(1) was a general partner or executive officer of any business
against which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise
limiting his involvement in any type of business, securities or banking
activities; or
(4) was found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or
commodities law, and the judgment has not been reversed, suspended or vacated.
Item 6. Executive Compensation.
- --------------------------------
The following table sets forth the aggregate compensation paid
by the Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Name and Year or Other Rest- Under- LTIP Other
Principal Period Salary Bonus Annual rictedlying Pay- Comp-
Position Ended ($) ($) Compen-Stock Optionsouts ensat'n
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L.
Michelini,
President, 12/31/97 0 0 0 0 0 0 0
Chairman, 12/31/98 $80000 0 0 0 0 0 0
CEO and
Director
Matt
Baumgartner,
Secretary 12/31/97 0 0 0 0 0 0 0
and Director12/31/98 0 0 0 0 0 0 0
Bradley D.
Osgood,
Director 12/31/97 0 0 0 0 0 0 0
12/31/98 0 0 0 0 0 0 0
Len Baker,
Director, 12/31/97 $85000 0 0 0 0 0 0
General
Manager 12/31/98 $45000 0 0 0 0 0 0
</TABLE>
Other than the salary listed above, no cash compensation, deferred
compensation or long-term incentive plan awards were issued or granted to the
Company's management during the fiscal years ended December 31, 1998 or 1997.
Further, no member of the Company's management has been granted any option or
stock appreciation rights; accordingly, no tables relating to such items have
been included within this Item.
The two executive officers who are currently salaried, Messrs.
Michelini and Baker, are not paid for specifically serving as directors or
executive officers; Mr. Baker is paid as the General Manager of the Automotive
Division, and Mr Michelini is paid as the CEO. There are no plans to pay any
of the other persons serving as directors or executive officers in these
capacities or any other capacity.
Compensation of Directors.
- --------------------------
There are no standard arrangements pursuant to which the Company's
directors are compensated for any services provided as director. No
additional amounts are payable to the Company's directors for committee
participation or special assignments.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements.
- -------------
There are no employment contracts, compensatory plans or
arrangements, including payments to be received from the Company, with respect
to any director or executive officer of the Company which would in any way
result in payments to any such person because of his or her resignation,
retirement or other termination of employment with the Company or its
subsidiaries, any change in control of the Company, or a change in the
person's responsibilities following a change in control of the Company.
Item 7. Certain Relationships and Related Transactions.
- --------------------------------------------------------
The following is the material transaction between the Company and any
director, executive officer, five percent stockholder or promoter or founder
of the Company:
* See the heading "Reorganizations," Part I, Item 1, paragraph
(2) and also see Part III, Item 1, Exhibit 10.2, "Offer to
Purchase dated August 14, 1998 of JOH Rubber Inc."
Parents of the Issuer.
- ----------------------
The Company has no parents. See the caption "Business
Development," Part I, Item 1.
Item 8. Description of Securities.
- -----------------------------------
The Company has two classes of securities authorized, consisting of
25,000,000 shares of $0.001 par value common voting stock and 12,500,000
shares of $0.25 par value non-convertible preferred voting stock.
Common Stock
------------
The holders of the Company's common stock are entitled to one vote
per share on each matter submitted to a vote at a meeting of stockholders.
The shares of common stock do not carry cumulative voting rights in the
election of directors.
Stockholders of the Company have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock is
not subject to redemption rights and carries no subscription or conversion
rights. In the event of liquidation of the Company, the shares of common
stock are entitled to share equally in corporate assets after satisfaction of
all liabilities. All shares of the common stock now outstanding are fully
paid and non-assessable.
There are no outstanding options, warrants or calls respecting any
of the authorized but unissued common stock of the Company.
There is no provision in the Company's Articles of Incorporation, as
amended, or Bylaws, as amended, that would delay, defer, or prevent a change
in control of the Company.
Preferred Stock
---------------
The are two classes of preferred stock authorized to be issued by
the Board of Directors (i) preferred stock, and (ii) Series A Non-Voting
Preferred Stock.
Preferred Stock
---------------
* Non-voting.
* $233,541 liquidation preference.
* Convertible to common on a basis of one for one.
* 5,921 shares outstanding.
Series A non-voting
--------------------
* Non-voting.
* Redemption or Face Value of $1 per share.
* 5% cumulative cash dividend on the Redemption or Face Value.
* callable at any time by the Company, by payment of the
Redemption or Face Value and any accrued 5% cumulative
dividends.
* convertible at the option of the holder into "restricted
securities" in common stock of the Company at the Redemption
or Face Value, on the closing bid of the common stock of the
Company on the OTC Bulletin Board of the NASD or any other
recognized market where these securities publicly trade on
the day prior to the conversion.
* in the event for any reason the preferred stock is still
outstanding after three years from its issuance, the
Company, at its option, may convert the Redemption or Face
Value into "restricted securities" in common stock of the
Company on the closing price of the common stock of the
Company on the OTC Bulletin Board of the NASD or any other
recognized market where these securities publicly trade on
the day prior to conversion.
* Share equally in assets on distribution, pro rata, with the
common stockholders.
* 400,000 were issued to the JOH stockholders; see the heading
"Reorganizations," Part I, Item 1, paragraph (2).
There are no outstanding options, warrants or calls respecting any
of the authorized but unissued preferred stock of the Company.
PART II
Item 1. Market Price of and Dividends on the Company's Common Equity and
Other Stockholder Matters.
- --------------------------
Market Information.
- -------------------
The Company's common stock is quoted on the OTC Bulletin Board of
the NASD under the symbol "PESO." Quotations commenced on July 1, 1997, as
"unpriced."
The following quotations were provided by the National Quotation
Bureau, LLC, and do not represent actual transactions; these quotations do not
reflect dealer markups, markdowns or commissions.
<TABLE>
<CAPTION>
STOCK QUOTATIONS*
CLOSING BID
Quarter ended: High Low
- -------------- ---- ---
<S> <C> <C>
September 30, 1997 unpriced
December 31, 1997 unpriced
March 31, 1998 unpriced
June 30, 1998 5.00 5.00
September 30, 1998 5.75 .1875
December 31, 1998 1.5625 .16
</TABLE>
Restricted Securities
- ---------------------
There are currently 5,309,402 outstanding voting securities of the
Company, 5,008,091 of which are designated as "restricted securities." Of
these 5,008,091 "restricted securities," all have satisfied the one year
holding period of Rule 144, and may be publically sold in accordance with this
Rule; the effectiveness of this Registration Statement will enable the Company
to have "current public information" available for resale of "restricted
securities" 90 days after the effective date, which was May 9, 1999, so long
as all required reports have been filed. Any sales of these "restricted
securities" could have an adverse affect on the current or any future public
market for the Company's common stock.
Holders.
- --------
The number of record holders of the Company's common stock as of the
date of this Registration Statement is approximately 178.
Dividends.
- ----------
The Company has not declared any cash dividends with respect to
its common stock or its preferred stock, and does not intend to declare
dividends in the foreseeable future. The future dividend policy of the
Company cannot be ascertained with any certainty, no such policy will be
formulated. There are no material restrictions limiting, or that are likely
to limit, the Company's ability to pay dividends on its securities.
Item 2. Legal Proceedings.
- ---------------------------
The Company is not a party to any pending legal proceeding. No
federal, state or local governmental agency is presently contemplating any
proceeding against the Company. No director, executive officer or affiliate
of the Company or owner of record or beneficially of more than five percent of
the Company's common stock is a party adverse to the Company or has a
material interest adverse to the Company in any proceeding.
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
- ---------------------
There have been no changes in the Company's principal independent
accountant in the past two fiscal years or as of the date of this Registration
Statement.
Item 4. Recent Sales of Unregistered Securities.
- -------------------------------------------------
Date Number of Aggregate
Name or Group Acquired Shares Consideration
------------- -------- --------- -------------
Common Stock
VMI Plan
VMI stockholders 12/24/97 3,000,000 (1)
Consultants and
attorneys 12/24/97 450,000 (2)
Finders and their
donees 12/24/97 1,150,000 (3)
Private Placement 12/24/97 350,000 (4)
JOH Purchase
JOH stockholders 8/14/98 193,767 (5)
Leonard W. Burningham,
Esq. 1/21/99 7,500 (6)
Preferred Stock
JOH Purchase
JOH Stockholders 8/14/98 400,000 (7)
(1) These shares were issued in exchange for shares owned in VMI.
See Part III, Item 1, Exhibit A of Exhibit 10.1; also see Section 1.1(i)
of Exhibit 10.1.
(2) 450,000 shares of "unregistered" and "restricted" common stock for non-
capital raising services rendered by Consultants and Attorneys, all
issued pursuant to Rule 701 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the 1933 Act").
See Part III, Item 1, Schedule A of Exhibit 10.1; see also Section
1.1(ii) of Exhibit 10.1, and Exhibit 10.3.
(3) "Unregistered" and "restricted" common stock issued under an exemption
from registration provided for under Section 4(2) of the 1933 Act, as
finders and their donees. See Part III, Item 1, Schedule B, C, D and E
of Exhibit 10.1; see also Section 1.1(iii) and (iv) of Exhibit 10.1.
(4) "Unregistered" and "restricted" common stock issued pursuant to a
Private Placement made in reliance on Section 4(2) of the 1933 Act. See
Part III, Item 1, Exhibit B of Exhibit 10.1; see also Section 1.1(v) of
Exhibit 10.1.
(5) 193,767 "restricted" shares issued pursuant to the JOH Purchase. See
Part III, Item 1, Exhibit 10.2.
(6) Issued pursuant to an Engagement Letter under Rule 701 of the Securities
and Exchange Commission. See Part III, Item 1, Exhibit 10.4.
(7) Issued to the JOH Stockholders; see the heading "Reorganization," part
I, Item 1, paragraph (2).
Management believes each of the foregoing persons or entities was
either an "accredited investor," or "sophisticated investor" as defined in
Regulation D, Rule 506. Each had access to all material information regarding
the Company prior to the offer, sale or issuance of these "restricted
securities." The Company believes these shares were exempt from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"), pursuant to Section 4(2) thereof.
Item 5. Indemnification of Directors and Officers.
- ---------------------------------------------------
Section 78.751(1) of the Nevada Revised Statutes ("NRS")
authorizes a Nevada corporation to indemnify any director, officer, employee,
or corporate agent "who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or
in the right of the corporation" due to his or her corporate role. Section
78.751(1) extends this protection "against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with the action, suit or proceeding if he
or she acted in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful."
Section 78.751(2) of the NRS also authorizes indemnification of
the reasonable defense or settlement expenses of a corporate director,
officer, employee or agent who is sued, or is threatened with a suit, by or in
the right of the corporation. The party must have been acting in good faith
and with the reasonable belief that his or her actions were not opposed to the
corporation's best interests. Unless the court rules that the party is
reasonably entitled to indemnification, the party seeking indemnification must
not have been found liable to the corporation.
To the extent that a corporate director, officer, employee, or
agent is successful on the merits or otherwise in defending any action or
proceeding referred to in Section 78.751(1) or 78.751(2), Section 78.751(3) of
the NRS requires that he be indemnified "against expenses, including
attorneys' fees, actually and reasonably incurred by him or her in connection
with the defense."
Section 78.751 (4) of the NRS limits indemnification under
Sections 78.751 (1) and 78.751(2) to situations in which either (1) the
stockholders, (2)the majority of a disinterested quorum of directors, or (3)
independent legal counsel determine that indemnification is proper under the
circumstances.
Pursuant to Section 78.751(5) of the NRS, the corporation may
advance an officer's or director's expenses incurred in defending any action
or proceeding upon receipt of an undertaking by or on behalf of the director
or officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation. Section 78.751(6)(a) provides that the rights to indemnification
and advancement of expenses shall not be deemed exclusive of any other rights
under any bylaw, agreement, stockholder vote or vote of disinterested
directors. Section 78.751(6)(b) extends the rights to indemnification and
advancement of expenses to former directors, officers, employees and agents,
as well as their heirs, executors, and administrators.
Regardless of whether a director, officer, employee or agent has
the right to indemnity, Section 78.752 allows the corporation to purchase and
maintain insurance on his behalf against liability resulting from his or her
corporate role.
PART F/S
Index to Financial Statements
Report of Certified Public Accountants
Financial Statements
- --------------------
Audited Financial Statements for the year ended December 31, 1998 and
1997*
----
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
* Filed with the 10-SB-A1, and also filed with this report with minor
changes.
<PAGE>
NORTHPORT INDUSTRIES, INC.
FINANCIAL STATEMENTS
For the Two Years Ended December 31, 1998
March 19, 1999
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors
Northport Industries, Inc.
(formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
Del Rio, Texas
We have audited the accompanying consolidated balance sheet of Northport
Industries, Inc. and subsidiary as of December 31, 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
two years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 Northport
Industries, Inc. and subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for the periods then ended in conformity
with generally accepted accounting principles.
Malone & Bailey, PLLC
Houston, Texas
March 19, 1999
<PAGE>
<TABLE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
CONSOLIDATED BALANCE SHEET
December 31, 1998
<CAPTION>
<S> <C>
ASSETS
Current Assets
Cash $ 12,038
Accounts receivable 216,254
Inventory 337,799
Prepaid expenses 7,526
Total Current Assets 573,617
Property and Equipment, net of $106,730 accumulated depreciation 637,965
Patent, net of $20,578 accumulated amortization 308,669
Deposits 48,664
TOTAL ASSETS $1,568,915
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of installment debt $ 16,054
Bank credit line payable 68,096
Due to related parties 61,999
Accounts payable 339,778
Accrued expenses 57,642
Income taxes payable 4,751
Total Current Liabilities 548,320
Long-Term Debt
Installment debt 27,243
Total Liabilities 575,563
Redeemable common stock 181,513
Stockholders' Equity
Convertible preferred stock, $.25 par value, 12,500,000 shares
authorized,
- 5,921 shares issued and outstanding 1,542
- Series 'A' convertible preferred stock,
400,000 shares outstanding 0
Common stock, $.001 par value, 25,000,000 shares authorized,
5,194,169 and 5,000,000 shares issued and outstanding,
respectively 5,194
Paid in capital
1,522,310
Retained <deficit> ( 717,207)
Total Stockholders' Equity 811,839
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,568,915
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
<PAGE>
<TABLE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
CONSOLIDATED INCOME STATEMENTS
Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Revenues, net of returns and allowances
of $0 and $120,000, respectively $3,766,930 $1,740,902
Cost of sales 2,954,605 2,151,379
Gross Margin (Deficit) 812,325 ( 410,477)
Operating Expenses
Selling 80,387 32,030
General and administrative 580,983 281,131
Patent amortization 20,578
Interest 17,767 62,522
Bad debts (recovery) ( 11,225) 50,130
688,490 425,813
Net income before income taxes 123,835 ( 836,290)
Income taxes ( 4,751)
Net income (loss) $ 119,084 $( 836,290)
Per share calculations:
Net income (loss) per above $ 119,084 $( 836,290)
Less: 5% preferred stock dividends payable ( 10,296) ( 296)
Net income (loss) as adjusted $ 108,788 $( 836,586)
Net income (loss) per common share $ .02 $(0.28)
Weighted average common shares outstanding 5,078,347 3,038,356
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
<PAGE>
<TABLE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
<CAPTION>
1998 1997
<S> <C> <C>
Cash Flows Used By Operating Activities
Net income (loss) $ 119,084 $( 836,290)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 65,303 41,427
Patent amortization 20,578
Expenses offset by contribution to equity
Stockholder salary 74,400
Stockholder loan interest 62,070
Stockholder services 15,583
Changes in net assets and liabilities
Accounts receivable (421,629) ( 248,929)
Inventory ( 58,333) ( 249,466)
Prepaid expenses 4,818 ( 12,345)
Accounts payable 119,073 220,705
Accrued expenses 31,003 38,639
Income taxes payable 4,752
Net Cash Used By Operating Activities (115,351) ( 894,205)
Cash Flows Used By Investing Activities
Purchases of property and equipment ( 76,745) ( 115,474)
Deposits made ( 48,664)
Net Cash Used By Investing Activities (125,409) ( 115,474)
Cash Flows From Financing Activities
Sale of common stock 139,700 1,000
Collections of stock subscriptions 20,000
Advances (net) on bank credit line 68,096
Proceeds from advances by stockholders 6,239 984,144
Proceeds from new installment debt 59,597
Payments of installment debt ( 15,033) ( 1,266)
Net Cash From Financing Activities 219,002 1,043,475
Net increase (decrease) in cash ( 21,758) 33,796
Cash Balance
- at beginning of year 33,796 0
- at end of year $ 12,038 $ 33,796
</TABLE>
See accompanying summary of accounting policies
and notes to financial statements.
<PAGE>
<TABLE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998 and 1997
Preferred Stock Common Stock Paid In Accumulated
Shares Amount Shares Amount Capital (Deficit) Totals
<S> <C> <C> <C> <C> <C> <C> <C>
- - No activity prior to January 1, 1997 - -
Stock issued
for Initial
Contributions
- Cash 100 $ 100 $ 900 $ 1,000
Conversion to equity
of additional
amounts payable to
original
stockholders
- Cash 407,137 407,137
- Equipment 370,699 370,699
- Accrued loan
interest 56,606 56,606
Reverse merger with
VMI:
Existing EPI stock 5,921$1,542 50,000 50 (1,592)
Additional capital
contributions
- Cash 350,000 350 49,650 50,000
- Services 1,600,000 1,600 158,400 160,000
Exchange of $1
par VMI
stock for $.001
par Company stock
- reversal of
$1 par (100) (100) 100
- issuance
of $.001 par 3,000,000 3,000 (3,000)
Less: costs of
issuance (160,000) (160,000)
Contribution of
services by officer 74,400 74,400
Imputed interest
on stockholder
cash advances 5,464 5,464
Net (loss) $(836,290)(836,290)
Balances,
December 31, 1997 5,921 $1,542 5,000,000 $5,000 $958,764 $(836,290)$129,016
Stock contributed
by Fairfax (900,000) ( 900) 900
Conversion of
note payable to
stock 900,000 900 89,100 90,000
Patent purchase 80,400 80 164,543 164,623
Acquisition of
GTI shares 400,000 - 193,767 194 402,839 403,033
Sale of GTI
shares for Company
stock (367,500) ( 368)(402,665) (403,033)
Acquisition of
Gecamex assets 186,305 186,305
Stock sold for
cash 51,750 52 78,448 78,500
J. B. Marc
settlement 235,752 236 60,964 61,200
Accretion of
preferred stock (16,889) (16,889)
Net income $ 119,084 119,084
Balances, December
31, 1998 405,921 $1,542 5,194,169 $5,194$1,522,310$(717,207)$811,839
</TABLE>
<PAGE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. The Company was incorporated as a Nevada corporation on
April, 20, 1987, under the name Environmental Pyrogenics, Inc. On December
24, 1997, the Company changed its name to Northport Industries, Inc. in
connection with the merger with VMI, Inc. ("VMI"), a Texas corporation.
On December 24, 1997, the Company and VMI completed an Agreement and Plan of
Reorganization whereby the Company (a) reduced its total outstanding shares
from 7,888,334 to 50,000 shares by a reverse split of 157.76668 for 1, and (b)
issued 3,000,000 shares of common stock in exchange for all of the outstanding
shares of VMI. The Company then issued 1,600,000 shares to promoters,
advisers and attorneys and sold 350,000 shares to raise $350,000 cash. Of
this amount, $300,000 was kept by the EPI promoters, $30,000 was transferred
to the VMI bank account in December 1997 and $20,000 was collected and
transferred in January 1998. EPI thus contributed cash of $30,000 and stock
subscriptions receivable of $20,000 in the reorganization. The shares were
valued at about $.105 per share, and the net value of the services performed
was recorded at $160,000, as a reduction of stockholders' equity. VMI remains
a wholly-owned subsidiary.
The acquisition was accounted for as a recapitalization of VMI because the
shareholders of VMI controlled the Company after the acquisition. Therefore,
VMI is treated as the acquiring entity. There was no adjustment to the
carrying value of the assets or liabilities of VMI in the exchange. The
Company is the acquiring entity for legal purposes and VMI is the surviving
entity for accounting purposes.
VMI originally incorporated itself in Texas as Hawk Systems, Inc. on December
27, 1996. The Company renamed itself Versatech Manufacturing, Inc. in June,
1997.
Nature of Business. VMI was the result of the evolution of a joint venture
between a wholly-owned subsidiary [Gecamex Industries, Inc. ("Gecamex")] of
the Canadian public company Versatech Industries, Inc. ("Versatech - Canada"),
and Fairfax Industries, Inc. ("Fairfax"), a Michigan corporation. The Company
currently operates a 20,000 square foot warehouse in Del Rio, Texas and a
40,000 square foot maquiladora production plant in Acuna, Mexico, across the
border from Del Rio. The Company machine-sews golf bags, leather auto
replacement parts and child safety seats.
Beginning January 1999, the Company leased a 50,000 square foot plant in
Allende, Mexico - about 50 miles south of Acuna.
Principles of consolidation. The financial statements include the accounts of
the Company and its wholly-owned subsidiaries, VMI and Gecamex S.A. de C.V., a
Mexican corporation. Significant intercompany transactions and balances have
been eliminated. The Company subcontracts all Mexican plant operations to a
nominee owner, Industrias Loving S.A. de C.V., in Mexico, through which the
Company substantially directs all such operations. All such costs are paid
weekly and included as manufacturing costs of the Company.
<PAGE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Estimates and assumptions. Preparing financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenue and expenses at the balance sheet date and for the period then ended.
Actual results could differ from these estimates.
Foreign currencies. All Mexican costs and expenses are paid as incurred in U.
S. dollars translated at the then-prevailing exchange rate. No assets or
liabilities exist at balance sheet date that are denominated in any foreign
currency. No funds are held in foreign currencies and no currency trading
gains or losses are recorded during the year.
Revenue recognition. Revenue is recognized when products are shipped. Bad
debts are written off as identified.
Cash and equivalents represent cash and short-term, highly liquid investments
with original maturities three months or less.
Inventory is stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method. A summary of inventory is as follows:
Finished goods - golf bags $ 78,251
Raw materials
- golf bags 131,662
- baby seats 22,004
- stitched leather auto parts 105,862 259,528
$337,779
Property and equipment are recorded at cost. Assets acquired from either of
the two original shareholders are recorded at their original cost.
Depreciation for financial reporting purposes is determined on a straight-line
basis with the following estimated useful lives, by class:
Production / warehouse equipment 10 years $642,252
Vehicles 5 " 60,940
Office furniture / equipment 3 - 10 " 41,503
$744,695
Patent is amortized over its remaining useful life of 4 years.
<PAGE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income taxes. Mexican income taxes are reported by the nominee Mexican entity
on nominal earnings and are reimbursed by the Company. Such amounts are
considered immaterial and are included as a cost of goods sold. U. S. Income
taxes are filed on a consolidated basis, and there are no significant
deferrals. See Note 7 for a discussion of the Section 382 limitation.
Preferred stock has two classes. "Regular" preferred stock has a liquidation
preference of $39.44 per share, a cumulative dividend of 5%, and is
convertible by its holders at a rate of $1 per preferred share into common
stock at current market price. "Series A" preferred has a liquidation
preference of $1 per share, and all other features of the "regular" preferred
stock. Either preferred stock may be callable by the Company by payment of
Redemption Value ($1 per share) plus cumulative dividends for either class.
No dividends have ever been declared or paid by the Company. $10,077 in total
cumulative arrearage dividends ($.05 per share) are due if the Company ever
declares dividends, or upon the event of liquidation.
Earnings per share are computed on the basis of the weighted average number of
common shares outstanding, in accordance with FASB Statement 128. Included in
the calculation is $10,077 cumulative, preferred dividends which have not yet
been earned. One outstanding stock option existed at year-end, and was
immaterial with respect to this calculation. There were no stock-based
compensation arrangements.
Reclassifications have been made to the 1997 financial statements to conform
to the categories used for 1998.
Cash flow statement disclosures include interest actually paid during 1998 and
1997 of $32957 and $452, respectively. Other non cash transactions include:
1998: Purchase of Joh license and patent for 80,400 shares of common stock,
80,400 shares of redeemable common stock, and 400,000 shares of
preferred stock convertible to common after three years, valued
collectively at $329,247. This license and patent are valued at cost,
which approximates management's estimate of fair market value on the
acquisition date.
Receipt of $180,777 in manufacturing equipment and 100% of the
outstanding stock of the Mexican, Gecamex Industries S.A. de C.V. as a
contribution of capital by the former shareholder Gecamex Industries,
Inc. ("Gecamex") (a Texas corporation), coupled with the collection of
$454,305 in trade receivables from Gecamex in exchange for $458,833
in various debts owed, with the $4,528 balance included as a
contribution of capital (Note 2).
<PAGE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
1997: Contributions of $30,000 in inventory and $370,699 in fixed assets by
Gecamex
Exchange of services for stock by EPI consultants valued at
$160,000
Imputed officer salary of $74,400 and related party imputed
loan interest of $5,464 contributed to capital
Gecamex accrued interest contributed to capital of $56,606
Accrued stockholder consulting services of $15,583.
The above 1997 non-cash transactions were expensed in 1997.
FAS 131 disclosures: All company products are aggregated as one business
segment for financial reporting purposes, since the production methods for
assembling the various products are similar and assembly equipment is similar.
Substantially all Company fixed assets are located at the Company's facilities
in Mexico.
NOTE 2 - GECAMEX RELATIONSHIP
Gecamex had been operating maquiladora plants in Mexico since 1991. On
January 2, 1997, Fairfax entered into an agreement with Gecamex to form VMI,
with $300,000 in fair value of sewing machines and related equipment sold by
Fairfax to the Company in exchange for a note payable to Fairfax, and $300,000
in cash loaned by Gecamex. In December 1997, Gecamex converted its entire
equity investment in VMI in exchange for debt totaling $400,000 and a 5%
royalty on certain revenues.
On June 5, 1998, VMI entered into an agreement with an individual, Guenter Joh
("Joh") whereby (i) VMI issued 80,800 shares of common stock, and another
80,800 common shares which are redeemable at $3 in June, 2000, in exchange for
all North American rights to a U. S. patent for a proprietary automotive power
train sealing process using a plastic and rubber compound, and (ii) VMI
purchased Joh Rubber, Inc., whose sole asset was 289,203 shares of Gecamex
Technologies, Inc., ("GTI") for 193,767 shares of Company common stock. GTI
is a subsidiary of Versatech and a portion of GTI's shares are publicly traded
on a Canadian stock exchange. The power train sealing process rights are
exclusive globally excepting Europe. The transaction was valued at $329,247.
On June 22, 1998, Gecamex liquidated its remaining relationship with VMI by
trading assets and obligations which resulted in (i) Gecamex selling the
remainder of its Mexican operation equipment to the Company for $180,777, (ii)
Versatech - Canada returning its 367,500 shares of VMI stock, (iii) Gecamex
canceling $458,825 in debt owed by VMI, (iv) VMI canceling $453,297 in debt
owed it by Versatech - Canada, (v) VMI turning over its 289,203 shares of GTI
to Gecamex, and (vi) VMI transferring non-exclusive rights to the Joh power
train sealing process to Gecamex. The transaction is valued at a net
$186,305.
<PAGE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - GECAMEX RELATIONSHIP (continued)
A summary of this transaction is as follows:
DR CR
Receipt of Gecamex fixed assets $180,777
Cancellation of Gecamex debt 458,825
Collection of accounts receivable
from Versatech $453,297
Additional paid in capital 186,305
VMI inherited Gecamex's principal customer, Regal Plastics, Inc. in this
transaction. 1998 sales to Regal from Gecamex were $1,527,000, or 40.5% of
total 1998 sales.
Stockholders' equity was increased $350,929 and redeemable common stock by
$164,623 by the above two transactions.
NOTE 3 - BANK CREDIT LINE
The Company secured a revolving credit line from Del Rio National Bank on
October 27, 1998. This line bears interest at prime + 3%, matures April 25,
1999, and allows the Company to borrow up to 100% of major customer accounts
receivable less than 60 days old. The Company is in discussions to expand
this credit line availability.
NOTE 4 - INSTALLMENT DEBT
A summary as of December 31, 1998 is as follows:
Two notes payable to GMAC, payable in 24 remaining equal monthly
installments of $1,056, including interest at 9.6% APR,
collateralized by two 1997 Chevrolet vans $ 31,490
Note payable to Clark Credit, payable in 21 remaining equal monthly
installments of $573, including interest at 10.4% APR,
collateralized by a forklift 11,807
Less: amounts due in 1999 (16,054)
Net long-term portion due $ 27,243
All long-term debt is due in 2000.
<PAGE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - RELATED PARTY DEBT
Related party debt consists of advances of $33,528 to Fairfax and $28,471 to
Robert Michelini. These notes are payable on demand.
NOTE 6 - FEDERAL INCOME TAXES
Under Internal Revenue Code Section 382, losses are limited whenever Company
ownership changes more than 50% within any 36-month period. The Company
experienced a 63% ownership change as of February 1998 and therefore 1997
losses of $836,290 offset by 1998 profits through February of $55,804 allow
prior operating losses to offset 1998 income by $80,270 and $29,183 per year
for 1999 - 2018. The maximum Net Operating Loss available in these future
years is $639,464.
NOTE 7 - REDEEMABLE COMMON SHARES
In connection with its purchase of the Joh patent in June 1998, the Company
issued 80,800 shares of common stock, redeemable at $3 per share in June 2000.
The Company has applied a risk-adjusted discount factor of 20.5% to record
these shares in June 1998 for $164,623. This component was recorded as a
liability since redemption is beyond Company control. 1998 interest of
$16,889 was recorded as accretion of this obligation.
The 20.5% discount factor was determined by management to be the most accurate
assessment of true interest cost for this obligation, taking into account the
Company's financial position and the financial marketplace.
NOTE 8 - J. B. MARC & ASSOCIATES, INC.
In 1998, the Company hired an investment banker, J. B. Marc & Associates, Inc.
("J. B. Marc"), to sell its common stock. Through a stock offering exempt
from registration under Rule 504, J. B. Marc sold shares for $61,200. A
dispute arose regarding performance and compensation and the contract was
canceled. Total consideration paid to J. B. Marc, including stock distributed
to the buyers for this effort was 235,752 shares.
Additional common stock sold directly by the Company was 51,750 shares for
$78,500.
<PAGE>
NORTHPORT INDUSTRIES, INC.
(Formerly Versatech Manufacturing, Inc.,
Hawk Systems, Inc., and Environmental Pyrogenics, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - OPERATING LEASES
The Company currently leases its Del Rio warehouse under a month-to-month
arrangement for $1,650 per month. Its three Mexican facilities are leased
through its Mexican nominee company for $12,540 per month, expiring in 1999.
The new Allende facility was leased beginning January 1999 for a 14-month term
at $11,277 per month which includes a 15% VAT. Minimum lease payments due are
$265,064 in 1999 and $22,554 in 2000.
NOTE 10 - CONTINGENCIES
In addition to Mexican federal payroll taxes, Mexican law requires termination
pay for employees who are laid off. Such payment is based on a formula
including pay rate and years of service. Consistent with the practice of
other maquiladora plants, the Company has not set up a reserve for such
payments, contending they are unlikely to ever be due. If an employee quits,
he or she is not entitled to any such termination pay. The Company estimates
its maximum theoretical exposure to such a liability, as if all employees had
been laid off on December 31, 1998, of $150,000.
Many debts of TTM (see Note 2), incurred before its assets were purchased by a
predecessor of the Company on February 3, 1995, remain unpaid due to the
insolvency of TTM. While the Company claims priority creditor status due to
its filing of a lien in Texas for unpaid debts due by TTM to the Company, some
of these debts are from Mexico where Texas law regarding priority status of
secured creditors may not apply. In 1998, the Company wrote off its $30,000
reserve for claims set up in 1997, because no significant claims ever
occurred.
NOTE 11 - MAJOR CUSTOMERS AND VENDORS
Major customers during 1998 were:
Evenflo / Gerry Baby Products $2,087,819 or 55.4% of sales
Regal / Versatech 1,527,393 " 40.5 " "
The Company transferred $1,737,840 to the Mexican corporation during 1998 to
pay for Mexican plant rent, salaries and other overhead. There were no other
vendors that accounted for 10% or more separately of the Company's cost of
goods sold.
<PAGE>
PART III
Item 1. Index to Exhibits.
- ---------------------------
The following exhibits are filed as a part of this Registration
Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description*
- ------ ------------
<S> <C>
3.1 Initial Articles of Incorporation** (Previously filed)
3.2 Certificate of Amendment to
Articles of Incorporation dated January 8, 1998
respecting name change and 157.7668 for 1 reverse split**
(Previously filed)
3.3 Certificate of Amendment to the Articles of Incorporation
dated December 1, 1998, regarding the Series A Non-Voting
Preferred Stock** (Previously filed)
3.3a Certificate of Amendment to the Articles of Incorporation
dated March 15, 2000, regarding the Series A Non-Voting Preferred
Stock
3.4 By-Laws** (Previously filed)
10.1 Agreement and Plan of Reorganization dated December 24, 1997**
(Previously filed)
Exhibit A-Versatech Manufacturing Inc. stockholders
Schedule A-701 securities
Schedule B-Section 4(2) securities
Schedule C-Section 4(2) securities
Schedule D-Section 4(2) securities
Schedule E-Section 4(2) securities
Exhibit B-Private Placement Stockholders
Exhibit C-Environmental Pyrogenics, Inc. financial statements for
the years ended December 31, 1996 and 1995 and for the
period ended March 31, 1997
Exhibit D-Exceptions
Exhibit E-Versatech Manufacturing, Inc. financial statements
Exhibit F-Exceptions
Exhibit G-Investment Letter
Exhibit H-Certificate of Officer for Environmental Pyrogenics,
Inc.
Exhibit I-Certificate of Officer for Versatech Manufacturing, Inc.
10.2 Offer to Purchase dated August 14, 1998 of JOH Rubber Inc.**
(Previously filed)
Schedule B-Release
10.3 Written Compensation Agreement dated December 22, 1997** (Previously
filed)
10.4 Engagement Letter** (Previously filed)
10.5 Agreement with Even Flo, Inc.
10.6 Agreement with W.E.T. Automotive Systems, Inc.
10.7 Agreement with Elastomeros Technicos Mundiales S.A. de C.V.
22 Subsidiaries** (Previously filed)
27 Financial Data Schedule** (Previously filed)
</TABLE>
* Summaries of all exhibits contained within this
Registration Statement are modified in their
entirety by reference to these Exhibits.
* Incorporated by reference from initial filing.
SIGNATURES
In accordance with Section 12 of the Securities
Exchange Act of 1934, the Registrant has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto
duly authorized.
NORTHPORT INDUSTRIES, INC.
Date: 3/23/00 By:/s/Robert L. Michelini
------------------------
Robert L. Michelini, Director
and President
Date: 3/23/00 By:/s/Matt Baumgartner
------------------------
Matt Baumgartner, Director
Secretary
Date: 3/23/00 By:/s/Fernando Gonzales Garza
---------------------------
Fernando Gonzales Garza
Director
Date: 3/23/00 By:/s/Bradley D. Osgood
---------------------------
Bradley D. Osgood, Director
CERTIFICATE OF AMENDMENT
TO THE ARTICLES OF INCORPORATION OF
NORTHPORT INDUSTRIES, INC.
We, the undersigned, Robert Michelini, President, and Mathias
Baumgartner, Secretary, of Northport Industries, Inc., a Nevada corporation
(the "Corporation"), do hereby certify:
I
Pursuant to Section 78.1955 of the Nevada Revised Statutes, the
Articles of Incorporation of the Corporation shall be amended as follows:
IV. AUTHORIZATION OF CAPITAL STOCK: The amount of the total
authorized capital stock of the Corporation shall be:
A. Twenty-Five Million (25,000,00) shares of common stock with
a par value of $0.001 per share;
B. Twelve Million Five Hundred Thousand shares of preferred
stock with a par value of $0.25 per share. The Board of
Directors has the right to set the series, classes, rights,
privileges and preferences of the preferred stock or any
class or series thereof.
Series A Non-Voting Preferred Stock
Series A Non-Voting Preferred Stock with the following
rights, privileges and preferences set by the Board of
Directors, 400,000 shares: (i), non-voting; (ii),
Redemption or Face Value of $1 per share; (iii), 5%
cumulative dividend on the Redemption or Face Value; (iv),
callable at any time by the Company, by payment of the
Redemption or Face Value and any accrued 5% cumulative
dividends; (v), convertible at the option of the holder into
"restricted securities" in common stock of the Company at
the Redemption or Face Value, on the closing price of the
common stock of the Company on the OTC Bulletin Board of the
NASD or any other recognized market where these securities
publicly trade on the day prior to the conversion; (vi),
non-accruing, callable by the Company at any time, but
convertible to common shares after 24 months; and (vii) in
the event for any reason the preferred stock is still
outstanding after three years from its issuance, the
Company, at its option, may convert the Redemption or Face
Value into "restricted securities" in common stock of the
Company on the closing price of the common stock of the
Company on the OTC Bulletin Board of the NASD or any other
recognized market where these securities publicly trade on
the day prior to conversion;
II
The amendment was adopted by unanimous vote of the Board of
Directors and the Majority Stockholders of the Corporation pursuant to Section
78.1955 of the Nevada Revised Statutes.
IN WITNESS THEREOF, the undersigned officers of the Corporation,
certifying that the foregoing is true and correct under penalty of perjury,
have set their hands this 24TH day of February, 2000.
/S/Robert Michelini
Robert Michelini, President
/s/Mathias Baumgartner
Mathias Baumgartner, Secretary
Northport Industries, Inc./Even Flo, Inc.
MANUFACTURING AGREEMENT
This agreement is made and entered into this 21 day of May, 1999, by and
between Northport Industries, Inc., a corporation organized and existing under
the laws of the state of Nevada, hereinafter called "Northport", and Even Flo,
a corporation organized and existing under the laws of the state of Ohio,
hereinafter called "Customer".
Whereas, Customer desires to provide some Equipment and Materials described
herein for use by Northport in the sewing and assembly of Juvenile seats and
pads. Whereas, Northport desires to provide and to arrange to provide the
Services described herein at Northport's Maquiladora facilities (the
"Facilities") located in Ciudad Acuna, and Allende, Coahuila, Mexico;
Therefore in consideration of mutual promises herein and other good valuable
consideration received, the parties hereto agree as follows:
1. Northport agrees to perform the Services set forth above for Customer at
the Facility using components, parts, materials (except thread) and special
equipment furnished by and belonging to the Customer. Northport will arrange,
but subject to the approval of Customer, sufficient facilities to perform such
work.
2. Specific Pricing and Terms for this contract Manufacturing Agreement are
set forth in Exhibit "A" attached hereto.
3. Customer shall consign to Northport special equipment required to produce
their products and the first set of cutting dies, and other items/apparatus
listed in Exhibit "B," attached hereto. Northport shall receive such
equipment, transfer such equipment to its Facility, install such equipment,
and make such equipment operational. Northport shall bear all costs required
for the receipt, transportation, installation, and operation of such
equipment. Northport shall provide ongoing preventive maintenance of
Customer's machinery and equipment, the cost of which is included in the
hourly rate. Northport's responsibility shall be limited to following the
Customer-provided preventive maintenance schedule.
4. Northport will provide five thousand (5000) square feet of warehouse
space in Mexico for current production. Additional space will be provided for
obsolete or customer held materials at a cost of .29 cents per square foot per
month.
5. Any additional capital improvements and utilities (inside connections)
required at the Facility specifically for the benefit of Customer, shall be
the responsibility of Customer who shall bear all costs to effect such
improvements and utilities (inside connections).
6. Northport will provide the required services to effect shipment to and
from the Facility of components, materials and equipment, using information
and specifications provided by Customer. Such information and specifications
will be used to secure all necessary permits.
7. For importations too and from Mexico, Northport will be considered the
"Importer of Record" and will bear the responsibility for all records,
submissions, and any other responsibilities associated with that position, and
bear the costs of the U.S. duties, brokerages and document charges. Even Flo
will be responsible for any cost, fines and legal representation that might
arise out of material being shipped to and from Mexico for production of Even
Flo products.
8. Northport agrees to assemble and manufacture using the specifications of
the Customer. Customer reserves the right to change such specifications and
schedule as required, giving Northport thirty (30) days written notice, prior
to specification and schedule changes.
9. The initial term of this Agreement will be for a period of thirty-six
(36) months from the date hereof. Renewals of this Agreement will be in
periods of twenty-four (24) months each and shall be automatic unless written
notice is received at least two hundred seventy-five (275) days prior to the
expiration of this Agreement. Customer may cancel this contract after
twenty-four (24) months if they decide to start their own sewing operation and
275 days written notice is given.
10. Charges by Northport to Customer are subject to change when costs are
increased by mandatory revisions in the Mexican wage provisions, and
subsequent changes that may follow affecting utilities and other operating
expenses. On October 1st of each year of the contract the parties will meet to
determine if there has been a increase or decrease in Mexican wage provisions
and subsequent changes that may follow affecting utilities and other operating
expenses. New pricing will be mutually agreed to by November 1. These new
prices will go into effect January 1, of the next year.
11. Customer agrees to provide timely document information to Northport. All
documents will be available at least ten (10) working days prior to the
production requirements. Such documents include, but are not limited to,
Purchase Orders, Bills of Material, shipping Information, Drawings, Quality
Procedures, Process Requirements, Samples and Pictures. Northport will require
30 days notice to purchase equipment for new programs. On all new cutting
programs the customer will supply cutting markers to determine utilization.
12. Northport will invoice weekly. Terms are net thirty (30) days. Even Flo
understands that prompt payment is important. A 2% late charge will be
assessed after 30 days and in addition Northport will have the right to stop
shipments to Even Flo if payment is not received within 40 days.
13. Customer may terminate this Agreement on ninety (90) days written notice,
("Early Termination") with the obligation to pay Northport the following:
A. Lease severance cost, if any, of the Facility.
B. All outstanding invoices.
C. Personnel severance cost.
D. All outstanding Importation fees
14. In the event that this Agreement is terminated, Northport agrees to
return all materials, components, equipment, and apparatus to a designated
shipping point in Del Rio, Texas. Customer will bear all costs for the
dismantling, packing, preparation, crating, shipping, trucking, brokerage,
document and storage charges associated with returning such items to Customer.
15. Northport may terminate this Agreement on two-hundred and seventy five
(275) days written notice to Customer.
16. This Agreement shall be construed in accordance with the laws of the
State of Texas and Customer consents to submit to the jurisdiction of the
Texas Federal Courts.
17. ARBITRATION. Where any matter in dispute between the parties pursuant to
this Agreement shall be settled by arbitration, such arbitration shall be
conducted pursuant to the provisions of the American Arbitration Association
Commercial Arbitration Rules, in the jurisdiction of Texas and subject to the
substantive laws of the State of Texas.
17.1 The parties shall proceed to arbitration or disputes as a condition
precedent to any civil action being commenced, and any order or award
resulting from arbitration shall be capable of enforcement by the parties as
if it were a judgement of a court of competent jurisdiction in the
jurisdiction where such award or order is to be enforced.
18. All notice required to be sent to either party to this Agreement shall be
in writing and sent by registered or certified mail, postage prepaid, return
receipt requested.
19. Anything herein to the contrary notwithstanding, neither party shall be
required to perform any term, condition or covenant in this Agreement if such
performance is delayed or prevented by force majeure, which, for purposes of
this Agreement, shall mean the following: acts of God, civil strikes, material
or labor restrictions imposed by any governmental authority which prevent
suspension of civil rights, floods and any other costs, not reasonably within
the control of the parties, which, by the exercise of due diligence the
parties are unable wholly or in part to prevent or overcome.
20. Northport makes no warranty of any kind as to the materials supplied by
Even Floused in the manufacturing, processing or assembly of the products for
Customer. Northport will be responsible for scrap in excess of 3% accumulated
and will reimburse Customer for material cost. Customer holds harmless and
indemnifies Northport from any and all claims from third parties arising out
of or in any way associated with this Agreement. This indemnity shall extend
to all costs associated with claims that may be brought against Northport at
any time in the future for product defects, including attorneys fees.
21. The terms, provisions and exhibits contained in this Agreement constitute
the entire Agreement between the parties and supersede all previous
communications, either written or oral. No Agreement or understanding varying
or extending this Agreement will be binding upon the parties unless signed by
the duly authorized officers or representatives of the parties involved.
22. Customer will provide insurance to cover items detailed in Exhibit "B" at
the Facility. Need to discuss
23. In the event that Northport is approached to enter into a contract with
another party for the design, assembly or manufacture of parts similar in
nature of those supplied or manufactured for the customer. Northport agrees
that it shall not enter into any such contract with any party in competition
with the customer.
24. The customer agrees that within the next six- (6) months to allow
Northport a minimum of four (4) turn key products.
Having read this Agreement, and its Exhibits, the parties hereto execute the
entire agreement on the date indicated under their respective signatures.
Even Flo. NORTHPORT INDUSTRIES, INC.
By: By:
Its: Its:
Date: Date:
<PAGE>
EXHIBITT "A"
MANUFACTURING AGREEMENT
Pricing and Terms
Billing to Customer is based on hour's equivalent as referenced in Exhibit A,
Paragraph 2. Customer will be billed on a per piece price. The Customer will
be responsible to pay "down time" (see below) charges based on the number of
people employed at the time of the work stoppage. Customer Invoices will be
issued on a weekly basis, and shall be payable net thirty (30) days, by check
or be wire transfer to a specified Northport bank account.
The labor rate used to calculate your piece rate is 5.80 per employed hour.
(45 hour week)
Evenflo piece price
Evenflo Price List
3/15/99 Folio:
Description Code Price
Pad #L4 OMW swas L4 $ 2.107
Pad #L3 OMW st. O/K L3 $ 2.664
Canopy Osh Kosh L3 $ 1.180
Osh Kosh Ultara Pad L3 $ 1.460
Secure Comfort R9 $ 3.420
Secure Comfort S1 $ 3.920
Ultara 5 pt. Pad 19Z1 $ 1.460
Ultara Seat Pad 10Z $ 1.460
Horizon Seat Pad 19 $ 2.770
Discovery Pad A7 $ 1.533
Discovery Canopy A7 $ 0.799
On My Way O4 $ 1.666
On My Way Canopy O4 $ 0.799
Trooper Insert 7 $ 0.734
Ultara Shield 10Z $ 0.399
Trooper Shield 1 $ 0.578
Ultara Insert 10Z $ 0.597
Ultara Pillow 15 $ 0.588
Medallion 15 $ 2.488
Medallion Pillow 15 $ 1.110
Medallion Lumbar 15 $ 1.091
Medallion Insert 15 $ 0.920
Champion 5 pt Seat Pad O1 $ 1.983
Champion Seat 54 $ 1.912
Champion With Pillow 1 $ 2.108
Champion Cutting $ 0.232
<PAGE>
Overtime
Any Mexican employees worked over forty five (45) per individual employee per
week will be considered overtime hours and will be charged at the rate of 1.75
times the hourly rate. In addition, any hours over fifty six (56) hours
including holidays for an individual employee will be considered double time
hours and will be charged at the rate of two (2) times the hourly rate.
Overtime and double time will not be worked unless authorized in advance by
Customer. Work during Christmas shut down will be on a voluntary basis and
only with 30 days prior notification.
Special Handling
On any special handling , their will be a flat charge of $150.00. This is for
extra brokerage fees and bridge tolls.
Down Time
Down Time will be billed at eighty (80) percent of the applicable hourly rate,
multiplied by the number of direct laborers employed at the time of the work
stoppage. Northport requires material for production in their warehouse
five(5) days prior to scheduled build.
<PAGE>
EXHIBIT "B"
MANUFACTURING AGREEMENT
Equipment, tooling and fixturing, machinery, packaging, materials and other
items/apparatus to manufacture and assemble Evenflo products:
PREFERRED SUPPLIER AGREEMENT
THIS PREFERRED SUPPLIER AGREEMENT Is dated and made Effective as
of the FIRST day of NOVEMBER 1998. BETWEEN:
NORTHPORT INDUSTRIES, INC. a corporation duly incorporated under
the laws of the State of Nevada hereinafter called the "VENDOR" and/or
"NORTHPORT" and
VMI, INC.
a wholly owned subsidiary of Northport, incorporated under the
laws of the State of Texas hereinafter called "VMI" and
INDUSTRIAL LOVING S.A. de C.V.
a wholly owned subsidiary of VMI, incorporated under the laws of
the Republic of Mexico hereinafter called "VMI MEXICO" and
W.E.T. AUTOMOTIVE SYSTEMS, LTD.
a company Incorporated under the laws of the Province of
Ontario, having its head office at the City of Windsor, in the County of
Essex, 9475 Twin Oaks Drive, Windsor, Ontario, N8N SNS hereinafter called "WET
CANADA" and
W.E.T. AUTOMOTIVE SYSTEMS (TEXAS), INC.
a corporation incorporated under the laws of the State of
Texas, in the United States of America, hereinafter called "WET TEXAS"
RECITALS: WHEREAS
A. WET CANADA is the majority shareholder of WET TEXAS, which
Corporation also owns manufacturing facilities in Mexico;
B. WET CANADA manufactures seat heaters for the automotive industry
and for other customers from facilities owned by WET Canada in Windsor
Ontario, and from facilities owned by WET TEXAS in Mexico,
C. Northport is the Parent of VMI, a wholly owned subsidiary of Northport,
and VMI Mexico is a wholly owned subsidiary of VMI;
D. WET CANADA and WET TEXAS wish to contract for the purchase of wire
harnesses utilized in the manufacture of seat heaters with Northport to be
manufactured by VMI Mexico on purchase orders issued to VMI.
E. For purposes of this Agreement, Northport, VMI and VMI Mexico shall
collectively be treated as the "Seller", and WET Canada and WET Texas shall be
permitted to enforce any rights or obligations against Northport, VMI and VMI
Mexico as parties jointly obligated hereunder;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants, agreements and promises herein contained, and for other good and
valuable consideration (the receipt and sufficiency whereof is hereby
acknowledged by each of the parties hereto), the parties covenant and agree
with one another as follows:
TERMS OF PREFERRED SUPPLIER AGREEMENT
I . This Agreement will cover the manufacture of wire harnesses by the Seller
in Mexico for WET CANADA and WET TEXAS (the "Buyer") for delivery to and
installation into seat heaters by Wet Texas' manufacturing facility in Mexico.
II. PREFERRED SUPPLIER STATUS
2.1 The Seller shall be designated as the Buyer's Preferred Supplier of wire
harnesses to the extent of the manufacturing capacity of sixty employees, more
or less, of VMI Mexico working on a full time basis during the term of this
Agreement.
2.2. The Seller, must maintain an agreeable and acceptable quality,
price and delivery rating from the Buyer for all parts produced, failing
which, the Buyer may at its option terminate the Agreement unless the Seller
can remedy any failure to meet such terms within thirty (30) days of notice of
any deficiency. It is the intent that Seller shall furnish World-Class parts
to the Buyer.
The Buyer shall specify in each Purchase Order (or if not specified, the terms
and conditions of the prior purchase order for the same products shall
prevail) such criteria as to quality, price and delivery as the Seller is
required to meet. Sample parts supplied to Seller with a purchase order will
form the basis of determining the quality requirements of the Buyer.
2.3 The Buyer warrants and represents dud any and all machinery, equipment and
raw materials supplied by Buyer to Seller pursuant to the terms of this
Agreement shall be fit for the purpose intended, and capable of producing
parts to meet the quality requirements of Buyer such that the Seller's
utilization of such machinery, equipment and raw materials will permit the
Seller to
4.5 in the event that the Seller fails to produce acceptable quality parts
or incurs was of materials and supplies higher than Buyer's experience, the
Buyer shall make available engineering, quality control and other specialized
staff to the Seller so as to assist the Seller reaching its quality
obligations: The cost of any of the Buyer's personnel as is required by the
Sell shall be reimbursed to the Buyer at an agreed upon rate to be determined,
when possible, prior to the involvement of such of Buyer's representatives,
with the intent to recompense the Buyer direct costs of providing such
representatives plus ll0% for overhead and expenses. If the parties
should fail to reach agreement in advance of the involvement of such
personnel, the same shall determined by arbitration.
V. TERMINATION
5.1 If within one hundred and eighty (180) days of the date of the initial
start of production under this Agreement and during the term of this
Agreement:
(i) Seller does not achieve and maintain a world-class quality level that
would be compliance with automotive standards;
or at any time during the term of this Agreement:
(ii) Seller does not maintain an acceptable Buyer delivery raft for two
consecutive months, subject to failure to ship as a result of war invasion,
insurrection, riot, breakdown, strikes, lockouts, labour disputes, accidents,
fire or any other cause or causes which are beyond the Supplier's reasonable
control ("force majeure");
the Buyer may terminate this agreement (subject the ability of Seller to
remedy pursuant to Paragraph 2.2) and its purchase obligations in whole or in
part without further liability.
V1. PRICING & PURCHASE ORDERS
6.1 The Seller agrees to furnish cost break-down details for all components
and systems to be manufactured by the Seller. Such detail shall include
assembly rate, time studies and material costs, The Buyer agrees to keep all
such information In confidence,
6.2 In consideration of Preferred Supplier Status, the parties agree to
negotiate a long-term agreement with appropriate price reductions in
accordance with commercially reasonable terms usual to the automotive industry
for similar long-term Supplier Agreements.
6.3 Engineering changes approved by the Buyer may become the basis for a price
adjustment (increase or decrease). no Seller agrees to provide Buyer with
sufficient costs detail of engineering changes to determine the
appropriateness of any change in price,
6.4 Purchase Orders shall be submitted by the Buyer to the Seller during the
term of this Agreement and shall set out tam and conditions as to price,
delivery, payment and credit terms, product specification and such other
details relating to the Purchase Order as are set out therein. If no price,
quantity required, delivery schedule and such other terms regarding payment,
shipment, risk, Insurance, ate. is set out, the last invoice for such
products previously supplied shall apply.
6.5 Unless expressly amended or agreed upon In writing by the Seller and the
Buyer (and, in the event of such agreement, only to the extent thereof), the
warranties previously given by the Seller to the Buyer in respect of quality
and physical condition of the wire harnesses and component parts thereof and
the terms and conditions of prior Purchase Orders shall apply to all purchases
by the Buyer from the Seller sold under this Agreement.
6.6 The Purchase Orders "I set out a price per piece for the production of the
wire harnesses and other component parts, during the first yea of this
contract, based on a manufacturing cost" including all burdens, of $8.80 US
per hour ($8.00US per hour actual cost plus 10% profit) converted to a fixed
price per piece based on the manufacturing time currently required by the
existing suppliers of such product to produce such parts.
6.6.1 After the and of the first calendar yea, the parties shall review the
actual manufacturing cost of the Supplier to manufacture the parts under the
Purchase Order, and to the extent that the manufacturing cost of the Supplier
is less than $8.00US per hour, the parties shall negotiate a reduction in the
hourly rate that is used in Paragraph 6.6 to establish the price per piece for
the production of products.
6.6.2 The parties shall meet annually on the anniversary date of the contract
to review further reductions in the hourly rate utilized to determine a piece
price. For purposes of such meetings, the Supplier shall disclose its
financial information with sufficient details so as to disclose its actual
cost of production.
6.7 The manufacturing time required by the existing suppliers to produce such
parts shall be furnished by the Buyer to the Seller (if available) prior to
the issuance of a Purchase Order.
6.8 The Seller shall give access to all time studies as have been conducted or
are in the process of being conducted by the Seller to the Buyer in order to
verify the time needed by the supplier to manufacture the parts for which a
Pmvhaoc Order will be issued to the Seller. The Seller shall be permitted to
satisfy itself as to the time required to manufacture the pots, prior to the
Seller accepting any Purchase Order from the Buyer.
6.9 The Buyer shall have the right on any products produced by the Seller to
request time studies to be conducted by the Seller, or jointly by the Buyer
and
Seller, or by the Buyer alone, and the Seller shall give access to the Buyer
to all of the Seller's facilities so as to conduct time studies requested by
the Buyer.
6.10 The Seller may, in its discretion, either accept or reject any
Purchase order from the Buyer. Such acceptance or rejection shall be in
writing to the Buyer within thirty (30) business days of the receipt of a
Purchase Order from the Buyer. If the Seller fails to provide a written
rejection of a Purchase Order, the Seller shall be deemed to have accepted
such Purchase Order.
6.11 If there is any dispute between the parties as to piece price
based on manufacturing time involved, the Seller shall nevertheless be
permitted to accept a Purchase Order based on the formula set out in paragraph
6.6, subject to arbitration of the manufacturing time actually required by the
Seller's employees to produce such parts. The Seller must indicate that the
Purchase Order is subject to arbitration, if it wishes to arbitrate the
manufacturing time involved. In the event that following the conducting of
time studies and further negotiations between the parties, they am unable to
establish a manufacturing time to their mutual agreement, the issue shall
be submitted to arbitration in accordance with the terms of this Agreement,
and any parts manufactured under the Purchase Order shall be repriced based on
such manufacturing time as is agreed upon, or ultimately determined by
arbitration. Ile Purchase Price paid on such parts as were produced up to the
time of arbitration shall be retroactively amended. The Buyer may rescind
future Purchase Orders on such parts for which the arbitration establishes a
manufacturing time greater than that claimed by the Buyer. The Seller shall
be permitted to reject any subsequent Purchase Orders for parts, for which the
arbitration confirms the manufacturing time a was claimed by the Buyer.
VII SUPPLY OF RAW MATERIALS/
PAYMENT OF DOWN TIME
7.1 The Buyer shall supply on a consignment basis to a warehousing facility of
the Seller in Texas all material and component parts as will be required by
the Seller in accordance with the Buyer's quality requirements as set out in
Section 2.3, to manufacture the parts under Purchase Orders. The Seller shall
be responsible for the delivery of material and component pads to the Seller's
manufacturing facilities in Mexico, and the delivery of finished goods io
warehousing facilities of the Buyer in Mexico.
7.2 In the event that the Buyer fails to supply adequate materials or deliver
materials on a timely basis to the Seller to ensure the production
requirements of Seller, it shall reimburse the Seller $4.40US per hour of
labour downtime in its manufacturing facility in Mexico (which amount shall be
adjusted proportionally to any adjustment provided for under Paragraph 6.6
(.1) and (.2)) to the hourly rate being used for such number of workers as are
employed by the Seller In manufacturing products for the Buyer for all lost
production time due to material shortages. The Seller shall, on a weekly
basis, disclose to Buyer how many of its employees are engaged full time,
and, to the extent they are not engaged full time, the percentage of the time
in which employees engaged on a part-time basis are engaged in the manufacture
of products for the Buyer. The Buyer shall be prompt to attend the Seller's
facilities from time to time so as to confirm the actual number of employees
manufacturing the product for the Buyer and the percentage of time such
employees commit to such manufacture.
7.3 Any waste of inventory as a result of inefficient manufacturing processes
or spoilage or poor quality or any loss of Inventory or damage of whatever
nature and kind of materials while in the possession of the Seller shall be
reimbursed to Buyer by Seller. Inventory of materials and supplies and
component parts belong to Buyer at all times, but are at Seller's risk while
in their possession and control.
VIII. CONVEYANCE OF MACHINERY AND EQUIPMENT
BY THE BUYER TO THE SELLER
8.1 The Buyer is the owner of various machinery and equipment used in the
manufacturing of wire harnesses and agrees to supply such machinery and
equipment as is required for the Seller to complete its Purchase Orders,
and/or to supply now or replacement equipment so as to permit the Seller to
complete its Purchase Orders for the Buyer, to Seller's manufacturing
facilities in Mexico. Such equipment shall comply with Buyer's warranties
and representations as to fitness, as set out in Section 2.3.
8.2 The Buyer shall retain ownership of-all such machinery and equipment as is
supplied to the Seller; provided that the Seller shall, during its control and
use of such equipment, maintain it in accordance with prudent business
standards and Insure it, with loss payable to the Buyer. At the termination of
this Agreement, all such machinery and equipment shall be returned to the
Buyer in good operating condition, subject only to reasonable wear and
tear.
8.3 Such machinery and equipment shall only be used by the Seller to
manufacture parts for the Buyer or those authorized by the Buyer and for no
other purpose whatsoever.
IX. CONFIDENTIALITY & NON-DISCLOSURE
9.1 The Seller shall keep confidential any and all information, plans, ideas,
or other know how supplied to it by Buyer.
9.2 Any and all diagram, drawings, plans, models, samples, papers, notes,
books or other documents, working diagrams, or other notes -or records as are
provided to the Seller, or as are prepared by the Seller for Buyer, or for its
own purposes in the course of its performance of its duties on behalf of
Buyer, shall be hold in trust for, and made available to Buyer and to no
others.
9.3 The Seller shall not directly or indirectly disclose or use at any time,
any secret or confidential information, diagram, drawing, plans, models,
samples, papers, notes, books or other documents or parts or prototypes of
same, nor any processes, methods, formulae, apparatus, specifications,
materials or sources of supply, customers, their identities and requirements,
discoveries, Inventions, patents, (Including applications and rights in
other), contracts, financial personnel, research, or other matters, including
matters though not technically trade secrets, the dissemination of a knowledge
whereof might prove prejudicial to Buyer, without the express written consent
of Buyer.
9.4 In the event that the Seller is approached to enter into a contract with
another party for the design, supply, assembly or manufacture of parts similar
in nature to those supplied or manufactured for Buyer, the Seller shall advise
in writing Buyer of the nature and terms of such contract. Seller agrees that
it shall not enter into any such contract with any party in competition with
the Buyer, and under no circumstances would it in the performance of any
contract with such a third party, utilize Buyer's equipment or raw materials.
The Seller further agrees that the Buyer would got first priority for the
completion of its Purchase Orders in the event of competing time demands
between Buyer and any third party.
9.5 The Seller's obligations set out in this Article DC and in Articles X and
XI shall continue beyond the termination of any contractual arrangements
between Buyer and the Seller. These obligations shall be binding on the
assigns, executors, administrators and other legal representatives of the
Seller.
9.6 The Seller agrees that it will not, without the written permission of the
Buyer, use the Confidential Information which it is obligated hereunder to
maintain in confidence for any reason other than to enable the Seller to
manufacture parts for the Buyer.
9.7 It is understood that no right or license Is granted to the Seller by the
Buyer in connection with the Confidential Information disclosed hereunder.
9.8 Any documents, drawings, materials, samples or specifications supplied by
the Buyer, and all copies thereof, shall be returned upon request or within
thirty (30) days after expiration or termination of this Agreement.
X. NON-COMPETITION AGREEMENT
10,1 Each of Northport VM1 and VM1 Mexico agree that they shall not,
for a period being the longer of (a) five (5) years from the date of this
Agreement, or (b) twenty-four (24) months from the date of the completion of
the last Purchase Order for the Buyer, for any reason whatsoever except as may
be approved in writing by the Buyer:
(a) divert, or attempt to divert any business of or any customers of the Buyer
to any other competitive businesses;
(b) directly or indirectly, either individually or in partnership jointly or
in conjunction with any person or persons, firm, association, syndicated
company or corporation, as principal, agent, shareholder, employee, or in any
manner whatsoever, own, engage in, be employed in, participate in, land money
to, guarantee the debts or obligations of, or permit their names to be used or
have any interest In any business which manufactures seat heaters, or
component parts thereof, within Canada the United States, Central and South
America;
(c) attempt to divert any business activity or any customers of the Buyer to
any competitor engaged in the manufacture of heated seats or their components
or intending to become a competitor in such field, by direct or indirect
inducement or otherwise, or to do or perform directly or indirectly any other
act injurious or proudicial to the Buyer.
10.2 All restrictions in this Article am reasonable and valid, and all
defenses to the strict enforcement thereof are hereby waived by Northport and
The Seller.
10.3 In the event of a breach of the provisions of this Agreement, the
restrictive time period as set out shall be suspended from the time of such
breach until a final Court determination (including all appeals) is obtained
and thereafter, if such Court determination is resolved in favour of the
Buyer, the balance of the unexpired time period shall run from the date of
such final Court determination.
10.4 To the extent that a Court of competent Jurisdiction shall
determine that the provisions of this Agreement am unreasonable, either as to
geographic area covered or time, or both, then in such event these provisions
as to non-competition shall be enforceable in accordance with their term to
such extent, as may, by such Court, be deemed to be reasonable as to
geographic area or limitation of time.
10.5 The parties Author agree that In the event of breach of the
covenants against competition, even though any damages suffered will be
substantial, such damages may be difficult to ascertain and money damages may
not afford adequate relief, therefore, in the event of breach the parties
agree that in addition to such other remedies as may be available, the party
seeking to enforce such covenant shall have the right to obtain temporary and
permanent injunctive relief as against the parties in breach.
X1. ARBITRATION
11.1 Where any matter in dispute between the parties pursuant to this
Agreement provides for a reference to arbitration, such arbitration shall be
conducted pursuant to the provisions of the American Arbitration Association
Commercial Arbitration Rules, in the jurisdiction of Texas and subject to the
substantive laws of the State of Texas.
11.2 The parties shall proceed to arbitration of disputes as a
condition precedent to any civil action being commenced, and any order or
award resulting from arbitration shall be capable of enforcement by the
parties as if it were a judgment of a court of competent jurisdiction
in the jurisdiction where such award or order is to be enforced.
X11, TERM
12.1 Unless otherwise specified in this Agreement or renewed, the term will
be for the period November 1, 1998 to October 31, 2001.
IN WITNESS WHEREOF the parties hereto have caused to be hereunto affixed
their respective corporate seals duly attested by the hands of their proper
officers in that behalf, this 20TH day of JANUARY, 1999.
SIGNED, SEALED AND DELIVERED in the presence of
NORTHPORT INDUSTRIES, INC.
per: /s/Robert Michelini
Robert Michelini, President
I have authority to bind the Corporation
VMI, Inc.
per: /s/Robert Michelini
Robert Michelini
I have authority to bind the Corporation
INDUSTRIAL LOVING S.A. de C.V.
per: /s/
General Manager
I have authority to bind the Corporation
W.E.T. AUTOMOTIVE SYSTEMS LTD.
per:/s/Bodo Ruthenberg, Jr.
Bodo Ruthenberg, Jr., President
I have authority to bind the Corporation
W.E.T. AUTOMOTIVE SYSTEMS, (TEXAS), INC.
per:/s/Bodo Ruthenberg, Jr.
Bodo Ruthenberg, Jr., President
I have authority to bind the Corporation
SHELTER SERVICES AGREEMENT
THIS SHELTER SERVICES AGREEMENT (THE AGREEMENT ) IS ENTERED INTO BY AND AMONG
ETM. A CORPORATION ORGANIZED UNDER THE LAWS OF THE Mexico, REPRESENTED By Mr.
Manfred Boguslawski, PRESIDENT, HEREINAFTER REFERRED TO AS ETM, NORTHPORT
INDUSTRIES, INC., A CORPORATION ORGANIZED UNDER THE LAWS OF NEVADA, UNITED
STATES OF AMERICA, WITH OFFICES AT SPUR 239 AND ALDERETE ROAD, DEL RIO, TEXAS,
78840, UNITED STATES OF AMERICA, REPRESENTED BY MR. ROBERT MICHELINI, ITS
PRESIDENT, HEREINAFTER REFERRED TO AS NORTHPORT, AND NORTHPORT DE MEXICO,
S.A. DE C.V., A LIMITED LIABILITY COMPANY ORGANIZED UNDER THE LAWS OF MEXICO,
WITH OFFICES AT ALLENDA, COAHUILA, MEXICO, REPRESENTED BY MR. ROBERT MICHELINI
HEREINAFTER JOINTLY REFERRED TO AS NORTHPORT, PURSUANT TO THE FOLLOWING
RECITALS AND CLAUSES.
RECITALS
WHEREAS, ETM designs, manufactures and sells, among other things,
automotive rubber and plastic parts are hereinafter referred to as the
Finished Products;
WHEREAS, NORTHPORT warrants that it posses, and will at all times during the
term of this Agreement possess, the expertise, along with all necessary
elements and facilities to provide the shelter services to ETM in Acuna,
Coahuila, Mexico, as set out in this Agreement; and
WHEREAS, ETM and NORTHPORT wish to enter into a relationship whereby ETM will
furnish NORTHPORT with raw materials, equipment, machinery, tools, spare parts
and components (the Goods ) to manufacture and assemble the Finished Products
in Mexico and ship them to Volkswagen in Mexico.
NOW, THEREFORE, in consideration of the foregoing premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, ETM and NORTHPORT agree as follows:
CLAUSES
1. SHIPMENT OF GOODS.
ETM shall, at its sole cost, ship to NORTHPORT, at the designated
location in Del Rio, Texas, United States of America, or Acuna Mexico,
the Goods necessary for the manufacture and assembly of the Finished
Products in Acuna, Coahuila, Mexico. Each shipment shall be accompanied
with the documents which NORTHPORT shall reasonably request in writing
from ETM, to enable NORTHPORT to carry out the exportation of the Goods
from the United States of America and the importation of the Goods in-
bond from the United States of America into Mexico (the Documents ).
Prior to the date hereof, NORTHPORT has delivered to ETM the form of
each of the Documents required to be delivered by ETM pursuant to this
Article 1. Immediately upon receipt of the Goods, NORTHPORT will
inspect such to verify that the Goods received are not damaged and that
such match the Goods listed in the Documents. If the Goods are damaged
or do not match the Goods listed in the Documents, NORTHPORT will
immediately notify ETM in writing of the damage or discrepancy. Upon
ETM confirming to its satisfaction that the Goods are damaged or do not
match the Goods listed in the Documents, ETM must either replace the
damaged, non-conforming or missing Goods or instruct NORTHPORT, in
writing, only to accept the undamaged, conforming Goods received. ETM
must replace the Documents so that such correspond to the Goods
accepted. ETM will be solely responsible for retrieving the damaged or
non-conforming Goods, and NORTHPORT will supply all assistance
reasonably requested by ETM in connection with such retrieval.
NORTHPORT will immediately issue a receipt for the Goods it accepts and
deliver such receipt to ETM. NORTHPORT shall provide qualified
inspectors to inspect the Goods, which inspectors will use their best
efforts to inspect the Goods, and NORTHPORT will only be responsible for
noting any damage, which a proper inspection would reveal. The risk of
loss for the Goods and Finished Products will be governed by Article 20
below.
2. IMPORTATION OF GOODS
NORTHPORT hereby covenants and agrees to carry out, from Del Rio, Texas,
United States of America, all steps which may be necessary or convenient
to import the Goods into Mexico, including but not limited to, obtaining
the corresponding permits, completing required paperwork and handling
transportation to NORTHPORT s shelter facility at Acuna, Coahuila,
Mexico.
3. REIMBURSEMENT OF IMPORTATION EXPENSE
All reasonable and necessary expenses and fees related to the
importation of Goods into Mexico, including reasonable and necessary
transportation costs, shall be reimbursed by ETM to NORTHPORT, within
ten (10) calendar days following ETM. s receipt of written notice of
such, accompanied by detailed itemized receipts meeting all legal
requirements.
4. PREMISES
As an integral part of the shelter services provided by NORTHPORT to
ETM,. NORTHPORT shall furnish Five Thousand square feet (5,000sq. ft.)
of fully constructed industrial space, ready to accept all Goods and to
commence the manufacture and assembly of the Finished Products, located
at Gecamex, S.A. de C.V., Acuna, Coahuila, Mexico, and as set out in red
on the plan attached hereto as Exhibit A. acceptable to ETM
(the
Premises ) to accommodate ETM s Goods and the Finished Products and to
be used to carry out the shelter services. The Premises shall be used
by NORTHPORT and/or SUBSIDIARY to perform the services contemplated by
the Article 6 hereof, throughout the term of this Agreement and the
performance of such services shall not be relocated to another facility,
unless ETM agrees to such move in writing. Throughout the term of this
Agreement and any renewals thereof, neither NORTHPORT nor SUBSIDIARY
shall (i) permit any activity to be performed on the Premises which
would violate any applicable law, rule or regulation, or (ii)
participate with, provide service to or otherwise assist any person or
entity in the design, production or sale of any product or service at
the Premises which directly or indirectly competes with ETM or any
Finished Product. At all times during the term of this Agreement and
any renewals thereof, NORTHPORT shall have (ii) a beneficial ownership
interest in or (iii) a legally binding and enforceable lease agreement
for the Premises, which shall permit the manufacture and assembly of the
Finished Products. NORTHPORT s failure to comply with the terms of the
lease agreement, if applicable, covering the Premises, shall be a
material breach of this Agreement, if such results in an adverse effect
on the shelter services to be provided to ETM hereunder, which adverse
effect includes, without limitation, an unreasonable delay or
interference in the manufacture and assembly of the Finished Products.
NORTHPORT will furnish ETM a true and complete copy of such lease
agreement promptly following execution of this Agreement.
NORTHPORT shall be solely responsible for repairs, maintenance and
replacements to the Premises and the payment of taxes and all other
costs related to the Premises.
5. SHELTER SERVICES.
The essential purpose of this Agreement is NORTHPORT s rendering of
shelter services at the Premises to ETM. Such shelter services shall
include, but not be limited to, the following:
(A) the manufacturing and assembly of the Finished Products, subject
to the inspection and approval of ETM, in accordance with ETM s written
technical specifications and guidelines;
(B) the furnishing of the Premises upon the terms set out in Article 4
and if applicable, Article 5;
(C) providing the necessary labor, administrative control and
technical supervision;
(D) the importation of the Goods from an agreed location in Del Rio,
Texas, United States of America to the Premises in Mexico and the
exportation of the Finished Products to an agreed location in Del Rio,
Texas, United States of America.
(E) the administrative, legal, accounting, customs and other support
required for the rendering of the shelter services.
Such shelter services shall be provided at no additional cost to ETM
through NORTHPORT s own personnel and technical expertise and,
therefore, NORTHPORT shall not be able, in the performance of its
manufacture and assembly obligations hereunder, to use the services of
any unrelated subcontractor or any other entity without the prior
written authorization of ETM.
6. REPRESENTATIONS AND WARRANTIES.
NORTHPORT and SUBSIDIARY, on the one hand, and ETM on the other hand,
irrevocably and unconditionally represent and warrant to each other as
follows:
A. Each of NORTHPORT and SUBSIDIARY has all requisite corporate power
and authority to enter into this Agreement and to perform its
obligations described herein. This Agreement and the attachments
hereto, and each of the agreements described herein, when executed and
delivered will constitute the valid, binding and enforceable obligations
of each of NORTHPORT and SUBSIDIARY and their execution and delivery by
each of NORTHPORT and SUBSIDIARY and the consummation of the
transactions contemplated hereby and thereby have been duly authorized
by all requisite corporate action of each of NORTHPORT and SUBSIDIARY.
B. ETM has all requisite corporate power and authority to enter into
this Agreement and to perform its obligations described herein. This
Agreement and the attachments hereto, and each of the agreements
described herein, when executed and delivered will constitute the valid,
binding and enforceable obligations of ETM and their execution and
delivery by ETM and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all requisite corporate
action of ETM.
C. The execution and delivery of this Agreement and the transactions
contemplated hereunder are not a violation or breach of, do not conflict
with, or constitute a default under any note, debt instrument, security
agreement, mortgage, lease or any other contract or agreement to which
either NORTHPORT or SUBSIDIARY is a party and will not require any
authorization, consent, approval, exemption or other action by or notice
to any court, arbitrator, department, commission, board, bureau, agency,
authority, instrumentality or other body, whether federal, state,
municipal, foreign, or other.
D. The execution and delivery of this Agreement and the transactions
contemplated hereunder are not a violation or breach of, do not conflict
with, or constitute a default under any note, debt instrument, security
agreement, mortgage, lease or any other contract or agreement to which
ETM is a party and will not require any authorization, consent,
approval, exemption or other action by or notice to any court,
arbitrator, department, commission, board, bureau, agency, authority,
instrumentality or other body, whether federal, state, municipal,
foreign, or other.
E. There is no litigation, suit, proceeding, claim, charge, grievance
or investigation pending or, to the best of knowledge of NORTHPORT or
SUBSIDIARY, threatened against NORTHPORT or SUBSIDIARY involving the
property or conduct of NORTHPORT or SUBSIDIARY s business before any
court, governmental agency or other tribunal, nor is there, to the best
of NORTHPORT s or SUBSIDIARY s knowledge, any basis or ground for any
such litigation, suit, proceeding, action, claim, charge, grievance or
investigation. There is no outstanding order, writ, injunction or
decree of any court, administrative agency or governmental body or
arbitration tribunal against or affecting the conduct of NORTHPORT s or
SUBSIDIARY s business.
F. There is no litigation, suit, proceeding, claim, charge, grievance
or investigation pending or, to the best of ETM s knowledge, threatened
against ETM involving the property or conduct of ETM s business before
any court, governmental agency or other tribunal, nor is there, to the
best of ETM s knowledge, any basis or ground for any such litigation,
suit, proceeding, action, claim, charge, grievance or investigation
which, in each case, could have a material adverse effect on ETM s
ability to perform its obligations under this Agreement and the
documents and instruments contemplated hereby. There is no outstanding
order, writ, injunction or decree of any court, administrative agency or
governmental body or arbitration tribunal against or affecting the
conduct of ETM s business.
G. NORTHPORT has no knowledge or information, of:
1) the presence on or under the Premises of any Hazardous
Substance;
2) any spills, releases, discharges, treatment, storage or
disposal of Hazardous Substances or other substances for which a
discharge permit is required that have occurred or are presently
occurring on, onto or under the Premises or any properties
adjacent thereto;
3) any spills, release, discharges or disposal of Hazardous
Substances or other substances for which a discharge permit is
required that have occurred or are presently occurring off the
Premises as the result of any construction, operation or use of,
or improvement to or conditions on or under the Premises; or
4) the presence of polychlorinated biphenyls ( PCB s) on or
under the Premises.
H. NORTHPORT and SUBSIDIARY represent and warrant that the Premises
are not subject to any Mexican federal, state or local environmental
lien, proceeding, claim, liability or action for the cleanup, removal,
or remediation of Hazardous Substances from the Premises and NORTHPORT
has not received any statements warning of any such action.
I. Neither NORTHPORT nor SUBSIDIARY has knowledge or information of
any asbestos or underground tanks on the Premises.
J. In connection with any construction on or operation, condition or
use of the Premises, or any improvements thereon or thereunder,
NORTHPORT and SUBSIDIARY represent that as of the date of this
Agreement, neither NORTHPORT nor SUBSIDIARY has knowledge or information
of any failure to comply with any Mexican federal, state or local
environmental laws, ordinances, regulations or administrative or
judicial orders relating to the use, generation, recycling, reuse, sale,
handling, transport, treatment, storage or disposal of any Hazardous
Substance.
K. The term Hazardous Substances as used herein shall mean any and
all substances, wastes and materials which are classified or defined as
hazardous materials, wastes or substances under any applicable Mexican
federal, state or local laws, ordinances, rules, regulations and norms.
L. ETM has and will continue to provide NORTHPORT, throughout the
term of this Agreement and extensions thereof, the necessary information
and documentation with respect to the Goods and chemicals furnished to
NORTHPORT by ETM to be used in the manufacture and assembly of the
Finished Products on the Premises, so that NORTHPORT may ensure
compliance with all Mexican environmental laws, regulations and norms.
M. As of the date hereof, NORTHPORT, SUBSIDIARY and the Premises,
have all the registrations, permits, authorizations and licenses
necessary to carry out the activities and provide the shelter services
hereunder, in accordance with all applicable legal provisions in force.
N. NORTHPORT and SUBSIDIARY s statements and warranties contained in
this Agreement, as well as in all its exhibits, certificates or other
written statements made hereunder or in connection with the transaction
and operation herein contemplated, are exact, correct and complete, and
none of such statements and warranties, considered individually or as a
whole, constitute false or misleading statements or warranties.
7. INVENTORY AND RECORDS ON GOODS.
NORTHPORT, at its expense, agrees to manage and maintain proper
inventory and records on all the Goods and Finished Products, so as to
ensure compliance at all times with all necessary Mexican and United
States laws and regulations. At ETM s written request, NORTHPORT shall
immediately provide detailed, accurate and updated listings covering the
Goods and Finished Products. ETM shall at any and all times have the
right to attend at the Premises and to physically inspect the Goods and
Finished Products. This service does not include complete physical
inventories which shall be at ETM s expense.
8. COMPLIANCE WITH THE LAW.
At all times during the term of the Agreement (including the initial
term and extensions thereof), NORTHPORT, SUBSIDIARY and the Premises
shall be in compliance with and shall, to the extent it is within its
control, use its best efforts to ensure that ETM is fully informed and
in compliance with all United States, and Mexican laws or regulations
which directly or indirectly affect performance of the obligations of
NORTHPORT, SUBSIDIARY or ETM under this Agreement, whether such be of
international, federal, state, county or municipal origin. Such laws
and regulations shall include, but not be limited to, the following:
A. Customs laws and regulations;
B. Transportation laws and regulations;
C. Tax laws and regulations;
D. Environmental standards, laws and regulations;
E. Labor laws and regulations;
F. Zoning laws and regulations;
G. Corporate laws and regulations; and
H. Sanitation and hygiene laws and regulations.
I. Currency exchange laws and regulations.
Failure by NORTHPORT or SUBSIDIARY to comply with any laws or
regulations shall be a material breach of this Agreement. ETM,
following ten (10) calendar days written notice to NORTHPORT is entitled
to receive and shall be provided with copies of permits, certificates
and other documents evidencing NORTHPORT s compliance with laws and
regulations. ETM shall be responsible for compliance with its
obligations under the laws and regulations of the United States.
9. PERSONNEL SUPPLIES BY NORTHPORT.
NORTHPORT hereby agrees to provide all the qualified personnel which may
be necessary for the manufacture and assembly of the Finished Products
at the Premises, including, without limitation, the personnel listed in
Exhibit B attached hereto and made a part hereof for all purposes.
NORTHPORT agrees that ETM following thirty (30) days written notice,
may, at ETM option reduce its direct labor work force by up to five
percent (5%) per month for up to four (4) consecutive months. ETM
agrees to give NORTHPORT thirty (30) days written notice for each
reduction. NORTHPORT reserves the right to reduce the amount of
indirect labor dedicated to ETM by a corresponding percentage.
NORTHPORT agrees to be responsible for all costs associated with the
work force reductions contemplated in this paragraph.
Any additional personnel required by ETM will be supplied by NORTHPORT
following ETM s written request for, and approval of, such. The cost of
said additional personnel will be reimbursed by ETM to NORTHPORT in
accordance with the terms of this Agreement.
10. PERSONNEL SUPPLIED BY ETM.
ETM hereby agrees to supply NORTHPORT with the technical support
personnel which NORTHPORT and ETM agree are necessary or convenient to
train Mexican personnel supplied by NORTHPORT, to supervise the
installation of the equipment supplied by ETM, to begin operations and
to thereafter at ETM s sole discretion monitor from time to time all
ongoing operations. ETM shall be solely responsible for all salaries,
expenses, taxes and other costs related to ETM s personnel. ETM shall
indemnify, defend and hold NORTHPORT harmless against any claims or
liabilities arising from ETM s personnel, including but not limited to
substitute employer or Mexican tax claims. ETM shall be solely
responsible for paying for all government fees payable to secure the
immigration papers required for ETM s personnel, as well as all
professional costs and expenses related thereto.
11. COMPENSATION OF EMPLOYEES.
The parties agree that ETM shall be solely responsible for the
compensation of the employees it provides, in accordance with Article 10
above. As to the personnel mentioned in Article 9 above and upon
establishment to ETM s satisfaction of the classes, numbers,
classifications and qualifications of wage and salary employees,
NORTHPORT shall be solely responsible for employee relations, including
the hiring and firing of such, provided however, that ETM shall have the
right to veto the proposed employment of any applicant and to require
the termination of any employee who has been allocated to ETM s
operations. Except for the reductions in force contemplated by the
second Paragraph of Article 10, which reductions shall not obligate ETM
to reimburse NORTHPORT or SUBSIDIARY for any applicable labor severance
payments, in the event ETM requires the termination of an employee for
any reasons other than for cause, as defined under Mexican Federal Labor
Law, ETM shall pay or reimburse NORTHPORT for any severance labor
termination payment for such employee, but only to the extent that such
payment relates to such employee s employment by NORTHPORT on behalf of
ETM. In the event ETM requires the termination of an employee for
cause, as defined by Mexican Federal Labor Law, and such termination
results in NORTHPORT having to pay severance or other related
termination payments, by reason of a settlement, Court Order or
otherwise, then ETM and NORTHPORT agree to equally share such severance
and other related termination payments. NORTHPORT shall be solely
responsible for paying any severance labor termination payments or
portions thereof required to be paid for any reason arising out of any
employee s tenure prior to being assigned to ETM s operation or after
such employees assignment to ETM s operation has been terminated
(hereinafter excluded tenure ). Accordingly, the parties agree that
ETM s liability to pay or reimburse NORTHPORT for any severance labor
termination payments with respect to an employee with an excluded tenure
that affects the amount of severance labor termination payment shall be
limited to an amount equal to a fraction of the total payment determined
as follows: The numerator of the fraction shall be the total number of
days worked by the employee while assigned solely to ETM s operations
and the denominator shall be the total number of days worked by the
employee applicable in the calculation of the labor termination
severance payment. NORTHPORT shall make reasonable efforts to minimize
any severance labor termination payments required by Mexican law or
collective or individual labor contracts. NORTHPORT shall be solely
responsible for obtaining, supervising and administrating the personnel
referred to in Article 9 and paying the employees allocated to ETM s
operations any and all wages, salaries, overtime, benefits in cash or in
kind, as well as all other payments required by Mexican, federal, state
and municipal laws and regulations. Without limiting the foregoing, all
personnel mentioned in Article 9 shall be employees of NORTHPORT and not
ETM s provided, however that NORTHPORT shall not remove key personnel
without consulting with ETM prior to such removal.
12. PAYROLL, SOCIAL SECURITY AND TAXES.
To the extent it is required by law, ETM agrees to prepare and file, for
its non-Mexican personnel only, all required Mexican payroll taxes,
including but not limited to income tax, social security, retirement
fund (SAR), and NATIONAL WORKERS HOUSING FUND (INFONAVIT) fees, as well
as any other applicable taxes or fees required under Mexican laws and
regulations. At ETM s request, NORTHPORT agrees to provide all
necessary information and assistance in preparing and filing the above-
referenced payroll taxes, provided ETM agrees to reimburse NORTHPORT for
any reasonable costs or expenses related to providing such information
and assistance.
13. WORKING PERMITS.
ETM agrees to pay for, at its expense, all necessary working permits for
its designated foreign personnel who will render technical or other
services at the Premises. At ETM' request, NORTHPORT will provide
assistance with respect to all Mexican immigration matters and with
respect to obtaining all necessary working permits for ETM s designated
foreign personnel who will render technical or other services at the
Premises. All reasonable costs and expenses incurred by NORTHPORT in
providing the assistance will be reimbursed to NORTHPORT by ETM within
ten (10) calendar days following written notice of such, accompanied by
detailed itemized receipts meeting all legal requirements.
14. EMPLOYER-EMPLOYEE RELATIONSHIP.
NORTHPORT shall immediately notify ETM of any disputes between NORTHPORT
and its workers and/or the Mexican taxing authorities, if such disputes
or disagreements may result in having ETM s Goods or Finished Products
being subjected to seizure or liens, mortgages, attachments or
encumbrances of any nature or which may in any way delay or interfere
with the manufacture and assembly of the Finished Products.
NORTHPORT s responsibilities for labor claims or lawsuits include,
without limitation, fulfilling any obligation derived from the Federal
Labor Law, Social Security Law, INFONAVIT Law, Income Tax Law, State and
Federal Payroll Tax Laws, Sanitation Laws, Environmental Laws, as well
as any other pertinent laws or regulations in force in Mexico from time
to time.
NORTHPORT s obligations under these provisions shall extend to the
personnel provided by NORTHPORT pursuant to Article 9 and to any
subcontractor hired by NORTHPORT with ETM s written permission to
perform any work contemplated herein which shall remain in force and
survive the termination of this agreement.
NORTHPORT recognizes, acknowledges and confirms that there shall be no
labor relationship between ETM and NORTHPORT s personnel who directly or
indirectly are involved in the shelter services performed by NORTHPORT
under this Agreement and, therefore, NORTHPORT shall indemnify and hold
ETM harmless from any and all costs, expenses, claims or liabilities
whatsoever including, without limitation, lawsuits brought against ETM,
including substitute employer claims or lawsuits by NORTHPORT s
personnel or by any governmental or other entity.
15. COMPENSATION.
In consideration for the services rendered pursuant to the terms of this
Agreement, ETM agrees to pay NORTHPORT a service fee. The service fee
shall be based on an hourly wage formula which takes into account (I)
the total number of full-time employees (One (1) full-time employee
shall mean a person employed for forty five (45) hours per week, who is
required to work forty two and one half (42.5) hours per week, eight and
one half (8.5) hours, five (5) days a week, Monday through Friday) and
(ii) the number of square feet at the premises allocated to ETM s
operations, as further described and in the manner set forth in Exhibit
C, attached hereto and incorporated herein for all purposes. Any
overtime, holiday work or shifts, other than the normal shift required
in writing by ETM, shall also be paid by ETM at one and three quarters
(1.75) times the hourly rate.
In the event that, for any reason whatsoever ETM fails to provide the
Goods necessary to assemble and manufacture the Finished Products, ETM
shall be required to continue paying the down time fee described below,
even if workers are unable to assemble and manufacture Finished Products
because of the lack of such Goods. The down time fee shall be based
considering eighty percent (80%) of an hourly wage formula which takes
into account (i) the total number of full-time employees employed at the
time of the work stoppage (One (1) full-time employee shall mean a
person employed for forty five (45) hours per week, who is required to
work forty two and one half (42.5) hours per week, eight and one half
(8.5) hours, five (5) days a week, Monday through Friday) and (ii) the
number of square feet at the premises allocated to ETM s operations.
One year from the date hereof, and every year thereafter, the service
fee shall be increased by the percentage increase, if any, in the
Producer Price Index for July of the preceding year, provided, however,
the increase to the Shelter Service Fee based on the Producer Price
Index shall not exceed six percent (6%) per year. The Producer Price
Index as used herein shall mean the index presently known as the
Producer Price Index for Finished Goods, U.S. Average (1982-1984=100)
published in the Monthly Labor Review and in the Survey of Current
Business.
ETM and NORTHPORT agree to negotiate production rates by product in
standard labor hours. Further, ETM and NORTHPORT agree to employ their
best efforts to reduce costs (the Reduction ) and improve quality of
the Goods. To that end, ETM and NORTHPORT agree that improvements shall
be measured against the standard production hours per year and agree
that the first 1% of the amount of the Reduction shall be equally shared
50% by ETM and 50% by NORTHPORT.
16. PURCHASES BY NORTHPORT.
In addition to the service fee set forth above and the other items
described in this Agreement, ETM agrees to reimburse NORTHPORT for
reasonable and necessary expenses related to the purchase of shipping
and packing supplies and any other supplies, materials, equipment, spare
parts and other items, purchased on ETM s behalf under written purchase
orders approved in writing by ETM. Any items not paid for up front,
shall be reimbursed by ETM following ten (10) calendar days written
notice of such costs, accompanied by detailed invoices meeting all legal
requirements.
17. FORM OF PAYMENT.
All payments due NORTHPORT by ETM pursuant to the terms of this
Agreement shall be made in United States dollars. Payments shall be
made no later than ten (10) calendar days after detailed invoices from
NORTHPORT, which meet all legal requirements, are received by ETM. For
purposes of the above, receipt of an invoice via facsimile shall be
sufficient. Any invoices sent via facsimile shall be followed by a hard
copy, but the date of receipt via facsimile shall be considered the date
of receipt. Late payments shall bear interest at the rate of the prime
rate, as published in the Wall Street Journal, plus two points. In no
event, however, shall such interest rate exceed that allowed by
applicable International, Mexican, United States, or Texas law.
18. INSURANCE OF PREMISES.
NORTHPORT shall, at its cost, obtain and maintain in full force and
effect insurance coverage issued by a United States or Mexican insurance
company, which shall be acceptable to ETM and which insurance coverage
shall be upon such terms and in such amount as shall be reasonably
required by ETM, to protect NORTHPORT and ETM, to the extent of its
respective interest, if any, as named insured, against fire, theft,
third party liabilities and such other standard risks in and about the
Premises, as shall be reasonably required by ETM. NORTHPORT shall
provide ETM with certified copies of such insurance policies. Such
policies shall contain a clause to the effect that ETM will be notified
thirty (30) calendar days prior to the lapse of such policies. In the
event such policies are in danger of lapsing, ETM may step in and
directly pay for such insurance policies or, at ETM s sole option,
declare this to be a material breach of this Agreement. NORTHPORT will
immediately reimburse and be responsible for reimbursing ETM for such
amounts expended.
19. EQUIPMENT INSURANCE.
Unless ETM chooses to provide insurance covering its Goods and Finished
Products, NORTHPORT shall provide and maintain, in full force and
effect, insurance with such insurer as shall be acceptable to ETM to
cover ETM s Goods, and Finished Products, in an amount equal to the
replacement value thereof or such other amount as ETM shall direct in
writing, with such other terms as ETM shall require. The coverage shall
begin when the Goods are received by NORTHPORT from ETM in Del Rio,
Texas, United States of America, and shall continue until such time the
Goods and Finished Products are returned to ETM by NORTHPORT in Del Rio,
Texas.
The provider of the insurance shall provide the other party with
certified copies of the corresponding insurance policies. Such policies
shall name each of the parties as named insured as their respective
interests shall appear, and shall contain a clause to the effect that
both parties will be notified thirty (30) calendar days prior to the
lapse of such policies. In the event such policies are in danger of
lapsing, the party not providing the insurance may step in and directly
pay for such insurance policies. In such cases, the provider of the
insurance, as set forth herein, will be responsible for reimbursing the
other party for such amounts expended. The cost for said insurance will
be reimbursed by the provider of the insurance to the other party within
ten (10) calendar days notice of such accompanied by detailed invoices
evidencing such costs and meeting all legal requirements.
20. RISK OF LOSS.
The Risk of Loss for the Goods and Finished Products shall at all times
be in the hands of the party hereto who has physical control of such, in
accordance with the terms hereof. Therefore, NORTHPORT will bear the
risk of loss at all time while the Goods and Finished Products are in
Mexico and while in NORTHPORT s control in the United States. ETM shall
bear the risk of loss while the Goods and Finished Products are in its
control in the United States.
21. INDEMNITY.
Each of NORTHPORT and SUBSIDIARY covenants and agrees to indemnify and
hold ETM, its subsidiaries and affiliates and each of their respective
officers, directors, shareholders, employees, harmless from and against
any loss, expense, damage or injury suffered or sustained by such
persons by reason of (a) the inaccuracy or breach of any representation,
warranty covenant or agreement of NORTHPORT or SUBSIDIARY contained in
this Agreement, or (b) any acts, omissions or alleged acts or omissions
by NORTHPORT, Subsidiary and/or NORTHPORT s or SUBSIDIARY s employees or
agents working for the benefit of ETM (other than acts, omissions or
alleged acts or omissions of such employees or agents taken or failed to
have taken at the express written direction of ETM) or otherwise arising
out of NORTHPORT s or SUBSIDIARY s performance of this Agreement or
NORTHPORT s or SUBSIDIARY s activities on behalf of ETM. Without
limiting the generality of the foregoing, NORTHPORT covenants and agrees
to indemnify and hold ETM, its subsidiaries and affiliates and each of
their respective officers, directors, shareholders and employees,
harmless from (i) liens, encumbrances, assessments, penalties, duties,
and fines of any United States or Mexican federal, state or local
agencies or offices, including any fees or other amounts due in
connection with all the Mexican and foreign employees of NORTHPORT or
SUBSIDIARY, with respect to any demand or suit for payment of wages,
fringe benefits, or any other amounts paid or incurred except as
otherwise specifically provided herein, (ii) any claims, damages, and
costs (including reasonable attorney s fees) made by employees of
NORTHPORT or SUBSIDIARY regarding personal injury and those made by any
other individuals (except employees of ETM) who may suffer injury at the
Premises or in Mexico (except for injury to the extent caused in whole
or partly by ETM) (a) and (iii) claims, damages and costs (including
reasonable attorney s fees) to the extent attributable to the prior,
present or future existence of Hazardous Substances on, in or near the
Premises.
The indemnity provided for hereunder shall include, but not be limited
to, any judgment, award, settlement, reasonable attorneys fees and
similar advisors, penalties, fines, and such other costs or expenses
incurred in connection with the defense of any actual or threatened
action, proceeding or claim.
ETM covenants and agrees to indemnify and hold NORTHPORT, its
subsidiaries and affiliates and each of their respective officers,
directors, shareholders, employees, subsidiaries and affiliates harmless
from and against any loss, expense, damage or injury suffered or
sustained by such persons by reason of the inaccuracy or breach of any
representation, warranty, covenant or agreement of ETM contained in this
Agreement, or (b) any acts, omissions or alleged acts or omissions by
ETM and/or ETM s employees or agents (other than NORTHPORT, SUBSIDIARY
or any of their respective agents) or otherwise arising out of ETM s
performance of this Agreement. without limiting the generality of the
foregoing, ETM covenants and agrees to indemnify and hold NORTHPORT, its
subsidiaries and affiliates and each of their respective officers,
directors, shareholders, employees, subsidiaries and affiliates harmless
from liens, encumbrances, assessments, penalties, duties, and fines of
any United States or Mexican federal, state or local agencies or
offices, including any fees or other amounts due in connection with all
employees of ETM, with respect to any demand or suit for payment of
wages, fringe benefits, or any other amounts paid or incurred except as
otherwise specifically provided herein, and further covenants and agrees
to indemnify and hold NORTHPORT, its officers, directors, shareholders,
employees, subsidiaries and affiliates harmless from any claims,
damages, and costs (including reasonable attorney s fees) made by ETM s
employees regarding personal injury and those made by any other
individuals (except employees of NORTHPORT) who may suffer injury at the
Premises or in Mexico (except for injury to the extent caused in whole
or in part by NORTHPORT).
The indemnity provided for hereunder shall include, but not be limited
to, any judgment, award, settlement, reasonable attorneys fees and
similar advisors, penalties, fines, and such other costs or expenses
incurred in connection with the defense of any actual or threatened
action, proceeding or claim.
22. FREE BAILMENT AGREEMENT.
ETM, as Bailor, will give by way of free bailment to NORTHPORT or to
NORTHPORT s subsidiary Gecamex, S.A. de C.V., as Bailee, the Goods and
Finished Products. The Bailment Agreement shall be executed in two
versions, one in English and the other in Spanish, substantially in the
form of Exhibits D1 and D2 attached hereto.
23. USE.
NORTHPORT warrants that the Goods, Equipment and finished Products to be
provided by ETM on bailment shall be used by NORTHPORT and SUBSIDIARY
solely for the performance of this Agreement.
24. OWNERSHIP AND MAINTENANCE.
The Goods and the Finished Products shall remain the sole property of
ETM and title thereto shall at all times remain in the name of ETM. All
equipment, machinery and tooling included in the Goods ( Equipment )
shall be returned to ETM, at ETM s expense, in the same condition as
originally received, except for normal wear and tear, as soon as
reasonably possible following written demand therefor or termination of
the Agreement. The Goods, Equipment and Finished Products shall at all
times be free and clear of all liens, encumbrances, security interests
and claims including, without limitation, any and all claims of
creditors of NORTHPORT or SUBSIDIARY and, as the case may be, of the
owner of the Premises and of the creditors of such owner and of the
claims of any governmental authorities or other persons or entities.
NORTHPORT agrees to provide maintenance and/or repairs on the Equipment
by qualified persons, if ETM so instructs. Save and except in those
circumstances where ETM directs NORTHPORT in writing to proceed with the
maintenance and/or repairs without meeting the following requirements,
NORTHPORT shall deliver to ETM a detailed written statement outlining
the maintenance and/or repairs to be performed and the cost thereof, and
NORTHPORT shall only commence performing such maintenance and/or repairs
once it has received ETM s written authorization. ETM shall reimburse
NORTHPORT for the cost of such maintenance and/or repairs, which cost
shall not exceed the amount set out in the above detailed written
statement, following ten (10) calendar days written notice, accompanied
by detailed invoices meeting all legal requirements. ETM agrees to
supply NORTHPORT with all spare parts needed to maintain the Equipment,
at ETM s sole cost and expense.
In no event shall NORTHPORT fail to return the Equipment within thirty
(30) calendar days written demand, except for cases in which such return
is not possible because of causes not attributable to NORTHPORT.
25. SHIPMENT AND TRANSPORTATION OF FINISHED PRODUCT.
NORTHPORT shall ship from the Premises all Finished Products that have
been approved by ETM s quality control personnel or NORTHPORT s quality
control personnel at the Premises, approved by ETM in writing, to the
designated location within Del Rio, Texas. All reasonable and necessary
expenses and fees related to the transportation of the Finished
Products, as described above, will be reimbursed by ETM to NORTHPORT,
within ten (10) calendar days following written notice of such
accompanied by detailed itemized receipts meeting all legal
requirements.
26. DEFECTIVE FINISHED PRODUCTS.
NORTHPORT shall ensure that the Finished Products meet the written
specifications of ETM and conform to the samples provided by ETM. In
the event NORTHPORT supplies Finished Products that do not comply with
ETM s written specifications and samples and such failure is
attributable to NORTHPORT and not ETM, at ETM s election, ETM may either
cause NORTHPORT to replace such at its sole cost and expense, as soon as
reasonably possible or reject such defective Finished Product and
receive an appropriate reduction in the amount of the shelter fee
payable pursuant to Article 16 of this Agreement. In no event shall
NORTHPORT be responsible for any defective Finished Products which were
inspected and approved by ETM s quality control personnel.
27. MEXICAN AND UNITED STATES FORMALITIES AND DUTIES.
NORTHPORT shall provide at its cost all documentation necessary or
required by the parties to export the Finished Products from Mexico and
import them into the United States. ETM shall be responsible for
reimbursing NORTHPORT for any United States duties assessed on the
Finished Products and for any United States or Mexican broker fees, any
Mexican export taxes, any additional United States government or other
fees. Any reasonable and necessary expenses shall be reimbursed by ETM,
following ten (10) calendar days written notice of such accompanied by
detailed invoices meeting all legal requirements. NORTHPORT shall be
solely responsible for handling exportation from Mexico and importation
into the United States, and shall be listed on all United States import
documentation as Importer of Record.
28. TERM.
This Agreement shall be effective for an initial term of sixty (60)
months commencing on the date hereof. Notwithstanding the foregoing in
this article, ETM shall have the option to buy out NORTHPORT at any time
after the expiration of the forty-eighth month from the date of this
Agreement provided that: (I) ETM notifies NORTHPORT in writing at least
one hundred eighty (180) calendar days prior to the date when ETM wants
to exercise this option; and (ii) ETM pays NORTHPORT a price based on
associated lease termination cost and employee severance cost not to
exceed U.S. $78,000.00 .
The term of this Agreement will automatically be extended for separate
consecutive one (1) year terms, under the same terms hereof, unless ETM
notifies NORTHPORT in writing at least one hundred eighty (180) calendar
days prior to the expiration of the initial term or an extension term,
as the case may be, of its desire to terminate this Agreement.
29. EXIT FEES.
Upon any termination of this Agreement, ETM shall be entitled to recover
its Equipment, Goods and Finished Products. ETM shall directly remove
the Goods, Equipment and Finished Products from the Premises or if
instructed by ETM in writing, NORTHPORT shall remove the Goods,
Equipment and Finished Products from the Premises for export or other
lawful disposition and ETM shall be solely liable for any costs
associated with removing the Goods Equipment and Finished Products from
the Premises, including damage to the Premises, arising from such
removal, as well as transportation, handling and other charges. Such
charges and costs shall be reimbursed by ETM to NORTHPORT, if incurred
by NORTHPORT, and provided that such charges and costs have been agreed
to in writing by ETM prior to their being incurred, following ten (10)
calendar days written notice of such, accompanied by detailed invoices
meeting all legal requirements and evidence of any such costs or
damages.
30. EARLY TERMINATION.
ETM may immediately terminate this Agreement without any responsibility
or liability of any kind, (I) if NORTHPORT files a petition for
bankruptcy or is placed in receivership, (ii) if the Premises are closed
for operation for more than sixty (60) working dates for any reason,
(iii) if the Premises are closed for operation for more than one hundred
twenty (120) working days because of acts of God or force majeure (in
cases of acts of God or force majeure, which result in the Premises
being closed for operation, within thirty (30) working days of such
occurrence, NORTHPORT will notify ETM as to whether or not it plans to
re-open the Premises for operation within such one hundred twenty (120)
working day period. If NORTHPORT is unable or decides not to re-open
the Premises within one hundred twenty (120) working days, ETM may
immediately terminate this Agreement). Failure by NORTHPORT to provide
the above mentioned notification within thirty (30) calendar days shall
constitute a material breach of this Agreement by NORTHPORT, and (iv) if
NORTHPORT or SUBSIDIARY commits a material breach of this Agreement or
if any of the representations and warranties of NORTHPORT or SUBSIDIARY
were inaccurate when made or become inaccurate during the term of this
Agreement or during any renewal hereof (v) if a dispute or disagreement
pursuant to Article 14 will result in ETM s Goods, Equipment or Finished
Products being subject to seizure or liens, mortgages, attachments or
encumbrances of any nature or which will in any way delay or interfere
with the manufacture and assembly of the Finished Products, and (vi) if
the quality or quantity of the Finished Products produced is not
acceptable to ETM in its sole reasonable discretion. In those
circumstances where NORTHPORT commits a material breach and ETM
terminates this Agreement, ETM s termination of this Agreement shall in
no way prejudice its right to pursue any other legal or equitable
relief.
NORTHPORT may immediately terminate this Agreement without any
responsibility to ETM, (i) if ETM files a petition for bankruptcy or is
placed in receivership, or (ii) if ETM commits a material breach of this
Agreement. In those circumstances where NORTHPORT terminates this
Agreement, NORTHPORT s termination of this Agreement shall in no way
prejudice its right to pursue any other legal or equitable relief.
In the event this Agreement is terminated for any cause attributable to
ETM, ETM warrants and agrees that it will pay NORTHPORT in full and
complete satisfaction of any and all claims of NORTHPORT or SUBSIDIARY
related to such termination, a compensatory fee based on associated
lease termination cost, employees severance cost and payment of all
outstanding invoices.
31. RELATIONSHIP BETWEEN THE PARTIES.
NORTHPORT and SUBSIDIARY shall act at all times as independent
contractors and not as a partners, joint venturers, subsidiaries,
affiliates, agents or employees of ETM or any of its affiliates.
32. CHANGE IN OWNERSHIP.
In the event the ownership of ETM, NORTHPORT or SUBSIDIARY changes, the
other party shall receive written notice of such change in ownership
structure within ten (10) calendar days of such. Furthermore, if the
affected party determines that such change in ownership structure may
jeopardize fulfillment of the terms of this Agreement, said party may
consider such change in ownership structure a material breach as
described in Article 30 hereof. Notwithstanding anything contained in
this Article 32 to the contrary, a change in the ownership structure of
ETM, NORTHPORT or SUBSIDIARY shall only give rise to NORTHPORT s or
SUBSIDIARY s or ETM s right to consider such a change a material breach,
if such change in ownership results in a change in ownership of more
than 30% of the issued and outstanding voting securities of ETM or
NORTHPORT or SUBSIDIARY.
NORTHPORT represents and warrants to ETM that the person who execute
this Agreement on behalf of NORTHPORT and SUBSIDIARY have sufficient
authority and such authority has not been restricted, limited or revoked
as evidenced in the certificates issued by the respective Secretaries of
such corporations attached as Exhibits E1
ETM represents and warrants to NORTHPORT that the person who execute
this Agreement on behalf of ETM have sufficient authority and such authority
has not been restricted, limited or revoked as evidenced in the certificate
issued by the Secretary of ETM attached hereto as Exhibit F.
33. CONFIDENTIALITY.
Confidential information shall mean all information disclosed by ETM or
its agents, employees or representatives to NORTHPORT or SUBSIDIARY,
including but not limited to, ETM s products in production or in
development, manufacturing processes, customers, procedures, suppliers
and any other information in connection with ETM s business. Without
limiting the foregoing, confidential information includes, but is not
limited to: that information embodied in disclosures made by ETM or its
agents, employees or representatives, that which is embodied in ETM s
items delivered to NORTHPORT or SUBSIDIARY pursuant to Article 23, that
information which is embodied in ETM s samples and documentation
wheresoever created or by ETM in conjunction with the production of
ETM s Finished Products.
Without limiting the foregoing, information disclosed to NORTHPORT or
SUBSIDIARY, whether orally, visually, in writing or by way of any other
process and all products, drawings, documents, specifications and
samples supplied by ETM or its agents, employees or representatives is
considered Confidential, whether labeled as such or not.
NORTHPORT and SUBSIDIARY acknowledges that failure to keep the above-
noted confidential information confidential will be highly prejudicial
to ETM, and NORTHPORT and SUBSIDIARY shall therefore take all
precautions to keep in confidence and prevent the unauthorized
disclosing of any such confidential information and without limiting the
foregoing, NORTHPORT and SUBSIDIARY shall hold all confidential
information as defined herein in trust and confidence of ETM and,
NORTHPORT and SUBSIDIARY shall not disclose to any person or entity or
use such confidential information for any purpose other than for the
purposes contemplated under this Agreement. The obligation set out in
this Article 34 to keep the confidential information confidential shall
remain in effect during the initial term of this Agreement and any
renewal hereof and shall continue for a period of ten (10) years
following the date of termination of this Agreement.
All confidential information as defined herein is and shall remain the
property of ETM. NORTHPORT and SUBSIDIARY shall not disclose
confidential information defined herein to third parties without written
consent by ETM. NORTHPORT and SUBSIDIARY may not remove from its proper
location and/or duplicate confidential information as defined herein
without written consent by ETM.
The breach of this Article by NORTHPORT or SUBSIDIARY, during the term
of this Agreement or any renewal hereof, constitutes a material breach.
The exercise by ETM of its right to terminate this Agreement shall in no
way prejudice ETM s right to pursue any other legal or equitable
remedies.
Notwithstanding the aforesaid, the term confidential information shall
not apply to any information which might otherwise be so deemed but which:
a. is or becomes part of the public domain before, on or after the
date of this Agreement (other than as a result of the breach of this Agreement
by any of the parties hereto);
b. is properly ordered to be disclosed or released by any court of
competent jurisdiction or other administrative, judicial or quasi-judicial
tribunal; or
c. has been independently acquired from a party not subject to a
confidentiality agreement with the party who allegedly violates its
confidentiality obligation or developed by such party without violating its
respective obligations under this Agreement and without the use of
confidential information which can be substantiated by said party.
Neither NORTHPORT nor SUBSIDIARY will conduct any tours of the Premises
without the prior written consent of ETM nor permit any person not
specifically authorized in writing by ETM to attend at any time on the
Premises. Notwithstanding the foregoing, ETM understands that the owner of
the Premises and properly authorized governmental authorities may from time to
time be provided access to the Premises, with the consent of ETM.
34. MARKINGS.
ETM agrees to promptly inform NORTHPORT of changes in applicable laws
related to labeling, or marking of which it becomes aware. NORTHPORT
and SUBSIDIARY agree to promptly inform ETM of changes in applicable
laws related to labeling, or marking of which it becomes aware.
35. NOTICES.
All notices, demands, invoices and requests required under this
Agreement shall be in writing, and shall be properly given if (I) served
personally, (ii) send via overnight courier or (iii) send via facsimile,
addressed to the respective party as the case may be, at the respective
address set out in this Agreement or such other address as any party may
in writing advise. Notwithstanding the foregoing, any notices sent via
facsimile shall be followed by notice sent as set forth above but shall
be effective as of the date sent via facsimile. Until the parties shall
designate another address, their addresses shall be as follows:
to ETM, INC. ETM, Inc.
ETM S.A. de C.V.
Seemenbachstrasse 26a
63688 Gedern
Germany
Telephone 011 49 6045 951240
Fasimile 011 49 6045 4971
Attention: Mr.Manfred Boguslawski
To NORTHPORT or SUBSIDIARY: NORTHPORT INDUSTRIES, INC.
P.O. Box 1428
Spur 239 & Alderete Rd.
Del Rio, Texas 78840
Telephone: (830) 775-0734
Facsimile: (830) 775-9575
Attention: Mr. Robert Michelini
36. ASSIGNMENT.
This Agreement shall not be assigned by either party without the prior
written consent of the other. Subject to the foregoing, this Agreement
shall inure to the benefit of and bind the parties hereto and their
respective successors and assigns. Any attempted assignment or other
transfer contrary hereto shall be void.
37. CONFLICT OF TERMS.
Except for amendments to this agreement complying with Article 39
hereof, in the event of any conflict between the terms and conditions of
this Agreement and the terms and conditions contained in any other
document issued by ETM or NORTHPORT or SUBSIDIARY, the terms and
conditions of this Agreement shall prevail.
38. ENTIRE AGREEMENT.
This Agreement, together with the Exhibits attached hereto, constitute
the entire understanding of the parties on the subject matter hereof,
supersedes all prior writings and understandings, and may not be
modified or amended except by a writing duly executed by authorized
representatives of the parties. No modification of the terms and
conditions hereof shall be effected by the acknowledgment or acceptance
of documents containing additional or different terms and conditions.
39. WAIVER MUST BE IN WRITING.
No waiver of any of the provisions hereof shall be effective unless in
writing and signed by both parties and no waiver made shall bind either
party to a waiver of any succeeding breach of the same or any other
provisions hereof.
40. HEADINGS.
The Article headings used in this Agreement have been inserted for
convenience of reference only and do not affect the meaning or
interpretation of this Agreement.
41. SEVERABILITY.
The eventual invalidity of any clause of this Agreement shall not affect
the validity of the remaining provisions hereof which shall be construed
when possible in such a way that the purpose of this Agreement, as
intended by the parties, can be achieved in a lawful manner.
42. COUNTERPARTS.
This Agreement may be executed in any number of written counterparts,
each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
43. APPLICABLE LAW AND JURISDICTION.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND THE UNITED STATES OF AMERICA.
44. CONTROL BY ETM.
Notwithstanding anything contained in this Agreement to the contrary,
all matters relating directly or indirectly to the Finished Products and
the Goods, including without limitation, the manufacturing and
assembling, packaging, shipping, transporting and insuring of the
Finished Goods and the use of the Equipment shall be subject to the
absolute control of ETM. In all circumstances, to the extent possible,
and as long as such do not conflict with the terms of this Agreement,
all reasonable and legal directions and instructions issued by ETM shall
be immediately implemented and followed by NORTHPORT. Any and all duly
authorized representatives of ETM shall at all times have unrestricted
access to the Premises and the right to inspect and evaluate all aspects
of the manufacture and assembly of the Finished Products.
Northport Industries, Inc. ETM.
By: By:
Robert L. Michelini Manfred Boguslawski
Its: President Its: President
Date: Date:
