U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended DECEMBER 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission file number: 0-5887
RTI INC.
(Name of small business issuer in its charter)
NEW YORK 11-2163152
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
108 LAKE DENMARK ROAD, ROCKAWAY, NEW JERSEY 07866
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (203) 656-1004
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.08 PAR VALUE
(Title of Class)
Check whether the issuer (l) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year - $122,129.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
Approximately $3,173,400, based on the published sale price ($3-3/8) on The
Nasdaq Small-Cap Market on March 24, 1997.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
As of March 21, 1997 - 1,336,166 shares.
Documents Incorporated by Reference: None.
Transitional Small Business Disclosure Format. Yes [ ] No [ X ]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
RTI Inc., a New York corporation ("RTI"), was incorporated in August 1968.
Since February 24, 1997, RTI, through its wholly-owned Delaware subsidiary,
Refrigeration Technology Inc. ("RefTech"; and collectively with RTI the
"Company"), has been engaged in the manufacture and sale of evaporative coolers,
commercial heat exchange modules and high-efficiency, water-cooled central air
conditioners (collectively, the "Coolant Business") as a result of the
acquisition of the business and operations of Quality Air, Inc. See "Acquisition
of QAI." Prior to August 8, 1996, the Company was engaged in the contract
irradiation business and owned and operated two irradiation facilities in New
Jersey and one irradiation facility in North Carolina.
SALE OF IRRADIATION OPERATIONS
On August 8, 1996, the Company consummated a transaction (the "SteriGenics
Transaction") with SteriGenics International ("SteriGenics"), pursuant to which,
among other things, SteriGenics acquired substantially all the operating assets
of the Company, other than cash and cash equivalents and the Company's Rockaway,
New Jersey property and the irradiation facility located thereon, and assumed
substantially all of the liabilities of the Company (other than liabilities
(including environmental liabilities) related to the Rockaway property and
liabilities to certain affiliates of the Company), for aggregate consideration
of approximately $4,600,000 (substantially representing the book value of the
purchased assets less the book value of the assumed liabilities). In addition,
SteriGenics leased approximately 62 acres of the Rockaway property, which
includes the Rockaway facility, pursuant to a six year lease expiring in 2002.
See Item 2 - "Description of Properties". In contemplation of the consummation
of the SteriGenics Transaction, the Company sold SteriGenics 118,000 shares of
Series A Preferred Stock for $236,000 in cash, which preferred stock was
surrendered in payment of a portion of the purchase price. Upon consummation of
the SteriGenics Transaction, the Company ceased its contract irradiation
business.
ACQUISITION OF QAI
On February 24, 1997 (the "Closing"), the Company consummated the
transactions (the "QAI Transaction") contemplated by the agreement (the
"Acquisition Agreement"), dated as of February 24, 1997, among (i) RefTech, (ii)
Quality Air, Inc., a New Mexico corporation ("QAI"), and (iii) Rick E. Bacchus,
Rockney D. Bacchus, Ronald A. Bacchus, Margie J. Bacchus, Philis Bacchus and
Opal Simmons, the officers and principal owners of QAI, pursuant to which, among
other things, Reftech purchased the business and substantially all of its assets
of QAI. QAI, commencing in January 1996, was a manufacturer of evaporative
coolers and commercial heat exchanger manufactured in Sunland Park, New Mexico
and, through an affiliated Mexican company, Industrias QAI, S.A. de C.V.
("Industrias QAI"), in Ciudad Juarez, Mexico. In addition, QAI had developed,
but not yet manufactured, a high-efficiency, residential central air
conditioner. QAI was the successor to certain business and operations of Bacchus
Industries, Inc. ("BII"), an affiliated company, which had been engaged in the
air coolant business from 1977 until September 1995. See "Company Products."
In accordance with the terms of the QAI Transaction, at the Closing,
RefTech delivered to QAI 235,000 shares of the Company's common stock, par value
$.08 per share ("Common Stock"), 50,000 shares of which are being held in escrow
for purposes of covering claims of RefTech which may arise under the
indemnification provisions of the Acquisition Agreement. In addition, RefTech
has agreed to deliver to QAI (i) an additional 100,000 shares of Common Stock,
if and when the Company's pre-tax fiscal year earnings from operations exceed
$800,000, and (ii) an additional 125,000 shares of Common Stock, if and when
such earnings exceed $1,200,000; provided, however, that such events occur prior
to January 1, 2002.
In the QAI Transaction, RefTech acquired substantially all of the tangible
and intangible assets of QAI. The tangible assets of QAI, as of January 31, 1997
(unaudited), consisted primarily of approximately (i) $302,000 of inventory (a
portion of which was at Industrias QAI), (ii) $159,000 of furniture, equipment
and vehicles, (iii) $223,000 of loans to, and receivables from, Industrias QAI,
(iv) $268,000 of third party receivables, and (v) $45,000 of cash. The
intangible assets of QAI, in addition to good will, consisted primarily of
know-how and a
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pending U.S. patent application, which had been assigned to QAI by Rockney D.
Bacchus, relating to high efficiency central air conditioners. In the QAI
Transaction, RefTech assumed certain specified liabilities of QAI, consisting of
QAI's (i) indebtedness to the Company aggregating $670,000 plus accrued
interest, which was incurred by QAI prior to its December 1996 letter of intent
with the Company, (ii) indebtedness to Theo W. Muller, Chief Executive Officer
and Chairman of the Company, and his affiliated companies aggregating $870,000
plus accrued interest, which loans were made in contemplation of, and to
facilitate, the Closing, (iii) QAI purchase commitments incurred in the ordinary
course of QAI's business for inventories, supplies and services aggregating
approximately $1,300,000, and (iv) other QAI scheduled liabilities incurred in
the ordinary course of QAI's business aggregating approximately $45,000.
As part of the QAI Transaction, on February 19, 1997, RefTech entered into
a sale and purchase agreement with Industrias QAI and its two nominal
shareholders, Opal Simmons and Robert Given (the "Industrias QAI Agreement"),
pursuant to which RefTech agreed to acquire, and was given the right to acquire,
either the capital stock of Industrias QAI or the business and assets of
Industrias QAI, at RefTech's election at any time on or before April 20, 1997.
RefTech paid no additional consideration for its rights under the Industrias QAI
Agreement. The purchase price to be paid upon closing of the Industrias QAI
Agreement will be the higher of the book value of the capital stock of
Industrias QAI (which had a deficit book value of approximately $12,000
(unaudited) as of January 31, 1997) or 1,000 Mexican pesos. RefTech, as of March
15, 1997, has not yet determined whether it will acquire the capital stock or
the assets of Industrias QAI; until the closing under the QAI Agreement, RefTech
has the exclusive authority to manage Industrias QAI, whose only customer had
been QAI. See "Impact of Mexican Operations".
Prior to the Closing, the Company amended its By-Laws to provide that the
Company's Chairman (currently Theo W. Muller) is to be the Company's Chief
Executive Officer. Effective at the Closing, (i) the Company elected Rick E.
Bacchus as President of the Company and Rockney D. Bacchus and Ronald A. Bacchus
as Vice Presidents of the Company, and (ii) each of such persons (collectively
the "QAI Principals") entered into five-year employment agreements with RefTech
(the "Employment Agreements"), pursuant to which Rick E. Bacchus was appointed
President of RefTech (reporting to RefTech's Chairman and Chief Executive
Officer, currently Theo W. Muller), Rockney D. Bacchus was appointed Vice
President - Development of RefTech and Ronald A. Bacchus was appointed Vice
President - Manufacturing of RefTech. See Item 10 "Executive Compensation". The
Acquisition Agreement provides that, during the period through December 31,
2001, the QAI Principals, as a group, have the non-assignable right to nominate
three of the seven directors constituting the Company's Board of Directors. See
Item 9 - "Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act." RefTech (i) has agreed to
lend up to an aggregate of $240,000 to the QAI Principals, and (ii) has the
right to purchase from BII certain equipment and vehicles previously leased to
QAI for an amount equal to their fair market value. See Item 12 - "Certain
Relationships and Related Transactions". RefTech is leasing from BII the factory
building in Sunland Park, New Mexico, which had been occupied by QAI. See Item 2
- - "Description of Properties."
INDUSTRY BACKGROUND
EVAPORATIVE COOLERS. Evaporative coolers operate by forcing air through a
water saturated filter media. Although the technology of cooling by evaporation
is mature, the efficiency of an evaporative cooler is determined by, among other
things, the thickness and type of filter media used, the amount of air which can
be forced through the filter media and the surface area of the filter media from
which water can be evaporated into the surrounding air. Evaporative coolers do
not have refrigeration units and are limited in the amount by which they can
cool; however, in an arid climate evaporative coolers can be up to 70% more
efficient than traditional refrigerated air conditioning. The market for
evaporative coolers in the United States, which is concentrated in the arid
areas of the Southwest, is seasonal and totals over $100 million annually. Over
75% of the market consists of replacement units, which are generally purchased
by the homeowners in retail home centers and hardware and building supply
stores. The largest retailers are serviced directly by manufacturers, while
smaller retailers buy from distributors. The remainder of the market, generally
serviced by distributors, consists of HVAC and plumbing contractors, and
includes new construction, home building and manufactured housing.
HEAT EXCHANGERS. Heat exchangers are utilized primarily for heat recovery
from systems which generate heat, to enable the heat energy to be recycled. In a
heat exchanger, the heat is transferred from one medium (either a liquid or a
gas mixture, such as air) to another medium (either
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a liquid or a gas mixture), without such mediums coming into direct contact with
each other. Heat exchangers are used for, among other things, recycling heat
generated from an air conditioning system to other uses within a building where
higher temperatures are needed. The market for heat exchangers historically has
been small and undeveloped because of the high initial cost of the product.
However, compliance with more stringent requirements of state indoor air quality
ventilation codes, based on American Society of Heating, Refrigeration and
Air-Conditioning Engineers, Inc. ("ASHRAE(R)") standard 62 - "Ventilation for
Acceptable Indoor Air Quality", has broadened the market for the product.
CENTRAL AIR CONDITIONERS. The market for residential central air
conditioning equipment is close to 5.5 million units per year, including both
new construction and replacement demand. Central air conditioning had been in
common use for many years and the products have been standardized around
accepted performance standards, using air as cooling medium. Standard tests used
to establish performance, expressed as an "energy efficiency rating ("EER") or
as a seasonal energy efficiency rating ("SEER") are certified by the Air
Conditioning and Refrigeration Institute ("ARI"), an industry association. In
1992, the U.S. government mandated a minimum SEER of 10 for residential central
air conditioning units. Residential central air conditioners generally have a
EER of 9 to 11 and a SEER of 10 to 13. See "Government Regulations".
COMPANY PRODUCTS
EVAPORATIVE COOLERS. Most evaporative coolers are manufactured with a
square or rectangular exterior housing, due to the difficulty in manufacturing
and assembling an exterior housing of a different shape. However, a circular
exterior housing, while more difficult to produce, is more energy efficient
since it has a larger exterior evaporative surface for the area which it
occupies. The Company's AIREZE(TM) cooler utilizes a round reinforced fiberglass
cabinet. While less cosmetically attractive, the fiberglass housing, unlike
metal, is rust-free and the circular nature of the housing allows greater air
flow, resulting in more efficient air cooling. The Company provides a
fifteen-year guarantee on the AIREZE cooler's fiberglass cabinet, as compared to
a five-year guarantee typically given by manufacturers of other coolers.
The AIREZE cooler has been continuously marketed since 1978, initially by
BII until September 1995 and from January 1996 until the Closing by QAI. QAI and
BII had been marketing the AIREZE cooler primarily for new construction,
including factory-built homes, and had an insignificant share of the evaporative
cooler market. Sales of AIREZE coolers were approximately $2,000,000 during the
year ended December 31, 1996, with no single customer accounting for more than
10% of sales.
During 1997, the Company intends to target certain large retail home
centers and building supply and hardware stores as a new distribution channel.
However, the Company has no experience in marketing its products to retail
outlets, some of whom have special problems, such as inadequate working capital
which may affect their ability to timely pay for their purchases from the
Company and could require the Company to grant extended credit terms.
Furthermore, and irrespective of the contracted payment terms negotiated, many
retail outlets do not pay for their merchandise unless and until such
merchandise "sells through" to the consumer. As a result, there can be no
assurance that such strategy will be successful or will result in increased
sales of AIREZE coolers.
HEAT EXCHANGERS. The heat exchanger built by the Company, primarily sold
under the E2PAK(TM) trade name, are custom made and are used to retrofit
sub-assemblies used in commercial and industrial large central air conditioning
units to give them improved or specialized performance such as increased energy
recovery. To date, the Company has sold the E2PAK only to two specialized
contractors, Spec-Air and Cannon Fabrication Inc., for inclusion by such
contractors in large commercial Carrier, Trane and McQuay installations. See
"Manufacturing."
The Company believes that the E2PAK has a lower initial cost and higher
performance than other similar heat exchangers, but the Company has not yet
initiated any program to expand sales beyond its two present customers, and
there can be no assurance as to when, if ever, that the Company will be
successful in expanding such sales. Sales of E2PAK units by QAI aggregated
$648,000 in 1996.
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CENTRAL AIR CONDITIONERS. QAI completed development of its AC2(TM), a
water cooled central air conditioner, in 1996 and the Company anticipates
commencing manufacture in limited quantities by the beginning of April 1997. The
Company has not yet received energy efficiency ratings for its AC2 unit, but
expects that the AC2 may receive an EER rating of 15; however, there can be no
assurance that it will be as high as the Company expects. See "Government
Regulations".
Unlike traditional central air conditioners, the condenser coils of which
are air cooled, the condenser coils in the AC2 air conditioner, using technology
for which the Company has a pending patent application, are water cooled,
requiring the connection of a separate water line which requires installation by
a plumber. As a result of the lack of product and brand name recognition and
suggested additional annual maintenance, including cleaning of the water medium,
the Company expects to initially encounter market resistance from builders and
homeowners, and there can be no assurance that the AC2 will gain sufficient
market acceptance to generate significant sales within a reasonable period, if
at all.
The Company recently began marketing the AC2, mainly through distributors,
who are marketing the AC2 to "authorized" dealers. As the design of the AC2 is
different from other available central air conditioning equipment, the Company
is requiring air conditioning contractors desiring to become "authorized" AC2
dealers to attend a one-day installation class at the Company's Sunland Park,
New Mexico facility.
QAI had sold a central air conditioner and related heat pump using
unpatented technology (related to the technology in the AC2) under the
EVAPCON(TM) trade name; however, sales of this product were not significant, and
the Company currently does not intend to emphasize this product line.
The Company's personnel have limited sales, marketing and distribution
experience with central air conditioners. The introduction of the AC2 will
require certain sales, marketing and distribution capabilities, some of which
the Company does not currently possess, and there can be no assurance that the
Company will be able to establish a sales and marketing capability which would
be successful in gaining market acceptance for the AC2. The Company is devoting
a material portion of its available resources to the commercialization of the
AC2, and failure of the Company to establish the necessary sales, marketing and
distribution network for the AC2 will have a material adverse effect on the
Company's financial condition.
MARKETING
The Company markets its products mainly through independent manufacturers'
representatives and, in the New Mexico and Western Texas markets, through a
newly organized sales force. As of March 21, 1997, the Company employed three
full time sales persons, and had eight independent manufacturers'
representatives covering the western and southwestern United States.
The Company offers a limited warranty on its manufactured fiberglass
enclosures and housings for 15 years, on its purchased compressors and condenser
coils for five years and on the other components in its products for one year.
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BACKLOG AND SEASONALITY
The market for evaporative coolers and, to a slightly lesser extent, for
air conditioners is highly seasonal. Backlogs for these products are limited, as
they are shipped from stock upon demand. When these units are shipped out of
season to distributors, the industry generally defers the payment obligations
therefor to the beginning of the following cooling and air conditioning season.
Although the Company obtains written purchase commitments from its "authorized"
AC2 dealers before they are allowed to enroll in the Company's required AC2
installation class, the Company does not consider such commitments to be firm
purchase orders and such commitments are not considered as backlog. As of March
21, 1997, backlog for the AIREZE evaporative cooler and the EVAPCON air
conditioner was approximately $593,000 and $76,000, respectively, and the
Company did not have any material backlog for the AC2 air conditioner. The E2PAK
is less seasonal and, contrary to the Company's residential products, these
units are made to order. As of March 21, 1997, the E2PAK backlog was
approximately $160,000.
MANUFACTURING
The Company manufactures all fiberglass components, such as the
enclosures for the AC2, as well as the entire AIREZE evaporative cooler in its
Ciudad Juarez, Mexico facility. Manufacturing operations include fiberglass
spray up molding to manufacture tops, bases and blower housings, and fiberglass
weaving to manufacture pad frames for the AC2 and AIREZE. Final assembly of
purchased motors, pumps and other components, with manufactured molded parts and
complete fiberglass baskets, for the AIREZE also takes place in this facility.
As of March 21, 1997, this facility had a combined production capacity of
approximately 120 enclosures and/or AIREZE evaporative coolers per day.
The thermoforming and assembly of louvers for all of the Company's
residential products, as well as the manufacturing of the E2PAK, is performed at
the Company's Sunland Park, New Mexico facility. As of March 21, 1997,
production capacity was approximately 90 louvers and 20 feet of E2PAK heat
exchanger plates per shift.
The assembly of purchased motors, pumps and other components, with
manufactured enclosures and housings, for the AC2 will be performed at the
Company's facility in Westway, Texas. The Company expects that, after completion
of the start-up phase at this faility, its production capacity will be 100 units
per day.
The equipment used by the Company for the manufacture of its E2PAK was sold
by BII to Spec-Air in 1994, and leased back to BII pursuant to a 5 year lease
expiring in October 1998, which lease is expected to be assigned by BII to the
Company in connection with the QAI Transaction. Until the Company is assigned
the lease, the Company is making the payments thereunder and BII is permitting
the Company to use the leased equipment. The lease requires annual payments of
$48,010 and gives the lessee the first right to purchase the equipment if
Spec-Air determines to sell or relocate the equipment. In accordance with the
lease, Spec-Air (which is the Company's largest customer) has the first right to
purchase all E2PAK units manufactured by the Company, and the Company is
required to deliver a minimum number of such units to Spec-Air monthly. The
lessee is required to repay to Spec-Air one-half of the purchase price of each
unit purchased by Spec-Air until such payments aggregate $100,000, which amount
is to be held by Spec-Air as a non-refundable deposit against the purchase price
for the equipment if the lessee exercises its right to purchase the equipment.
The lease also requires the lessee to pay Spec-Air a royalty on all E2PAK units
sold by the Company to third parties and requires that any such sales be at a
price at least 25% in excess of the price that the units are sold to Spec-Air.
QAI, prior to the sale of its business to the Company, operated at a loss
and had limited production volume; and there can be no assurance that the
Company will be able to make the transition to the higher production volumes
needed for commercial success with acceptable profit margins. In addition, and
since the Company is only beginning to manufacture the AC2, there can be no
assurance that unforeseen technical or other difficulties will not arise which
could interfere with the manufacture of such product.
SOURCES OF SUPPLY
The fiberglass and resin raw materials used in all of the Company's
products, as well as the copper coils
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used in the AC2, are commodity products that have historically been readily
available from multiple suppliers. However, the Company relies on a small number
of manufacturers for the motors, pumps and air compressors which it uses, and
has not had a long standing relationship with any of such manufacturers. In
addition, some of these components have long lead order times and shortages
could develop, which could hamper the ability of the Company to produce its
products, particularly the AC2, which would have a material adverse effect on
the Company's operations.
COMPETITION
In the evaporative cooler market, the Company believes that the principal
competitive factors are appearance, brand name recognition, efficiency and
price. The Company is attempting to compete on the basis of efficiency and
price. The Company's competitors include three metal enclosed evaporative cooler
manufacturers, Adobe Air Inc., Champion/Essick and Phoenix Manufacturing, and
one plastic enclosed evaporative cooler manufacturer, Tradewinds, which
competitors collectively control approximately 95% of the U.S. evaporative
cooler market and all of whom have significantly greater financial,
manufacturing and marketing resources than the Company and benefit from greater
market recognition.
In the heat exchanger market, the Company believes that the principal
competitive factors are efficiency and price. However, as the Company units are
custom made and sold only to two customers, the Company does not have reliable
information as to the competitive factors which are relevant to this product
line.
The air conditioning industry is highly competitive and the Company
believes that the principal competitive factors in the central air conditioning
market are price, brand recognition and energy efficiency ratings. The Company's
major competitors included Carrier, Rheem/Ruud, Goodman (Janitrol), Trane,
Lennox and York/Coleman, each of which has a 10% or higher market share. All of
the Company's competitors have substantially greater manufacturing, marketing
and financial resources than the Company and benefit from greater market
recognition. In addition, since the AC2 is technically distinct from the
equipment offered by all of the Company's competitors, there is no assurance
that the AC2 will be accepted by the marketplace.
PATENTS AND TRADEMARKS
The AIREZE evaporative cooler and the E2PAK heat exchanger each embody a
U.S. patent owned by the Company. The Company has a patent pending on the AC2
air conditioner, but there can be no assurance that the Company's patent
applications will result in any issued patent. Due to changes in technology, the
Company contemplates that alternative technological solutions may be devised to
accomplish the purposes of its patents, but that such patents may offer
short-term protection from third parties. There can be no assurance that other
parties have not applied for or will not obtain patents under which the Company
would need to be granted a license or around which the Company would be forced
to redesign its products. The Company seeks to protect its intellectual property
rights through a combination of trade secret, nondisclosure and other
contractual arrangements, and patent, copyright and trademark laws. The Company
generally enters into confidentiality agreements with its employees,
consultants, and sales representatives and limits access to and distribution of
its proprietary information; however, there can be no assurance that these
actions will be adequate to deter misappropriation of the Company's proprietary
information, or that the Company will be able to detect unauthorized use of its
intellectual property rights, or that the Company can afford the high cost
required to enforce its intellectual property rights. Furthermore, there can be
no assurance that a claim that the Company's products infringe on the
intellectual property rights of others will not be asserted successfully against
the Company in the future.
GOVERNMENT REGULATIONS
Various federal and state statutes, including the National Appliance
Energy Conservation Act of 1987 (which superseded certain then existing state
requirements) and the Energy Policy Act of 1992, impose energy efficiency
standards for certain of the Company's products. Although the Company products
are believed to meet or exceed such standards to date, stricter standards in the
future could require substantial research and development expense and capital
expenditures to maintain compliance. If the Company is unable to maintain
compliance or if it otherwise determines that the cost of compliance is too
expensive, it may be required to discontinue some or all of
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the affected products, which could have a material adverse effect on the
Company.
The Company's AC2 utilizes HCFCs as its refrigerant. HCFCs currently are
an acceptable substitute for CFC refrigerants, which have a more harmful effect
on the environment and are being phased out of use. The Company does not expect
that requirements to ultimately phase out HCFCs will have a material adverse
effect on its operations, since it believes that acceptable substitutes are
being developed by third parties which will be commercially available to the
Company.
EMPLOYEES
As of March 21, 1997, the Company had 143 employees (including 114 persons
employed by Industrias QAI), of whom 121 were hourly employees. None of the
Company's employees are represented by a labor union, and the Company believes
that its employee relations are good.
IMPACT OF MEXICAN OPERATIONS
The Company currently is managing Industrias QAI (a Mexican company, all
of whose operations are conducted in Mexico) and, as part of the QAI
Transaction, will purchase either the capital stock or the business and assets
of Industrias QAI on or before April 20, 1997. See "Acquisition of QAI".
Industrias QAI, as of March 21, 1997, had 114 employees and manufactures all
fiberglass enclosures and housings used by the Company, as well as the Company's
AIREZE evaporative cooler, in its Ciudad Juarez, Mexico facility. The ability to
have manufacturing operations in Mexico is a critical component of the Company's
current business plan. See "Manufacturing" and Item 2 - "Description of
Properties". Accordingly, any event which has a material adverse impact on the
operations of Industrias QAI should be expected to have a material adverse
impact on the operations of the Company as a whole.
Industrias QAI operates as a "maquiladora" under the Mexican government's
Border Industrialization Program. A maquiladora is a company formed to assemble
components into finished products or to carry out particular labor-intensive
manufacturing operations, primarily for export, and are normally formed to take
advantage of the inexpensive labor available in Mexico. Under the program,
machinery, equipment, parts, raw materials and other components are allowed to
be imported duty-free into Mexico, provided that they are used in the assembly
or manufacture of semi-finished or finished products for export. In addition,
under current U.S. law, the Company does not pay any import duties on finished
goods shipped to it by Industrias QAI.
Substantially all of the cost of operations and operating expenses of
Industrias QAI, which constitute more than an insignificant percentage of the
Company's total cost of operations and operating expenses, are peso-denominated.
The Company does not use foreign currency forward contracts to offset exposure
to U.S. dollar/Mexican peso exchange rates and, as a result, any significant
appreciation of the peso against the dollar would have an adverse effect on the
Company's operating results. Although there have been significant fluctuations
in the U.S. dollar/Mexican peso exchange rate, the Company does not expect the
peso to appreciate significantly against the dollar in the near term.
Pursuant to Mexican Federal Labor Law, employees who have served
Industrias QAI for 15 years of more and who voluntarily end their association
with it (whether upon retirement or otherwise) are entitled to a one-time
seniority-based payment currently equal to three months' salary plus 20 days
salary multiplied by the number of years of service. Industrias QAI, which has
been in existence for less than two years, has not yet established any accrual
for such liability, based on its estimate that any such liability, given its
historic employee turn-over rates, would not be material. Mexican law also
requires certain other payments to be made to employees in the event of
dismissal without serious cause, disability or death. Mexican companies also are
required to set aside for their employees a share in "business profits" based
upon net income; however, Industrias QAI, which had taxable income in 1996 of
407,816 pesos ($54,343), was not subject to employee profit sharing in 1996.
Over the last few years, a program of reform has begun to modify the
nature of the Mexican government's role in the Mexican economy. Nevertheless,
the Mexican government continues to exercise significant influence over many
aspects of the Mexican economy. Accordingly, Mexican government actions
concerning the economy could have significant effects on private sector
entities, including Industrias QAI. The Company cannot assure that
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future Mexican governmental actions or future developments in the Mexican
economy, including a continued slowdown of the Mexican economy or the
development of any social unrest, over which the Company has no control, will
not impair the operations of Industrias QAI or the operations and financial
condition of the Company.
Pursuant to temporary regulations issued by Mexican tax authorities in
March 1995, the Company's Mexican assets may be subject to tax, if the Company
does not comply with certain transfer pricing criteria. The Company believes
that QAI previously was in compliance with such rules and that the Company,
since the QAI Transaction, has been in compliance with such rules. In the event
that the Company is found to be in non-compliance, imposition of such tax could
have a material averse effect on the Company.
In 1993, Mexico, the United States and Canada approved the North American
Free Trade Agreement ("NAFTA"). NAFTA has, among other things, removed and will
continue to remove, over a transition period, most normal customs duties imposed
on goods traded among the three countries. In addition, NAFTA will remove or
limit many investment restrictions, liberalize trade in services, provide a
specialized means for settlement of, and remedies for, trade disputes arising
under NAFTA, and will result in new laws and regulations to further these goals.
With the enactment of NAFTA, the MAQUILADORAS program is expected to be phased
out. It is uncertain what ultimate effect, if any, NAFTA will have on the
Company's business plans to maintain a manufacturing operation in Mexico or the
effect, if any, that the phase-out of the MAQUILADORAS program will have on the
Company's future results of operations.
ENVIRONMENTAL CONSIDERATIONS
The Company's operations are subject to various U.S. and Mexican
environmental statutes and regulations. In addition, certain of the Company's
operations are subject to U.S. federal, state and local and Mexican
environmental laws and regulations that impose limitations on the discharge of
pollutants into the air and water and establish standards for the treatment,
storage and disposal of solid and hazardous wastes. Although the Company
believes that its present operations, and the operations of Industrias QAI,
comply in all material respects with existing laws and regulations, compliance
standards change. Unforseen significant expenditures required to maintain such
compliance could have a material adverse effect on the Company's business and
financial condition.
The Company presently is the subject of administrative proceedings relating
to environmental matters arising from its previous operations. See Item 3 -
"Legal Proceedings".
ITEM 2. DESCRIPTION OF PROPERTIES
The following sets forth, as of March 15, 1997, information concerning the
real property owned, leased or managed by the Company:
<TABLE>
<CAPTION>
LOCATION FUNCTION SQUARE FEET OWNERSHIP
<S> <C> <C> <C>
Sunland Park, New Mexico Corporate Offices, Development, 28,000 Leased
E2PAK Manufacturing & Warehouse
Westway, Texas Warehouse 54,700 Leased
Ciudad Juarez, Mexico Fiberglass cabinet & 22,800 Managed
AIREZE Manufacturing
</TABLE>
The property in Sunland Park, New Mexico, located on a 1.3 acre parcel, is
leased by RefTech from Bacchus Industries, Inc., pursuant to a three year
triple-net lease expiring March 1, 2000, at a monthly rental of $6,500, with a
right of RefTech to extend the lease for an additional five year term. The
purchase of the property was financed by the U.S. Small Business Administration,
and RefTech has the right to terminate the lease on 120 days prior notice in the
event of a foreclosure of the property. See Item 1 - "Business - Acquisition of
QAI."
9
<PAGE>
The property in Westway, Texas, located on a 6.5 acre parcel, is currently
leased by RefTech from an unaffiliated third party pursuant to lease expiring in
April 1997, at an monthly rental of $5,000. RefTech has agreed to purchase the
property, "as is", subject to inspection, upon expiration of the lease, for
$450,000. RefTech is renovating the property to conduct AC2 manufacturing
operations thereon, and anticipates that renovations will be completed and
manufacturing will commence before the property is purchased. The cost of the
renovations, aggregating approximately $25,000, and the purchase price for the
property will be paid by the Company from its available cash resources, although
the Company may obtain mortgage financing subsequent to its purchase of the
property.
The property in Ciudad Juarez, Mexico, located on a 1.8 acre parcel, is
leased by Industrias QAI from an unaffiliated third party, for the sole purpose
of manufacturing fiberglass articles, pursuant to a five year triplenet lease
expiring in January 2001, at an annual rental increasing from approximately
$102,500 in 1997 to approximately $123,500 in the fifth year of the term, plus
the amount of value-added taxes thereon.
The Company believes that its properties are adequately covered by
insurance and are suitable and adequate for their present use, and that such
properties offer the Company the appropriate capacity for its anticipated
operations in the foreseeable future.
In addition to the properties used by the Company in the operations of its
business, the Company owns approximately 263 acres of property in Rockaway
Township, New Jersey, all of which property (collectively, the "Rockaway
property") was acquired from a predecessor of Morton Thiokol, Inc. ("Thiokol").
The Company has net leased a 62 acre parcel (the "SteriGenics parcel"), which
includes the Company's former 30,600 square foot irradiation facility, to
SteriGenics East Corporation ("SteriGenics East") pursuant a lease, for an
initial six year term expiring in August 2002, with a five-year renewal option,
at a base rent of approximately $77,000. In addition, as part of the lease, the
Company has granted SteriGenics East an option, during the initial term of the
lease, to purchase the SteriGenics parcel at a price decreasing from
approximately $405,000 on and after August 1997 to $138,000 in August 2002. If
the environmental remediation on the SteriGenics parcel (see Item 3 "Legal
Proceedings -- New Jersey Environmental Proceedings") has been substantially
completed and the SteriGenics parcel has been removed from the national
Priorities List by the expiration of the initial term of the lease, the Company
has the right to require SteriGenics East to purchase the SteriGenics parcel in
August 2002 at a price of approximately $138,000. In order to obtain certain
assurances from the New Jersey Department of Environmental Protection (the
"NJDEP"), SteriGenics provided the NJDEP with a $500,000 letter of credit (the
"L/C") to secure certain obligations of the Company to complete the
environmental remediation on the SteriGenics parcel. In connection therewith,
the Company has agreed that if the NJDEP has not voluntarily reduced the L/C by
at least $40,000 by August 1, 1998, and by at least such amount by each
anniversary thereafter through the end of the initial term of the lease, the
Company will provide a letter of credit to the NJDEP in the amount of such
deficiency. The Company also has granted SteriGenics East a right to set off the
rental payments on the lease in the event that the NJDEP draws down on the L/C
and the Company fails to reimburse SteriGenics therefor or if the Company
otherwise commits certain defaults on its obligations to complete the
environmental remediation on the site. In the event that SteriGenics East elects
not to renew the lease, SteriGenics has agreed to continue to provide to the
NJDEP a letter of credit in an amount of up to $300,000 and the Company has
agreed to keep in effect its letter of credit for up to the lesser of $200,000
or the amount then required by the NJDEP.
The remaining 201 acres of the Rockaway property, which adjoins the
SteriGenics parcel, includes a 65- acre former industrial park and has a book
value of $50,000. The Company is delinquent in the payment of local real estate
tax on this property; such delinquency, with penalties and interest, aggregated
approximately $191,000 as of December 31, 1996 and has been accrued by the
Company in its financial statements. The failure to make this tax payment is
non-recourse to the Company's remaining Rockaway property and other assets.
A substantial portion of the Rockaway property has been pledged to secure
certain obligations of the Company. See Item 6 - "Management's Discussion and
Analysis or Plan of Operation" and Note 8 to Consolidated Financial Statements
included under Item 7 - "Financial Statements".
See also Notes 2, 4, 5 and 8 to Consolidated Financial Statements included
under Item 7 - "Financial Statements".
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company has been involved in various legal
proceedings which are incidental to the conduct of its business and are not
expected to have a material adverse effect on the Company's consolidated
financial position or results of its operations. In addition, the Company is
involved in the environmental proceedings described below.
NEW JERSEY ENVIRONMENTAL PROCEEDINGS
In 1982, the New Jersey Department of Environmental Protection (the
"NJDEP") commenced an action in the Superior Court of New Jersey, Chancery
Division, Morris County (Docket No. C-2453-81E) against the Company and Dr.
Martin A. Welt (the Company's then President), individually, alleging violations
of the New Jersey Spill Compensation and Control Act and the New Jersey Water
Pollution Control Act and sought injunctive relief, by way of clean-up of the
Company's Rockaway property (which had been purchased from Thiokol), penalties
and damages.
In 1983, a Consent Order was entered into requiring the installation of
monitoring wells, groundwater sampling and analysis. As a result of the analysis
of data showing the presence of halogenated hydrocarbons in the groundwater,
submitted by the NJDEP to the United States Environmental Protection Agency
during this period, a portion of the Rockaway property was placed on the
National Priorities List as a "superfund site". Such listing was based on a 1984
evaluation of a 15 acre portion of the Rockaway property; however, the exact
boundaries of the "superfund site" were not determined. The Company believes
that the boundaries encompass approximately 80 acres of the 263 acres which
comprise the Rockaway property.
In 1986, the NJDEP issued a directive ordering the Company and Dr. Welt,
individually, to fund the cost of a Phase I Remedial Investigation/Feasibility
Study (the "Phase I Study") to determine the nature and extent of contamination
detected primarily on the 15 acre operating portion of the Rockaway property.
Since failure to comply with the directive could have subjected the Company to
triple damages, the Company agreed to fund the Phase I Study and to pay the
administrative costs of the NJDEP. As a result of such agreement, in 1987, a
Stipulation of Dismissal regarding the Company, only, was filed in the 1982
action.
In 1989, the NJDEP issued a second directive to the Company and Thiokol
for a Phase II Remediation Investigation/ Feasibility Study (the "Phase II
Study") primarily with respect to an additional 65 acre portion of the Rockaway
property. According to the directive, both the Company and Thiokol were jointly
and severally liable for all costs of the clean-up and removal of hazardous
substances discharged on the Rockaway property. In 1991, the Phase II Study was
completed and the NJDEP advised the Company and Thiokol that it intended to
perform additional groundwater studies in order to delineate the extent of
groundwater contamination. In 1992, the Company and Thiokol entered into an
administrative consent order (the "ACO") with the NJDEP, pursuant to which the
Company (i) agreed to pay all costs incurred in connection with the Phase II
Study, and (ii) agreed to implement appropriate actions to complete the
remediation of the Rockaway property under the supervision of the NJDEP. In
connection with the ACO, the Company, in 1992, established an accrual for its
estimated costs associated with the Phase II Study and the remediation of the
Rockaway property. During 1993, the Company was assessed additional costs
related to the Phase II Study, and the Company completed the surface cleanup of
the Rockaway property, which included, among other things, excavating soils with
PCB levels above NJDEP non-residential standards. In August 1996, the Company
made a payment of $575,000 to the NJDEP as full settlement of all then
outstanding financial claims asserted under the ACO, as well as all such claims
which could be asserted for the period ended October 31, 1996 and, as a result,
the NJDEP released the lien it had placed on the Rockaway property.
During 1994, the NJDEP issued a Record of Decision (the "ROD") with
respect to approximately 80 acres of the Rockaway property, which proposed
remedial action involving hydrofracturing of the cracked bedrock and the
installation of a system to pump and treat the groundwater under a portion of
the Rockaway property. During 1995, the Company conducted a three-well pilot
study, using the "Clean-Ox" hydrogen peroxide-based remedial system, to test its
effectiveness in decreasing contaminant levels in the deep aquifer. Based upon
the results of the study, in February 1996, the Company petitioned the NJDEP for
a change in the Remedial Action Work Plan under the ROD to permit broader use of
the "Clean-Ox" system. In April 1996, the NJDEP responded to the Company's
petition and advised the Company that the pilot test of the "Clean-Ox"
remediation program was not considered
11
<PAGE>
conclusive. In September 1996, the Company completed a second "Clean-Ox" test,
which further reduced the contamination; however, on March 7, 1997, the NJDEP
reaffirmed its requirement that the Company comply with the ROD and submit a
revised Remedial Action Work Plan proposal in accordance with the ROD.
NASCOLITE SITE
In August 1994, the U.S. Environmental Protection Agency (the "EPA") issued
an Administrative Order (No. II-CERCLA-94-0124) (the "Order") naming the Company
as a respondent in a proceeding under Section 106(a) of CERCLA, alleging that
the Company, along with two other respondents and eight previously identified
potentially responsible parties (collectively the "PRP Group"), arranged for the
disposal or transport for disposal of one or more hazardous substances to
property owned by Nascolite Corporation (a manufacturer of polymethyl
methacrylate ("MMA") plastic sheet) in Millville and Vineland, New Jersey (the
"Nascolite Site"). The Nascolite Site was operated by Nascolite as a scrap
acrylic reclamation facility from 1953 to 1980 and was placed on the National
Priorities List in 1984. Subsequently, a Remedial Investigation and Feasibility
Study was conducted and various hazardous materials were found to be on the
Nascolite Site. In 1988, the EPA issued a Record of Decision for operative unit
1 ("OU1"), which addressed ground water remediation on the Nascolite Site and,
in 1991, the EPA issued a Record of Decision for operative unit 2 ("OU2"), which
addressed contaminated soils and structures on the Nascolite Site. A Preliminary
Waste-In-List prepared in 1990 by the EPA indicated that 5,468,455 pounds of
hazardous materials, primarily liquid waste MMA, was sent to the Nascolite Site.
The Company has no current record of any such shipments, except for a 1978
invoice reflecting that 4,400 pounds of "sludge" was picked up by Nascolite from
the Company for transport to the Nascolite Site. The Company's operations have
not used MMA or generated MMA sludge for more than the past five years.
The Order requires that each of the respondents named therein undertake
and complete all response actions to implement the Record of Decision for OU1
(estimated to cost between $7 million and $30 million) as a joint effort and
that the Company and the PRP Group are to be jointly and severally responsible
for carrying out all of the requirements of the Order; and that if the EPA
incurs any future response costs due to a failure by the named respondents to
comply with the Order, each of the named respondents will be responsible for
triple damages, penalties of up to $25,000 per day and other penalties under
CERCLA. The EPA has not yet asserted any claims against the Company in
connection with the Record of Decision for OU2. On January 26, 1995, the EPA
also notified the Company that it had incurred previous response costs
aggregating in excess of $3.9 million with respect to the Nascolite Site,
demanded payment thereof plus interest and offered the Company the right to
enter into negotiations with the PRP Group to lead to reimbursement to the EPA
of Response Costs. On February 9, 1995, the Company, without admitting any
liability, notified the EPA that it elected to participate in good faith
negotiations with the PRP Group. Simultaneously, the Company entered into a
Tolling Agreement with the United States on behalf of the EPA, pursuant to which
the EPA agreed not to institute the alleged cause of action against the Company
prior to September 1, 1995 in order to permit the Company to pursue good faith
efforts to settle with the PRP Group the claims alleged against the Company in
the Order.
In 1996, the Company entered into a Partial Consent Decree with the EPA
pursuant to which the Company agreed to pay the EPA, upon court approval of the
Partial Consent Decree, approximately $32,000 in settlement of all OU1 claims.
By letter dated October 1, 1996, the NJDEP advised the Company and the
other members of the PRP Group that the NJDEP is seeking approximately $285,000
from the PRP Group for its response costs at the Nascolite Site. The Company has
agreed to allow the PRP Group to represent it in negotiations with the NJDEP as
long as the PRP Group agrees that the "de minims" parties, such as the Company,
contribute pro-rata on the same basis as the EPA settlement involving OU1 (in
which instance, the Company's pro-rata share was fixed at 0.09% of the total
cost).
GENERAL
As of December 31, 1996, the Company had accrued $779,562 for the possible
implementation of a groundwater remediation plan required by the ROD on the
Rockaway property, for payment under the Nascolite Partial Consent Decree and
for response costs with respect to the Nascolite Site. As a result of ongoing
remediation and NJDEP involvement in these matters, there can be no assurance
that the cleanup, remediation and NJDEP
12
<PAGE>
oversight accruals will represent the Company's ultimate liability. See Note 8
to Consolidated Financial Statements included under Item 7 - "Financial
Statements."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of securities holders of the Company
during the fourth quarter of its 1994 fiscal year.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on The Nasdaq Small-Cap Market under
the symbol "RTII". The following table sets forth the high and low bid
quotations for each quarterly period during the two calendar years ended
December 31, 1996 for the Company's Common Stock, as reported by The Nasdaq
Small-Cap Market. The quotations for the period prior to May 25, 1995 have been
retroactively adjusted to reflect an onefor-eight reverse stock split, effective
as of such date.
HIGH BID LOW BID
1st Quarter 1995 $ 4 $3
2nd Quarter 1995 3-1/4 1-1/2
3rd Quarter 1995 1-7/8 1-1/4
4th Quarter 1995 4-7/8 1-11/16
1st Quarter 1996 2-11/16 1-11/16
2nd Quarter 1996 3-1/4 2-1/4
3rd Quarter 1996 3-3/8 2-7/8
4th Quarter 1996 3-7/8 3-1/4
As of December 31, 1996, the C mpany had approximately 2,000 holders of
record of its Common Stock. During the fiscal year ended December 31, 1996,
there were transactions in the Company's Common Stock on approximately 64% of
all trading days.
The Company has not paid any dividends. The payment of cash dividends by
the Company, if any, will be made only from assets legally available therefor
and will depend generally upon the Company's short-term and long-term cash
availability, current and anticipated capital requirements, restrictions under
any then existing credit and other debt instruments and arrangements and other
factors deemed relevant by the Company's Board of Directors. The Company's Board
of Directors does not anticipate the payment of cash dividends on the Company's
Common Stock as long as the Company's Rockaway property remains on the National
Priorities List as a 'superfund site".
13
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
IN REVIEWING MANAGEMENT'S DISCUSSION AND ANALYSIS, REFERENCE IS MADE TO
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED AS ITEM 7
- "FINANCIAL STATEMENTS" IN THIS ANNUAL REPORT ON FORM 10-KSB. AS
DISCUSSED IN SUCH NOTES, THE COMPANY OWNS PROPERTY WHICH HAS BEEN THE
SUBJECT OF AN ENVIRONMENTAL INVESTIGATION. SUCH FINANCIAL STATEMENTS, AS
STATED IN THE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS INCLUDED
THEREIN, HAVE MADE PROVISION FOR THE COSTS OF SUCH INVESTIGATION AND
RESULTING MONITORING, CLEANUP AND REMEDIATION OBLIGATIONS IN ACCORDANCE
WITH EXISTING STUDIES AND CLEANUP PLANS. HOWEVER THERE CAN BE NO ASSURANCE
THAT SUCH PROVISION CONSTITUTES THE ULTIMATE LIABILITY THAT MAY RESULT
UPON THE FINAL DISPOSITION OF THE ENVIRONMENTAL INVESTIGATION, CLEANUP
AND REMEDIATION PROGRAMS.
DISCLOSURE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-KSB
under Item 1 - "Description of Business" and this Item 6 - "Management's
Discussion and Analysis or Plan of Operation" may be considered forward-looking
statements. Such statements relate, among other things, to the plans and
objectives of management for future operations, including plans or objectives
relating to the products of the Company, management's estimate of certain future
costs and expenses and the future performance of the Company. Such
forward-looking statements are subject to risks, uncertainties and other factors
which could cause the Company's actual results to differ materially from any
projected results expressed or implied by such forward-looking statements. These
risks, uncertainties and other factors include, but are not limited to, the
uncertainties accompanying new product marketing, including market resistance
and the timing and ability to establish the necessary sale, marketing and
distribution network, the impact of current and future government regulations,
the seasonal nature of the industry in which the Company operates, the risks
associated with a transition from limited production volume, the impact of
competitive products, the ability to have available projected cash and other
resources on a timely basis, if at all, the risks involved with a manufacturing
operation in Mexico, as well as the other factors discussed in Item 1 -
"Description of Business" and elsewhere in this Annual Report on Form 10-KSB.
FINANCIAL CONDITION
Information with respect to total assets, long-term debt (net of current
portion and discount), working capital (deficiency) and certain related ratios,
as of December 31, 1996, 1995 and 1994, is as follows, however, as a result of
the sale to SteriGenics International ("SteriGenics") of the Company's former
irradiation business in August 1996 (the "SteriGenics Transaction") and the
acquisition of the business of Quality Air, Inc ("QAI") and its affiliated
Mexican company, Industrias QAI, S.A. de C.V. ("Industrias QAI") in February
1997 (the "QAI Transaction"), the information set forth herein and in "Results
of Operations" below may be of only limited analytical value:
1996 1995 1994
---- ---- ----
Total assets (in thousands) $ 4,244 $ 7,882 $ 7,920
Long-term debt, net of discount (in thousands) $ 265 $ 2,024 $ 2,022
Working capital (deficiency) [current $ 2,994 ($1,116) ($ 510)
assets less current liabilities] (in
thousands)
Working capital ratio [current assets 32 to 1 .38 to 1 .63 to 1
to current liabilities]
Percentage of total liabilities to
stockholders' equity 45% 149% 114%
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<PAGE>
At December 31, 1995, the Company had cash and cash equivalents of $77,631
and a working capital deficit of $1,116,028. At December 31, 1996, the Company
had cash and cash equivalents of $2,578,180 and working capital of $2,994,640,
primarily as a result of the Sterigenics Transaction. During 1996, the Company
used approximately $670,000 of its working capital for loans to QAI, which
liability of QAI was assumed by the Company's wholly-owned subsidiary,
Refrigeration Technology Inc. ("RefTech") as part of the QAI Transaction. In
addition, Theo W. Muller, the Chairman and Chief Executive Officer of the
Company, and his affiliated companies, loaned $870,000 to QAI, which loans (with
accrued interest thereon) were assumed by RefTech at the closing of the QAI
Transaction; such loans have since been repaid. See Consolidated Statements of
Cash Flows included under Item 7 - "Financial Statements" and Item 12 - "Certain
Relationships and Related Transactions".
The Company's net cash used by operating activities in 1996 was $78,219;
in 1995, the discontinued irradiation business provided cash of $493,610.
Investing activities in 1996 provided net cash of $2,580,568, mainly from the
sale by the Company of its irradiation business, offset by purchases of fixed
and other assets and the $670,000 loan to QAI in contemplation of the QAI
Transaction; in 1995, investing activities used net cash of $93,426 for the
purchase of fixed assets. Net cash used in financing activities in 1996 was
$1,800, which resulted from the sale of preferred stock (which was subsequently
returned to the Company in the Sterigenics Transaction and retired) and the
exercise of warrants, offset by the repayment of debt; in 1995, net cash of
$494,751 was used, primarily for the repayment of debt.
The Company expects to be able to fund its 1997 operations and budgeted
expenditures, including budgeted capital expenditures of approximately $970,000
and substantial seasonal buildup of inventory, from (i) currently available cash
and cash equivalents, (ii) working capital, (iii) asset financing by RefTech,
(iv) forecasted sales, and (v) the anticipated private placement of 145,000
shares of authorized, but unissued Common Stock. The Company has completed the
negotiation of a private placement of 145,000 shares of its authorized, but
unissued Common Stock for an aggregate of $420,500, which it anticipates
consummating on or about March 31, 1997, although there can be no assurance that
such placement will be successfully concluded at such time, if at all.
The Company has obtained audited financial statements (audited by an
independent Mexican accounting firm) of Industrias QAI, but does not have
audited financial statements for the cooling and air conditioner business of
QAI. QAI had been operating such business since January 1996, and assumed the
operations of a similar business operated by Bacchus Industries, Inc. (an
affiliated company) until September 1995. Although the Company has requested
that QAI use its best efforts to prepare such financial statements, the Company
recently has been advised that even if such financial statements are fully
prepared, such financial statements may not be capable of being audited unless
there is sufficient available back-up documentation, of which there can be no
assurance. Such lack of audited financial statements will prevent the Company
from fulfilling certain requirements of the Securities and Exchange Commission
under the Securities Act of 1933 (the "1933 Act"), which are a pre-condition to
the registration for public offering and sale of the Company's securities and
for the private placement of its securities if the Company avails itself of
Regulation D under the 1933 Act ("Regulation D"). As a result, the Company would
not be able to raise funds from the public sale of its securities, or from the
private placement of its securities pursuant to Regulation D, until after its
audited financial statements for the year ending December 31, 1998 become
available. In addition, if the Company is not able to obtain and file such
audited financial statements with the Securities and Exchange Commission under
the Securities Exchange Act of 1934 (the "1934 Act") by no later than May 13,
1997, the Company will become delinquent in its filings under the 1934 Act, the
principal consequence of which will be the inability of holders of the Company's
Common Stock, whose shares are characterized as "restricted securities" (as such
term is defined in Rule 144 promulgated under the 1933 Act), from availing
themselves of certain provisions of such Rule to publicly resell such restricted
securities until after a two-year holding period (assuming such holders are not
deemed to be affiliates of the Company).
As of March 21, 1997, the Company did not plan to enter into any unsecured
financing arrangements. The Company does not have any current banking credit
relationships and does not know whether it will have the ability to borrow funds
other than from a related party.
The Company's operations conducted at Industrias QAI are labor intensive
but, due to the prevailing wages paid in Mexico, the Company does not expect
inflation to have a material impact on the Company's business. Except for the
hiring of approximately 15 additional employees for its anticipated
manufacturing operations in Westway, Texas, the Company does not expect any
significant changes in the number of its employees during 1997.
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<PAGE>
The February 24, 1997 acquisition of the cooling and air conditioning
business of Quality Air, Inc. has effected a substantial change in the Company's
consolidated balance sheet from the Company's consolidated balance sheet as of
December 31, 1996, which is included in Item 7 - "Financial Statements". The QAI
Transaction increased the Company's property, plant and equipment and added an
intangible asset (air conditioning and related patents and patent application)
of over one million dollars which, in the aggregate and when combined with the
increase in liabilities arising from the QAI Transaction, will result in a
reduction in working capital and a reduced working capital ratio.
As described in Note 8 to Consolidated Financial Statements included under
Item 7 - "Financial Statements", the Company is obligated to remediate a portion
of its Rockaway property. Costs relating to such activity have been provided for
in accordance with existing environmental studies and approved cleanup plans.
There can be no assurance that such provisions will constitute the ultimate
liability of the Company, although the Company believes that such provisions are
adequate. In addition, the Company has been named a respondent in an
environmental proceeding relating to a disposal site, to which the Company
shipped a relatively small amount of materials during a period prior to 1982.
The Company has established an unfunded reserve therefor in its financial
statements; although there can be no assurance that such provision will be
adequate. See Item 3 - "Legal Proceedings".
The NJDEP has the statutory right to obtain a lien on the Company's assets
in an amount equal to any unreimbursed costs incurred by the NJDEP relating to
environmental remediation of the Company's Rockaway property; however, the
Company has paid all amounts owed to the NJDEP through October 31, 1996. See
Item 3 - "Legal Proceedings."
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for
Stock-Based Compensation". The Company adopted this pronouncement by making the
required pro forma note disclosure only. Accordingly, the adoption of SFAS No.
123 did not impact the Company's results of operation or financial condition.
UNCERTAINTY OF FUTURE OPERATING RESULTS
Until August 1996, the Company was engaged primarily in the business of
supplying irradiation services, which operations were sold on August 8, 1996. On
February 24, 1997, the Company purchased an air cooling and air conditioning
manufacturing business. Prior to such time, the Company had no experience in
manufacturing, marketing and selling air cooling and air conditioning products
or in marketing and selling any products through retail channels. Thus, any
discussion of the Company's results of operations for the periods through
December 31, 1996 are not a meaningful indication of the results of operations
which may be expected subsequent to such date and should not be relied upon for
such purpose.
The Company expects that its future operating results may fluctuate as the
Company gains manufacturing, sales and marketing experience in its new business.
The cooling and air conditioner business is highly seasonal, and the Company
anticipates that approximately half of its annual sales will be obtained during
a three month period from late spring to early summer. The Company believes that
its future success, if any, will be largely dependent on its ability to market
its newly developed AC2 air conditioner, of which there can be no assurance. In
addition, the Company's operating results will be significantly dependent on a
number of factors, many of which are outside the Company's control. See Item 1 -
"Description of Business". These factors include, among others: highly
competitive market conditions and possible new product introductions by the
Company's competitors, most of whom are substantially better known with
substantially greater financial and other resources and offer trade named
products which already have received significant market acceptance; changes in
market demand; maintaining adequate working capital and cash resources to
purchase necessary raw materials and components for the manufacture of
sufficient finished products, to carry its anticipated accounts receivable and
to carry out its marketing plans; the ability to anticipate the mix of customer
orders which may be received and to manufacture products in advance thereof; the
timing of receipt of customer orders and the ability to ship such orders on a
timely basis; market acceptance of the Company's products; the ability to
successfully carry out its marketing plans; continued compliance with industry
standards and governmental regulations; the ability to continue to maintain
certain manufacturing operations in Mexico at a reasonable cost; and
16
<PAGE>
general economic conditions. A significant portion of the Company's business may
be derived from orders placed by a limited number of larger customers, and the
timing of such orders can cause significant fluctuations in the Company's
operating results. In addition, if anticipated customer orders fail to timely
materialize and/or delivery schedules are deferred or canceled, the Company may
not be able to timely and adequately adjust its commitments to compensate
therefor.
RESULTS OF OPERATIONS
1996 RESULTS OF OPERATIONS COMPARED TO 1995 RESULTS OF OPERATIONS
After elimination of sales and expenses for its discontinued irradiation
business, the Company's ongoing revenues consisted entirely of interest and
rental income. Total revenues for 1996 were $122,129, of which $79,199 was
interest income and $42,930 was rental income. The Company had $9,776 of
interest income in 1995 and no rental income. The increase in interest income
arose from the investment of the net proceeds received by the Company from the
sale on August 8, 1996 of its irradiation business, and the rental income arose
from the rental of a portion of the Company's Rockaway property, included the
irradiation facility located thereon, to the purchaser of such business. See
Item 1 - "Description of Business -- Sale of Irradiation Operations" and Item 2
- - "Description of Properties".
General and administrative expenses were $217,005 in 1996, a 23% decrease
from $280,604 in 1995. In 1995, such expenses primarily consisted of
professional fees and public company maintenance costs while, in 1996, such
expenses primarily consisted of professional fees (which were significantly
reduced as compared to 1995), public company maintenance costs and a $60,000
write-off of an investment.
Expenses of Rockaway Industrial Park remained constant. Environmental
investigation, remediation and related legal expenses increased to $610,559 in
1996, compared to $223,590 in 1995, due almost entirely to a reserve for future
remediation of the Rockaway property.
Other income of $580,000 in 1996 represented a settlement of prior
environmental insurance claims; in 1995, other income of $150,819 consisted
primarily of the proceeds of a litigation settlement.
As a result of the foregoing, the Company sustained a loss from continuing
operations of $200,940, or $.18 per share, in 1996, compared to a loss from
continuing operations of $419,104, or $.39 per share in 1995.
In 1996, the Company sustained a loss of $72,000 from discontinued
irradiation operations before the final decision to sell such operations and an
additional loss of $24,242 from the disposal of such operations. In 1995, the
Company sustained a loss of $105,539 from its irradiation operations. As a
result, the Company reported a net loss of $297,182 or $.27 per share in 1996,
as compared with a net loss of $524,643 or $.49 per share in 1995.
1995 RESULTS OF OPERATIONS COMPARED TO 1994 RESULTS OF OPERATIONS
Net sales in 1995 were $4,352,027, a decrease of 3.1% from net sales of
$4,492,630 in 1994. This decrease, despite increased processing volume, was
primarily due to intense competitive pricing pressures resulting from
irradiation industry overcapacity within the Company's geographic markets.
Cost of sales in 1995 increased 19.8% to $2,921,752 from $2,438,222 in
1994, as a result of increased product volume in 1995 and the inclusion of
operating costs for a full year of the Salem Facility which resumed irradiation
processing in the fourth quarter of 1994. Cost of sales associated with a full
year of operations of the Salem Facility aggregated approximately $736,000. As a
result, gross profit decreased 30.4% to $1,430,275 in 1995 from $2,054,408 in
1994.
Selling, general and administrative expenses decreased 12.1% to $1,556,450
in 1995 from $1,770,348 in 1994. The decrease was due to lower executive
compensation, legal and other professional fees, partially offset by the
inclusion of a full year of selling, general and administrative expenses
relating to the Salem Facility.
The expenses of the Salem Facility of $156,138 in 1994 represented the
costs incurred during the first nine months of 1994, prior to the resumption of
irradiation processing at the Salem Facility. For the fourth quarter of 1994
17
<PAGE>
and all of 1995, Salem Facility costs were recorded in cost of sales and
selling, general and administrative expenses.
Expenses of the Rockaway Industrial Park in 1995 were $75,505, a 20%
reduction from comparable 1994 expenses due to lower consultant and maintenance
costs. The loss on abandonment of building and equipment of $374,530 in 1994 was
due to the elimination of the net book value of depreciable assets at the
Rockaway Industrial Park; no comparable transaction occurred in 1995.
Environmental investigation, remediation and related legal expenses in
1995 were $223,590 and consisted of NJDEP administrative costs recognized in
1995, a $30,000 reserve for future expenses related to the Nascolite site, and
related legal expenses. Excluding the Nascolite reserve, the remaining 1995
environmental expenses (which were related to the Rockaway Industrial Park) were
comparable to 1994 expenses.
As a result of the foregoing, the loss from operations in 1995 was
$425,270 as compared to a loss from operations of $535,976 in 1994.
Investment income decreased to $9,776 in 1995 from $18,419 in 1994 due to
lower amounts available for investment during 1995.
Other interest expense of $259,968 in 1995 increased by $153,587 over
1994, primarily due to the interest rate increase on December 1, 1994 from an
average rate of 4.72% to a fixed rate of 10% on $1,250,000 principal amount of
City of Salem Municipal Port Authority Port Development Revenue Bonds ($250,000
principal amount of which was paid in December 1995), and to additional
long-term debt incurred during 1995 related to Cobalt lease agreements. Other
income in 1995 of $150,819 consisted primarily of $144,830 of net proceeds
received in the settlement of all litigation with Dr. Martin A. Welt, a former
executive of the Company.
As a result of the foregoing, the Company recorded a loss of $524,643 in
1995 compared to a loss of $623,128 in 1994.
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent auditors' report 19
Consolidated financial statements:
Balance sheet 20
Statements of operations 21
Statements of stockholders' equity 22
Statements of cash flows 23
Notes to consolidated financial statements 24
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
RTI Inc.
Rockaway, New Jersey
We have audited the accompanying consolidated balance sheet of RTI Inc. and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Notes 5 and 8 to the consolidated financial statements, the
Company owns property which is the subject of continuing significant
environmental investigation and remediation.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RTI Inc. and
subsidiaries at December 31, 1996, and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
---------------------
BDO Seidman, LLP
Woodbridge, New Jersey
March 20, 1997
19
<PAGE>
RTI INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
==========================================================================================
DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------
ASSETS
CURRENT:
<S> <C>
Cash and cash equivalents $ 2,578,180
Prepaid expenses and other 27,760
Escrow deposit (Note 1) 407,944
Certificate of financial assurance - restricted (Note 3) 75,000
- ------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,088,884
PROPERTY UNDER LEASE (NOTE 4) 476,235
NOTE RECEIVABLE (NOTE 13) 670,000
OTHER ASSETS 9,565
- ------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,244,684
==========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 19,811
Accrued expenses (Note 6) 74,433
- ------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 94,244
LONG-TERM DEBT, NET OF $22,000 DISCOUNT (NOTE 7) 265,000
OTHER LIABILITIES (NOTES 6 AND 8) 970,935
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,330,179
- ------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 5, 8 AND 13)
STOCKHOLDERS' EQUITY (NOTE 9):
Preferred stock, $.05 par value - shares authorized 2,000,000; no shares
issued and outstanding --
Common stock, $.08 par value - shares authorized 15,000,000; issued and
outstanding 1,101,166 88,094
Additional paid-in capital 16,053,542
Deficit (13,227,131)
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,914,505
- ------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,244,684
==========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
RTI INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
================================================================================================
YEAR ENDED DECEMBER 31, 1996 1995
- ------------------------------------------------------------------------------------------------
REVENUES:
<S> <C> <C>
Interest income $ 79,199 $ 9,776
Rental income 42,930 --
- ------------------------------------------------------------------------------------------------
TOTAL REVENUES 122,129 9,776
OPERATING EXPENSES:
Expenses of Rockaway Industrial Park, including interest expense
of $22,000 in both years (Notes 5 and 7) 75,505 75,505
General and administrative expenses 217,005 280,604
Environmental investigation, remediation and related legal
expenses (Note 8) 610,559 223,590
Other income (Note 10) (580,000) (150,819)
- ------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (200,940) (419,104)
DISCONTINUED OPERATIONS (NOTE 2):
Loss from irradiation operations (72,000) (105,539)
Loss on disposal of irradiation operations (24,242) --
- ------------------------------------------------------------------------------------------------
NET LOSS $ (297,182) $ (524,643)
================================================================================================
NET LOSS PER SHARE:
Loss from continuing operations $ (.18) $ (.39)
Loss from irradiation operations (.07) (.10)
Loss on disposal of irradiation operations (.02) --
- ------------------------------------------------------------------------------------------------
NET LOSS PER SHARE $ (.27) $ (.49)
================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 1,090,627 1,076,907
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
RTI INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(NOTE 9)
YEARS ENDED DECEMBER 31, 1996 AND 1995
- ---------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK
------------------------------------------- -------------------------------------------
NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1995 - - 1,077,189 $86,175
Purchase of partial shares - - (282) (22)
Net loss - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 - - 1,076,907 86,153
Purchase of partial shares - - (741) (59)
Exercise of warrants - - 25,000 2,000
Sale of preferred stock 118,000 5,900 - -
Preferred stock cancelled in
connection with sale (Note 2) (118,000) (5,900) - -
Net loss - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 - 1,101,166 $88,094
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 AND 1995
- ---------------------------------------------------------------------------------------------------
ADDITIONAL
PAID-IN
CAPITAL DEFICIT TOTAL
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1995 $ $16,014,622 $(12,405,306) $3,695,491
Purchase of partial shares (771) - (793)
Net loss - (524,643) (524,643)
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 1995 16,013,851 (12,929,949) 3,170,055
Purchase of partial shares (2,059) - (2,118)
Exercise of warrants 41,750 - 43,750
Sale of preferred stock 230,100 - 236,000
Preferred stock cancelled in
connection with sale (Note 2) (230,100) - (236,000)
Net loss - (297,182) (297,182)
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ $16,053,542 $(13,227,131) $2,914,505
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
RTI INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 12)
<TABLE>
<CAPTION>
=====================================================================================================
YEAR ENDED DECEMBER 31, 1996 1995
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (297,182) $ (524,643)
- -----------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 529,276 865,689
Write-down of other assets 60,000 --
Discounting of note payable 22,000 22,000
Loss on sale of irradiation operations 24,242 --
(Increase) decrease in:
Accounts receivable 1,832 (21,061)
Certificate of financial assurance - restricted 75,000 --
Prepaid expenses and other (21,863) 83,290
Restricted deposits 15,771 23,257
Increase (decrease) in:
Accounts payable (54,254) (96,994)
Accrued expenses (320,172) 94,869
Other liabilities (112,869) 47,203
- -----------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS 218,963 1,018,253
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (78,219) 493,610
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of irradiation operations 3,975,781 --
Purchases of fixed assets (634,971) (93,426)
Purchases of other assets (90,242) --
Loans receivable (670,000) --
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,580,568 (93,426)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- 200,000
Payments on notes payable -- (75,000)
Payments on long-term debt (279,432) (618,958)
Proceeds from exercise of warrant 43,750 --
Payments for partial shares of common stock (2,118) (793)
Proceeds from exercise of preferred stock 236,000 --
- -----------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (1,800) (494,751)
- -----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,500,549 (94,567)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 77,631 172,198
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,578,180 $ 77,631
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. BUSINESS AND PRINCIPLES OF CONSOLIDATION
SUMMARY OF
SIGNIFICANT The consolidated financial statements
ACCOUNTING POLICIES include the accounts of RTI Inc. and its
wholly-owned subsidiaries (the
"Company"). All significant intercompany
accounts and transactions have been
eliminated in consolidation.
BUSINESS ACTIVITIES
Prior to August 8, 1996, the Company was
engaged in supplying gamma irradiation
services to the producers of a variety
of products, primarily medical devices
and disposable medical supplies. In
addition, the Company irradiated, to a
lesser extent, cosmetics and other
consumer products. The Company operated
two facilities in New Jersey and one in
North Carolina and performed the
majority of its irradiation services for
customers in the respective areas of the
facilities.
On August 8, 1996, the Company
consummated a transaction (the
"SteriGenics Transaction") with
SteriGenics International
("SteriGenics"), pursuant to which,
among other things, SteriGenics acquired
substantially all the assets of the
Company, other than cash and cash
equivalents and the Company's Rockaway,
New Jersey property and the irradiation
facility located thereon, and assumed
substantially all of the liabilities of
the Company (other than liabilities
(including environmental liabilities)
related to the Rockaway property and
liabilities to certain affiliates of the
Company). A balance of $407,944 remains
in escrow relating to this transaction,
which was received by the Company in the
first quarter of 1997.
Since February 24, 1997, the Company has
been engaged in the manufacturer and
sale of evaporative coolers, commercial
heat exchange modules and
high-efficiency, water-cooled central
air conditioners as a result of the
acquisition of the business and
operations of Quality Air, Inc. ("QAI")
(see Note 13).
REVENUE RECOGNITION
Sales were recorded when irradiation
services were complete.
24
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that relate
to an existing condition caused by past
operations and which do not contribute
to current or future revenues are
expensed. Liabilities are recorded when
environmental assessments and/or
remediation are probable and such costs
to the Company can be reasonably
estimated.
INCOME TAXES
The Company accounts for its income
taxes in accordance with Financial
Accounting Standards Statement No. 109,
"Accounting for
Income Taxes" ("SFAS 109").
SFAS 109 requires a company to recognize
deferred tax liabilities and assets for
the expected future tax consequences of
events that have been recognized in a
company's financial statements or tax
returns. Under this method, deferred tax
liabilities and assets are determined
based on the difference between the
financial statement carrying amounts and
tax basis of assets and liabilities
using enacted tax rates in effect in the
years in which the differences are
expected to reverse. The Company has
provided a valuation allowance to offset
the benefit of any net operating loss
carryforwards or deductible temporary
differences.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all
cash balances and highly liquid debt
instruments with an original maturity of
three months or less.
LOSS PER SHARE
Loss per share is computed on the basis
of the weighted average number of common
shares outstanding during the year and
does not include the effect of common
stock equivalents, which were
anti-dilutive.
LONG-TERM DEBT
The recorded value of the Company's
long-term debt approximates fair value
based on the current rates available to
the Company for debt of the same
remaining maturities.
25
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
USE OF ESTIMATES
The preparation of financial statements
in conformity with generally accepted
accounting principles requires
management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the
reporting period. The Company has made
various estimates including those
related to the valuation allowance on
deferred tax assets (Note 11) and
exposure to environmental matters (Note
8). The costs the Company will
ultimately incur and the value of assets
ultimately realized could differ in the
near term from the related amounts
reflected in the accompanying financial
statements.
LONG-LIVED ASSETS
Statement of Financial Accounting
Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of"
("SFAS 121"), was adopted as of January
1, 1996. SFAS 121 standardized the
accounting practices for the recognition
and measurement of impairment losses on
certain long-lived assets. The adoption
of SFAS 121 had no effect on the results
of operations or financial position.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company
adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." The Company
adopted this pronouncement by making the
required pro forma note disclosure only.
Accordingly, the adoption of SFAS No.
123 did not impact the Company's results
of operation or financial condition.
RECLASSIFICATIONS
Certain items in the 1995 financial
statements have been reclassified to
conform to the 1996 presentation.
26
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. DISCONTINUED On February 26, 1996, the Company
OPERATIONS entered into an asset acquisition
agreement with SteriGenics. In
connection with this agreement, the
Company sold to SteriGenics
substantially all of the assets and
SteriGenics assumed certain liabilities
for an aggregate purchase price of
$4,601,725. As a result, consolidated
financial statements previously issued
have been restated to give effect to the
classification of the irradiation
operations as discontinued operations.
The sale, which was completed on August
8, 1996, resulted in a $24,242 loss.
The land and fixed assets of the New
Jersey location are being leased to
SteriGenics for a base annual rent of
$77,400. The sale agreement contains a
purchase option under which SteriGenics
could purchase the property under lease
for a price of $405,000 through February
26, 1998 declining to approximately
$138,000 on February 26, 2002. The sale
agreement also contains a "put" option
under which the Company could require
SteriGenics to purchase this property
for approximately $138,000 on February
26, 2002, if the Company completes the
required environmental remediation (see
Note 8).
Operating results of the irradiation
operations for 1996 and 1995 are
summarized as follows:
1996 1995
- --------------------------------------------------------------------------------
Revenues $2,684,565 $4,352,027
Operating loss (72,000) (105,539)
Net loss (72,000) (105,539)
================================================================================
27
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
3. CERTIFICATES OF During 1990 and 1994, the Company was
FINANCIAL ASSURANCE required by the Nuclear Regulatory
Commission ("NRC") to post $75,000
Certificates of Financial Assurance
("CFA") in accordance with NRC
regulations applicable to companies with
similar NRC licenses. The CFA was
intended to provide assurance that funds
would be available if needed for
decommissioning activities and removal
of Cobalt 60 used in the former
irradiation operation. The Company had
elected to use trust funds to provide
such financial assurance. The funds were
on deposit in restricted bank accounts.
During 1996, the NRC released one CFA
and the other was released in February
1997.
4. PROPERTY UNDER Property under lease is stated at cost
LEASE net of accumulated amortization of
$1,655,500 at December 31, 1996. The
Company amortizes property under lease
using the straight-line method over the
term of the related lease.
5. ROCKAWAY INDUSTRIAL The Company owns a 248 acre parcel of
PARK land and several buildings ("Parcel I")
in Rockaway, New Jersey. Parcel I is
composed of two pieces, Parcel IA and
Parcel IB. Parcel IA, 47 acres, is
contiguous to the 15 acre operating
parcel that is the site of one of its
irradiation processing facilities, which
is currently leased to SteriGenics.
Since 1985, the Company has been seeking
a buyer for Parcel IB; however, the
Company's ability to sell Parcel IB is
impaired until an environmental cleanup
and remediation program is completed
(see Note 8). This property has a net
book value of $50,000.
6. ACCRUED EXPENSES (a) Accrued expenses consist of the
AND OTHER LIABILITIES following at December 31, 1996:
- --------------------------------------------------------------------------------
Remedial investigation and environmental $ 7,749
cleanup costs (Note 8)
Professional fees 51,625
Other 15,059
- --------------------------------------------------------------------------------
Total $74,433
================================================================================
28
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(b) Other liabilities consist of the
following at December 31, 1996:
- --------------------------------------------------------------------------------
Remedial investigation and environmental
cleanup costs - non-current (Note 8) $747,315
Real estate taxes on Rockaway property
(Note 8) 191,373
Environmental proceedings (Note 8) 32,247
- --------------------------------------------------------------------------------
Total $970,935
================================================================================
7. LONG-TERM DEBT Long-term debt consists of the following
at December 31, 1996:
- --------------------------------------------------------------------------------
Note payable $265,000
Less: Current portion --
- --------------------------------------------------------------------------------
Total long-term debt $265,000
================================================================================
In connection with the Company's
settlement of certain litigation (see
Note 8), New Jersey Economic Development
Authority (the "Authority") bonds were
cancelled, the owner thereof acquired
from the Authority the Company's note in
an amount equal to the cancelled bonds
and such owner agreed to suspend, for a
period of five years, the Company's
obligation to make principal and
interest payments. As a result, a
$287,000 obligation was discounted by
$110,000 to $177,000 at December 31,
1992. The resulting credit from this
discounting was applied to reduce the
Company's net environmental clean up
expense. The debt will be increased
annually by $22,000 during the five year
period the Company is not obligated to
make principal and interest payments.
Commencing January 1, 1998, the note
will bear interest at a rate of 10.61%
per annum and principal payments will be
made in annual installments of $41,000
through January 1, 2004.
29
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Principal amounts due in connection with
long-term debt for each of the five
years subsequent to December 31, 1996
are as follows:
- --------------------------------------------------------------------------------
1997 $ -
1998 41,000
1999 41,000
2000 41,000
2001 41,000
Thereafter 123,000
- --------------------------------------------------------------------------------
$287,000
================================================================================
8. ENVIRONMENTAL As a result of engineering tests that
INVESTIGATION, commenced in 1981, the New Jersey
REMEDIATION AND Department of Environmental Protection
RELATED LITIGATION (the "DEP") issued a directive in 1986
ordering the Company and its former
Chief Executive Officer (Dr. Martin A.
Welt), individually, to fund the cost of
a remedial investigation and feasibility
study (the "Study") designed to
determine the nature and extent of
contamination detected primarily on the
Rockaway, New Jersey operating Parcel II
(see Note 5). The Company agreed to pay
the costs of the Study and entered into
an Administrative Consent Order ("ACO")
with the DEP. The Company accrued the
estimated cost of the Study as of
December 31, 1986. In accordance with
the terms of the ACO, the Company posted
an $825,000 letter of credit which was
an amount equal to the estimated costs
of the Study and the DEP administrative
costs. As of December 31, 1996, all
amounts due had been paid and the letter
of credit returned.
In June 1989, the DEP issued a Second
Directive ("Directive II") seeking
payment from the Company and the prior
owner of the property (the "Prior
Owner") for approximately $1,200,000 to
pay for a Phase II Remedial
Investigation ("Phase II"). According to
Directive II, both the Company and the
Prior Owner were jointly and severally
liable for all costs to investigate and
clean up hazardous substances on the
property. The Phase II investigation was
designed to conduct further studies on
Parcel II and evaluate the nature of and
extent of contamination, if any, on the
65-acre area of the property where the
Prior Owner conducted its various
testing activities. In November 1991,
the DEP issued its "Remedial
Investigation Report".
30
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
In 1989, the Company filed a lawsuit
against the Prior Owner under the
Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"
or "Superfund"), seeking contribution
for all costs incurred by the Company in
connection with on-site investigation
and cleanup activities. In 1992, the
Company released the Prior Owner from
any liability under the Phase I and
Phase II investigations and the Prior
Owner paid the Company $900,000 (the
"Settlement Agreement") as a partial
payment against the DEP's claims for
reimbursement of expenditures for the
Phase II investigation. A portion of
these funds was permitted to be used to
support the surface cleanup required by
the DEP. The Prior Owner will only
become subject to further liability in
the event that the Company becomes
unable to perform the cleanup action(s)
required by the DEP. In addition, the
Prior Owner suspended for five years the
Company's obligation to make principal
and interest payments on the note issued
to support the purchase of a portion of
the Rockaway Industrial Park (see Note
7).
The Company has agreed to indemnify the
Prior Owner against generally all claims
for past or future costs associated with
studies, cleanups and/or other
remediation activities to the Rockaway
Industrial Park. The Company has
executed a mortgage ("Mortgage") on the
Rockaway Industrial Park in the amount
of $900,000 securing the Prior Owner to
the extent the Company does not meet its
obligations under the Settlement
Agreement. After the development of an
acceptable cost estimate for the
implementation of remedial actions, the
Prior Owner has agreed to adjust the
Mortgage to the amount of the cost
estimate. If the cost estimate exceeds
the actual fair value of the mortgaged
property (minus any other liens on the
mortgaged property), then the Company
will execute an additional mortgage for
the difference which will be secured by
the Company's personal property. If the
cost estimate is less than $900,000,
then the Mortgage will be reduced to the
estimated amount.
31
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
In 1993, and in conjunction with the
Settlement Agreement, the Company and
the Prior Owner entered into an
Administrative Consent Order ("ACO II")
with the DEP. In accordance with ACO II,
the Company agreed to pay DEP's
investigation and oversight costs for
the Phase II investigation, estimated to
be $1.2 million, which was charged to
operations in 1992. An initial payment
of $600,000 was made in 1993 under ACO
II. The remaining liability for the
Phase II study was being paid in
quarterly installments to be completed
in June 1997. In 1993, the Company
charged approximately $200,000 to
operations for additional costs related
to the Phase II study and deposited
$100,000 in a segregated
interest-bearing account. Funds in this
account were withdrawn after certain
provisions of ACO II were met by the
Company.
Both ACO II and the Settlement Agreement
provided that the Company was
responsible for all further cleanup
actions required by the DEP. Estimated
costs under ACO II and the Settlement
Agreement were recorded by the Company
in 1992. The Company and the DEP have
entered into a Memorandum of Agreement
("MOA") which stipulated the
responsibilities for an approved work
plan for the surface cleanup and
remediation required to be performed by
the Company. The Company accrued and
charged to operations approximately
$200,000 in 1992 for surface cleanup
which was completed in 1994 and
additional costs are not expected.
In connection with the Phase II
investigation, the DEP filed a First
Priority Lien against Parcel II and 65
acres of Parcel I. A general lien was
placed on all Company properties in the
State of New Jersey and all revenues of
the Company. Each lien was in the amount
of $329,670. In February 1995, the DEP
discharged all of its liens except for
its liens on the revenues of the
Company, on Parcel II and on the
Company's property located on Parcel II,
and reset its liens in the aggregate
amount of $560,490. In August 1996, the
Company made a payment of $575,000 to
the DEP as full settlement of all then
outstanding financial claims asserted
under the ACO II, as well as all such
claims which could be asserted for the
period ended October 31, 1996 and, as a
result, the DEP released the lien it had
placed on Parcel II.
32
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
In 1994, the DEP issued its Record of
Decision ("ROD") for the Rockaway
Industrial Park. The Company is required
by the DEP to perform certain
groundwater remediation actions and
implement a groundwater monitoring
program. A Remedial Action Work Plan
("RAWP") to implement the ROD is being
reviewed by the DEP. As of December 31,
1996, the Company has accrued
approximately $747,315 for the
anticipated costs of groundwater
programs.
Parcel II and a portion of Parcel I (see
Note 5) have been placed on the National
Priorities List (the "List"). The
Company believes its ability to dispose
of Parcel I acreage will be impaired
until it has been remediated and removed
from the List. Additionally, there can
be no assurances that the cleanup and
remediation efforts provided for by the
Company will represent its ultimate
liability.
The Company is delinquent in the payment
of local real estate taxes on 201 acres
of Parcel IB. Accordingly, $191,373 is
accrued at December 31, 1996.
In addition, in 1994, the Company was
named a respondent in an environmental
proceeding relating to a disposal site,
which the Company shipped a small amount
of material during 1982. The Company has
recorded an accrual for the estimated
liability of $32,247 as of December 31,
1996. The Company, based upon all
available information, is of the opinion
that the accrual is adequate and that
the ultimate disposition of this
environmental proceeding will not have a
material adverse effect on these
financial statements.
Environmental accruals at December 31,
1996 are:
- --------------------------------------------------------------------------------
Long-term:
Groundwater remediation $747,315
Nascolite site 32,247
- --------------------------------------------------------------------------------
Total $779,562
================================================================================
33
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
9. STOCKHOLDERS' EQUITY (A) COMMON AND PREFERRED STOCK AUTHORIZED,
ISSUED AND OUTSTANDING
Effective May 25, 1995, the Company's
Certificate of Incorporation was amended
to effect a one for eight reverse stock
split of common stock and authorize
2,000,000 shares of preferred stock. In
connection with the SteriGenics
transaction, the Company sold
SteriGenics, on March 11, 1996, 118,000
shares of Series A Preferred Stock for
$236,000 in cash. The preferred stock
was surrendered on August 8, 1996 in
payment of a portion of the purchase
price.
(B) STOCK OPTIONS
The Company's 1987 stock option plan
(the "Plan") authorizes the issuance of
options for common stock until November
3, 1997. The options granted were either
incentive stock options, which are
exercisable one year or more from the
date of grant or non-qualified stock
options, which may be exercisable
immediately. Pro forma disclosure of the
effects of the options in accordance
with SGAS 123, have not been provided,
as the effect weas not material. Details
of stock option transactions under the
1987 Plan for the two years, are as
follows:
RANGE OF
OPTION PRICE
OPTIONS PER SHARE EXERCISABLE
- --------------------------------------------------------------------------------
Outstanding, January 1,
1995 4,625 $6.48 - 7.76 3,208
=============
Granted 1,250 4.00
Cancelled (939) 6.48 - 7.76
- ------------------------------------------------------------------------------
Outstanding, December 31,
1995 4,936 4.00 - 7.76 3,686
=============
Granted - -
Cancelled (4,936) 4.00 - 7.76
- --------------------------------------------------------------------------------
Outstanding, December 31,
1996 - - -
================================================================================
34
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
10. OTHER INCOME (A) EXECUTIVE TERMINATION AGREEMENTS AND
LITIGATION
The Company and its former Chief
Executive Officer ("CEO"), had been in
litigation since 1987, arising from the
Company failing to pay the CEO under a
consulting agreement and the Company's
claims against the CEO for damages
arising out of actions of the CEO.
In 1995, the Company and the CEO settled
all litigation, whereby, the CEO paid
$144,830 to the Company.
(B) INSURANCE CLAIM SETTLEMENT
On January 29, 1996, the Company and
Birmingham Fire Insurance Company
("Birmingham") entered into a Settlement
Agreement and Release ("Agreement") for
environmental claims primarily relating
to the Company's Rockaway, New Jersey
property covered under Birmingham's
insurance policy for the period May 30,
1980 to May 30, 1983. On February 20,
1996, the Company received a total of
$580,000 for settlement in accordance
with the Agreement.
11. INCOME TAXES At December 31, 1995, the Company had a
deferred tax asset amount- ing to
approximately $4,600,000. The deferred
tax asset consisted primarily of the tax
benefit of net operating loss
carryforwards and a temporary difference
resulting from environmental accruals
(see Notes 6 and 8) and is fully offset
by a valuation allowance of the same
amount.
The net change in the valuation
allowance for deferred tax assets was a
decrease of approximately $500,000 in
1996. The net change is primarily due to
the recording of certain environmental
liabilities (see Note 8) and expiration
of net operating loss carryforwards.
Recoveries for income taxes differs from
the amount of income recoveries
determined by applying the applicable
U.S. statutory Federal income tax rate
to pretax loss from continuing
operations as a result of the decrease
in the valuation allowance to offset the
decrease in the deferred tax asset.
35
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
At December 31, 1996, the Company had
net operating loss carry-forwards of
approximately $12,000,000 available to
offset future Federal taxable income.
These carryforwards will expire from
1999 through 2011.
For state income tax purposes, primarily
related to New Jersey, the Company has
net operating loss carryforwards of
approximately $1,900,000, which will
expire from 1997 through 2001.
12. STATEMENTS OF CASH Supplemental disclosures of cash flow
FLOWS information are as follows:
1996 1995
- --------------------------------------------------------------------------------
Interest paid $122,725 $283,000
================================================================================
The Company financed purchases of Cobalt
60 amounting to approximately $914,000
in 1995.
13. SUBSEQUENT EVENT On February 24, 1997, the Company
acquired, through its newly established
subsidiary Refrigeration Technology Inc.
("RefTech"), substantially all of the
assets and assumed certain liabilities
of Quality Air, Inc. ("QAI") in a
business combination accounted for as a
purchase. The initial purchase price was
$660,938 and consisted of 235,000 shares
of the Company's common stock for net
liabilities of $543,000 with the excess
of purchase price over net liabilities
allocated to intangibles. In addition,
the Company has agreed to deliver to QAI
an additional 100,000 shares of common
stock, if and when the Company's pretax
fiscal year earnings from operations
exceed $800,000 and an additional
125,000 shares of common stock, if and
when such earnings exceed $1,200,000 or
in the event of an unsolicited bona-fide
tender offer for a majority of the
Company's outstanding common stock. The
additional shares are also contingent on
the earnings levels or tender offer
occurring prior to January 1, 2002.
36
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
In connection with the acquisition,
RefTech assumed QAI's purchase
commitments for inventories, supplies
and services aggregating $1,300,000.
RefTech has agreed to lend up to
$240,000 to the QAI Principals and has
the right to purchase certain equipment
and vehicles previously leased to QAI
from a related entity for an amount
equal to their fair market value.
Reftech entered into employment
agreements with three of the QAI
Principals for a five year term at
annual compensation of $80,000 each.
RefTech has also entered into an
agreement with Industrias QAI S.A. de
C.V. ("Industrias QAI"), a related
entity in Ciudad Juarez, Mexico, for the
right to acquire the outstanding stock
or the assets and liabilities of
Industrias QAI at RefTech's election at
any time on or before April 20, 1997 for
a nominal amount.
During the fourth quarter of 1996, in
contemplation of the QAI acquisition,
the Company advanced $670,000 to QAI to
fund its operations. The Company's
chairman also advanced $870,000 to QAI,
which amount was repaid to the chairman
by the Company at the closing.
37
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
BDO Seidman, LLP, independent auditors, currently is, and for more than
the Company's last two fiscal years has been, the Company's independent
auditors. Since the beginning of such two fiscal year period (i) BDO Seidman,
LLP, has not expressed reliance, in its audit report, on the audit services of
any other accounting firm and (ii) there have been no reported disagreements
between the Company and BDO Seidman, LLP, on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and the Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
Rick E. Bacchus 43 Director and President of RTI and President of Reftech
since February 24, 1997
Rockney D. Bacchus 41 Director and Vice President of RTI and Vice President-
Development of Reftech since February 24, 1997
Ronald A. Bacchus 39 Director and Vice President of RTI and Vice President-
Manufacturing of Reftech since February 24, 1997
Sanders Davies 50 Director of RTI since 1986
C.W. McMillan 71 Director of RTI since 1985
Theo W. Muller 58 Director and Chief Executive Officer of RTI since
January 1995, Chairman of RTI since February 24,
1997 and Sole Director, Chairman and Chief Executive
Officer of Reftech since February 24, 1997
George M. Whitmore, Jr. 69 Director of RTI since 1988
</TABLE>
Messrs. Davies. McMillan, Muller and Whitmore were elected as directors at
the Annual Meeting of Shareholders held on August 6, 1996. Messrs. Rick E.
Bacchus, Rockney D. Bacchus and Ronald A. Bacchus were elected as directors by
the Board of Directors effective February 24, 1997. Each director holds his
office until the next Annual Meeting of shareholders and until his successor is
elected or until his earlier resignation.
Executive officers are appointed by, and serve at the discretion of, the
Board of Directors for a term beginning on the date of their respective
appointments and until their respective successors are duly appointed and
qualified.
Rick E. Bacchus was elected President of the Company and of RefTech
effective February 24, 1997. From November 1996 until February 24, 1997, Mr.
Bacchus was president of QAI, and for the ten months prior thereto was employed
by QAI as an independent consultant. Mr Bacchus has been president of Bacchus
Industries, Inc. ("BII"), a predecessor of QAI, since 1977, although BII
discontinued its active business operations in September 1995.
Rockney D. Bacchus was elected Vice President of the Company and Vice
President-Development of RefTech effective February 24, 1997. From November 1996
until February 24, 1997, Mr. Bacchus was vice president
38
<PAGE>
of QAI, and for the ten months prior thereto was employed by QAI as an
independent consultant. Mr. Bacchus was a vice president of BII from 1977 until
January 1996.
Ronald A. Bacchus was elected Vice President of the Company and Vice
President-Manufacturing of RefTech effective February 24, 1997. From November
1996 until February 24, 1997, Mr. Bacchus was vice president of QAI, and for the
ten months prior thereto was employed by QAI as an independent consultant. Mr.
Bacchus was a vice president of BII from 1978 until January 1996.
Sanders Davies has been a partner in the firm of O'Connor, Davies & Co.,
certified public accountants, and its predecessor firm, Davies & Davies, for
more than the past five years.
C. W. McMillan has been president of C.W. McMillan Co. and its predecessor,
McMillan & Farrell Associates, Inc., agribusiness consultants, for more than the
past five years. From 1981 through March 1985, Mr. McMillan was an Assistant
Secretary of Agriculture of the United States.
Theo W. Muller has been Chief Executive Officer of the Company since
January 1995 and Chairman of the Company since February 24, 1997. Mr Muller was
President of the Company from January 1995 until February 24, 1997, and was a
director of the Company from May 1990 to November 1993. Mr. Muller also has been
sole director, Chairman and Chief Executive Officer of RefTech since February
24, 1997. Mr. Muller has been an independent investor for more than the past
five years and is a partner of Saler Associates, a residential real estate
developer. From 1985 until December 1994, Mr. Muller was president of Frellum
Corporation ("Frellum"), an aircraft leasing, and oil and gas production
company.
George M. Whitmore, Jr. has been managing director of Whitmore & Company,
a management consulting firm, for more than the past five years. Previously, Mr.
Whitmore was the chairman of the board and secretary of Rathbone, King & Seeley,
Inc., an insurance holding company which, on January 8, 1993, filed a petition
for liquidation under Chapter 7 of the United States Bankruptcy Code; Mr.
Whitmore's duties for such company were to chair meetings of its board of
directors, occasionally prepare minutes of such meetings and, from time to time,
attest to actions duly taken by such board.
Pursuant to the Acquisition Agreement in which the Company acquired the
business of QAI, the Company agreed that, during the period ending December 31,
2001, Rick E. Bacchus, Rockney D. Bacchus and Ronald A. Bacchus, as a group,
will have the non-assignable right to nominate three of the seven directors
constituting the Company's Board of Directors; Rick E. Bacchus, Rockney D.
Bacchus and Ronald A. Bacchus are currently serving as directors pursuant to
such agreement.
The Company pays its directors (other than full-time employees of the
Company) at the rate of $5,000 per year and reimburses its directors for their
out-of-pocket expenses incurred in connection with their services to the
Company.
No family relationship exists among the directors of the Company or
between any of such persons and the executive officers of the Company, except
that Rick E. Bacchus, Rockney D. Bacchus and Ronald A. Bacchus are brothers.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers, directors and persons who own more than 10% of the Company's Common
Stock to file within prescribed periods initial statements of beneficial
ownership and statements of changes in beneficial ownership of their shares of
Common Stock with the Securities and Exchange Commission and The Nasdaq
Small-Cap Market, on which the Company's Common Stock is traded. Such persons
also are required to furnish the Company with copies of all such statements they
file. Based on its review of the copies of such statements received by it and
written representations from certain of such persons, the Company believes that,
during 1996, all such filing requirements applicable to such persons were duly
complied with.
ITEM 10. EXECUTIVE COMPENSATION.
39
<PAGE>
GENERAL
No person who was an executive officer of the Company in 1996 received
annual compensation exceeding $100,000 during any of the three years ended
December 31, 1996. The following table sets forth information concerning
compensation for services in all capacities awarded or paid to, or earned by,
Theo W. Muller, the Company's Chief Executive Officer, during the two years
ended December 31, 1996. No stock appreciation rights, stock options or other
long-term compensation awards have ever been granted to Mr. Muller. During the
year ended December 31, 1996, Mr. Muller did not hold any options to acquire any
securities of the Company.
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY
Theo W. Muller, Chief Executive Officer 1996 $6,000
1995 $6,000
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Pursuant to employment agreements between RefTech and each of Rick E.
Bacchus, Rockney D. Bacchus and Ronald A. Bacchus, such persons have been
employed as President, Vice President-Development and Vice
President-Manufacturing, respectively, of RefTech for a five year term
commencing February 24, 1997 at an annual base salary of $80,000. In his
employment agreement, Rick E. Bacchus also has been employed as President of the
Company for the term of his employment agreement, and the Company has agreed
that, subject to its fiduciary duties, as the sole shareholder of RefTech, it
will encourage the directors of RefTech to elect Mr. Bacchus as the president of
RefTech during such term. Each of the employment agreements provides that upon a
termination of employment thereunder without cause, the terminated employee is
entitled to a continuation of salary for a period of two months in lieu of any
other entitlements.
As set forth above under Item 1 - "Business - Acquisition of QAI", on
February 24, 1997, RefTech acquired the business and substantially all of the
assets of QAI. In connection therewith, RefTech agreed to deliver to QAI up to
an additional 225,000 shares of the Company's Common Stock at such time as
certain operating results are achieved, if such results are achieved prior to
January 1, 2002. The Company has agreed that, in the event of an unsolicited
bona-fide tender offer for a majority of the Company's then outstanding Common
Stock initiated prior to January 1, 2002, which the Company's Board of Directors
determines not to recommend to the Company's shareholders, such shares will be
delivered even if such results have not yet been achieved. Rick E. Bacchus,
Rockney D. Bacchus and Ronald A. Bacchus currently own substantially all of the
capital stock of QAI.
Except as aforesaid, the Company does not have any employment agreement or
termination or change in control arrangement with any of its executive officers.
1987 STOCK OPTION PLAN
The Company's 1987 Stock Option Plan (the "1987 Plan") was adopted by the
Board of Directors of the Company on November 4, 1987 and approved by the
shareholders of the Company on May 25, 1988. The 1987 Plan, as amended,
authorized the issuance, within ten years from the date of its adoption, of
options covering up to 90,625 shares of Common Stock (subject to adjustment in
certain circumstances) to such key employees or other individuals (including
executive officers and directors of and consultants to the Company) who have
performed, or reasonably may be expected to perform, services of special
importance to the management, operation or development of the business of the
Company. As of March 15, 1997, no options were outstanding under the 1987 Plan
and 16,498 shares of Common Stock were available, until November 3, 1997, for
the grant of future options under the 1987 Plan. The 1987 Plan is intended to
provide an incentive to continued employment of key employees of the Company and
other individuals by enabling them to acquire a proprietary interest in the
Company and by offering comparable incentives to enable the Company better to
attract, compete for and retain highly qualified employees and consultants.
Options granted under the 1987 Plan may be either "Incentive Stock
Options" as that term is defined in Section 422 of the Internal Revenue Code of
1986 (the "Code"), or options which do not qualify as Incentive Stock Options
("Non-Qualified Stock Options"). Incentive Stock Options may be granted only to
key individuals, including
40
<PAGE>
executive officers and directors, who are employees of the Company. An Incentive
Stock Option must expire within ten years from the date it is granted (five
years in the case of such options granted to holders of more than 10% of the
outstanding Common Stock). Incentive Stock Options are first exercisable not
earlier than one year from the date of grant. The exercise price of an Incentive
Stock Option must be at least equal to the fair market value of the Common Stock
on the date such Incentive Stock Option is granted and must be paid in cash or
in capital stock of the Company valued at its then fair market value. To the
extent the aggregate fair market value of Incentive Stock Options that are
exercisable for the first time by an optionee during any calendar year exceeds
$100,000, such options will be treated as Non-Qualified Stock Options.
In addition, the Company may issue Non-Qualified Stock Options under the
1987 Plan to executive officers, directors and key employees of the Company and
advisors and consultants to the Company. The exercise price of these options is
not limited and may be below fair market value.
Incentive Stock Options terminate three months after the optionee's
relationship with the Company is terminated (one year if termination is by
reason of death or disability). In the case of Non-Qualified Stock Options, such
options terminate as determined by the Board of Directors, and set forth in the
option agreement between the Company and the optionee.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Set forth below is information, as of March 15, 1997, with respect to (i)
each person who is known by the Company to be the beneficial owner of more than
5% of the Common Stock, (ii) each of the current directors of the Company, and
(iii) the beneficial ownership of Common Stock by all current directors and all
executive officers of the Company, as a group (seven persons).
NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF OWNER OF COMMON STOCK OF CLASS
Quality Air, Inc. 235,000(a) 17.6%
c/o Rick E, Bacchus
301 Antone Street
Sunland Park, New Mexico 88063
Theo W. Muller 155,393(b) 11.6%
20 Peach Hill Road
Darien, Connecticut 06820
Rick E. Bacchus 77,942(c) 5.8%
301 Antone Street
Sunland Park, New Mexico 88063
Rockney D. Bacchus 77,942(c) 5.8%
301 Antone Street
Sunland Park, New Mexico 88063
Ronald A. Bacchus 77,942(c) 5.8%
301 Antone Street
Sunland Park, New Mexico 88063
Sanders Davies 1,500 *
C.W. McMillan 2,052 *
George M. Whitmore, Jr. 3,125 *
All directors and executive 395,896(d) 29.6%
officers, as a group
41
<PAGE>
- ----------
* Represents less than 0.1% of the issued and outstanding shares of Common
Stock.
(a) Includes 50,000 shares of Common Stock held in escrow to cover possible
indemnifications claims, but excludes up to 225,000 additional shares which
may be issued to QAI if the Company achieves certain operating results. See
Item 1 - "Business -- Acquisition of QAI." Rick E. Bacchus, Rockney D.
Bacchus and Ronald A. Bacchus, directors and executive officers of the
Company, are stockholders of QAI. Each of such persons claims beneficial
ownership in approximately 33.2% of the shares held by QAI, and although he
may be deemed to beneficially own the remaining shares held of record by
QAI, disclaims beneficial ownership in such remaining shares.
(b) Consists of (i) 130,393 shares directly owned by Theo W. Muller, and (ii)
25,000 shares directly owned by Frellum, which is 50.1% owned by Mr.
Muller. See Item 12 - "Certain Relationships and Related Transactions."
(c) Consists of approximately 33.17% of the shares of Common Stock held by QAI.
See note (a) to this table.
(d) Includes the shares referenced in notes (b) and (c) above.
The Company does not know of any arrangements, including any pledge by any
person of securities of the Company, the operation of which at a subsequent date
may result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During January 1995, Theo W. Muller settled for $50,000 an account payable
of the Company, which was repaid to Mr. Muller, without interest, in March 1995.
On November 29, 1995, Frellum, a Delaware company which is 50.1% owned by
Mr. Muller, agreed to make available to the Company a $250,000 line of credit.
The line of credit, which initially was scheduled to expire on October 29, 1996,
has been extended to April 28, 1997 and the line of credit has been increased to
$315,000. Loans under such credit line are secured by the Company's accounts
receivable, bear interest at 8% per annum, may be repaid at any time and become
due 30 days after written demand therefor is made, which demand may not be made
prior to the expiration of such credit line. During the two years ended December
31, 1996, $315,000 of loans were made by Frellum under the credit line, all of
which were repaid on February 21, 1996, with accrued interest of $2,931 thereon.
As part of such transaction, the Company issued to Frellum a warrant, expiring
November 28, 1997, to acquire 25,000 shares of the Company's Common Stock at
$1.75 per share (104% of the last sale price of the Common Stock on The Nasdaq
Small-Cap Market on the day immediately prior to such issuance), which warrants
were exercised on June 7, 1996. Frellum also was granted certain piggyback
registration rights with respect to such shares if the Company registers its
securities under certain circumstances with the Securities and Exchange
Commission prior to November 28, 1997.
As set forth above under Item 1 - "Business -- Acquisition of QAI", on
February 24, 1997, the Company's wholly-owned subsidiary, RefTech, in the QAI
Transaction, acquired the business and substantially all of the assets of QAI
for the consideration set forth therein. The Company has been advised by QAI
that the stockholders of QAI had a basis in their investment in QAI of
approximately $150,000 and that the stockholders of QAI's affiliate, Industrias
QAI, had a nominal basis in their investment in Industrias QAI. The tangible
assets of QAI, as of January 31, 1997, consisted of furniture, equipment and
vehicles which originally cost $181,899 (unaudited) and inventories of $301,920
(unaudited). In addition, QAI had an investment in Industrias QAI, as of January
31, 1997, of $222,684 (unaudited). The audited balance sheet of Industrias QAI,
as of December 31, 1996, reflected tangible assets consisting solely of
property, plant and leasehold improvements with an original cost of $155,890.
All of the assets of QAI and Industrias QAI were purchased by such companies
within the two years prior to February 24, 1997.
As part of the QAI Transaction, RefTech entered into employment agreements
with Rick E. Bacchus, Rockney D. Bacchus and Ronald A. Bacchus, each of whom
became a director and executive officer of the Company upon the consummation of
the QAI Transaction. See Item 10 - "Executive Compensation -- Employment
Contracts
42
<PAGE>
and Termination of Employment and Change-in-Control Arrangements" for the
material terms of such employment agreements. In addition, RefTech continued the
employment of Philis Bacchus, the wife of Rick E. Bacchus, who handled personal
administration and certain bookkeeping functions for QAI and who has assumed
similar responsibilities for RefTech, at a salary of $28,730 per annum. RefTech
also agreed to lend Rick E. Bacchus, Rockney D. Bacchus and Ronald A. Bacchus,
collectively, up to an aggregate of $240,000, repayable with interest at 1% over
prime during the period ending December 31, 2001, which loans are to be secured
by their respective shares of the Company's Common Stock received by QAI in the
QAI Transaction upon distribution of such shares to them by QAI in liquidation
of QAI. As of March 15, 1997, an aggregate of $55,000 (in two separate
transactions) had been loaned to Rick E. Bacchus and Philis Bacchus, jointly,
pursuant to such arrangement, except that repayment thereof is over the five
year period from the date of the respective loan and the loans are to be secured
by the makers' shares of QAI stock until such time as the Company's Common Stock
is distributed to them by QAI.
As described under Item 2 - "Description of Properties", RefTech leases its
Sunland Park, New Mexico facility from Bacchus Industries, Inc. As part of the
QAI Transaction, Bacchus Industries, Inc. granted the right to RefTech to
acquire, at fair market value (which is less than acquisition cost), certain
equipment and vehicles which had been used by QAI. At the present time, RefTech
has the use of such equipment and vehicles, without any cost, until it
determines whether to make such acquisition. If all of such acquisition is made,
the Company believes that its purchase price therefor will not exceed $250,000.
In contemplation of the consummation of the QAI Transaction, Theo W.
Muller, Chairman and Chief Executive Officer and a director of the Company, and
his affiliated companies, lent QAI an aggregate of $870,000 with interest
thereon at the rate of 8.5% per annum. Upon consummation of the QAI Transaction,
such indebtedness was assumed by RefTech, the principal amount was repaid in
full on February 24, 1997, and approximately $5,650 of accrued interest thereon
remains outstanding. See Item 1 - "Business -- Acquisition of QAI".
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.1
All financial statements required to be filed as part of this Annual
Report on Form 10-KSB are filed under Item 7 of this Form 10-KSB. A listing of
such financial statements is set forth in Item 7, which listing is incorporated
herein by reference.
3. Articles of incorporation and by-laws.
3.1 (a) Certificate of Incorporation, as filed by the New York Department
of State on August 27, 1968. (1)
(b) Certificate of Amendment of Certificate of Incorporation, as
filed by the New York Department of State on December 18, 1968.
(1)
(c) Certificate of Change, as filed by the New York Department of
State on September 28, 1970. (1)
(d) Certificate of Amendment of Certificate of Incorporation, as
filed by the New York Department of State on October 15, 1971.
(1)
(e) Certificate of Amendment of Certificate of Incorporation, as
filed by the New York Department of State on July 9, 1983. (1)
(f) Certificate of Amendment to Certificate of Incorporation, as
filed by the New York Department of State on June 6, 1988. (2)
- --------
1 Footnotes to Exhibits are at the end of this listing of Exhibits. Except as
specifically noted, the Exhibits listed herein have been filed previously and
are incorporated herein by reference.
43
<PAGE>
(g) Certificate of Merger of Process Technology (NC), Inc. into RTI
Inc., as filed by the New York Department of State on December
20, 1991. (5)
(h) Certificate of Amendment to Certificate of Incorporation, as
filed by the New York Department of State on May 25, 1995. (8)
(i) Certificate of Amendment to Certificate of Incorporation, as
filed by the New York Department of State on February 27, 1996.
(9)
3.2 (a) By-laws, as in effect on February 16, 1997. (7)
(b) Amendment of Sections 5.6 and 5.7 of the By-Laws, effective
February 17, 1997. (11)
4. Instruments defining the rights of security holders, including indentures.
4.1 Form of Common Stock certificate. (1)
9. Voting trust agreement and amendments -- none
10. Material contracts.
10.1 (a) Administration Consent Order in the Matter of Radiation
Technology, Inc., dated March 10, 1987, of the State of New
Jersey Department of Environmental Protection Division of
Hazardous Waste Management. (1)
(b) Directive II, dated June 30, 1989, from the State of New Jersey
Department of Environ- mental Protection in the Matter of the
Radiation Technology Site and Morton Thiokol, Inc. and RTI Inc.
respondents. (4)
(c)(i) Administrative Consent Order, dated December 7, 1992, of the
State of New Jersey Department of Environmental Protection and
Energy, in the Matter of RTI Inc. Site, RTI Inc. and Thiokol
Corporation. (6)
(c)(ii) Amendment to Administrative Consent Order, dated August 2, 1994,
of the State of New Jersey Department of Environmental Protection
and Energy. (7)
(d) Record of Decision - Radiation Technology Incorporated (RTI) with
respect to a site in Rockaway Township, Morris County, New
Jersey, issued in 1994 by the New Jersey Department of
Environmental Protection and Energy. (7)
10.2 (a) Credit Agreement, dated as of December 1, 1978, among New Jersey
Economic Development Authority, Radiation Technology, Inc. and
New Jersey National Bank. (1)
(b) Bond Purchase Agreement, dated as of December 1, 1978, among New
Jersey Economic Development Authority, Radiation Technology, Inc.
and Thiokol Corporation. (1)
(c) Promissory Note, dated December 14, 1978, from Radiation
Technology, Inc. to New Jersey Economic Development Authority in
the principal amount of $820,000. (1)
(d) Mortgage, dated December 14, 1978, between Radiation Technology,
Inc. and New Jersey Economic Development Authority. (1)
(e) Assignment of Leases and Rents, dated December 14, 1978, from
Radiation Technology, Inc. (1)
44
<PAGE>
(f) Settlement Agreement, dated December 18, 1992, between RTI Inc.
and Thiokol Corporation. (6)
(g) Mortgage, dated December 18, 1992, between RTI Inc. and Thiokol
Corporation. (6)
(h) Escrow Agreement, dated January 18, 1993, among RTI Inc., Thiokol
Corporation and Archer & Greiner, a Professional Corporation. (6)
(i) Assignment of Mortgage, Note, Assignment of Leases and Rents,
Credit Agreement and Pledge of Revenues, dated January 29, 1993,
by New Jersey National Bank. (6)
10.3 (a) Administrative Order of the United States Environmental
Protection Agency (Index No. II-CERCLA-94-0124), dated August 9,
1994, In the Matter of the Nascolite Corporation Site. (7)
(b) Nascolite Corporation Superfund Site Tolling Agreement, dated
February 2, 1995, between the United States of America and RTI
Inc. (7)
(c) Partial Consent Decree in the Matter of United States of America,
plaintiff, v. American Optical Company, B. Jadow and Sons, Inc.,
Bethlehem Steel Corporation, CPS Chemical Company, Inc., Cyro
Industries Inc., Cytec Industries, Dentsply International, Inc.,
E.I. DuPont de Nemours & Co., and RTI, inc., defendants.
10.4 (a) Asset Acquisition Agreement, dated as of February 26, 1996,
between SteriGenics International and RTI Inc. (9)
(b) Lease Agreement between SteriGenics International and RTI Inc.
(10)
10.5 (a) Acquisition Agreement, dated February 24, 1997, by and among
Refrigeration Technology, Inc., Quality Air, Inc., Margie J.
Bacchus, Philis Bacchus, Rick E. Bacchus, Rockney D. Bacchus, Ron
Bacchus and Opal Simmons. (11)
(b) Escrow Agreement, dated as of February 24, 1997, by and among
Refrigeration Technology, Inc., Quality Air, Inc., Margie J.
Bacchus, Philis Bacchus, Rick E. Bacchus, Rockney D. Bacchus, Ron
Bacchus and Opal Simmons, and Warshaw Burstein Cohen Schlesinger
& Kuh, LLP, as escrow agent. (11)
(c) Lease, dated February , 1997, between Stanley Jobe and Quality
Air, Inc. and/or assigns. (11)
(d) Employment Agreement, dated February 24, 1997, between
Refrigeration Technology, Inc. and Rick E. Bacchus. (11)
(e) Employment Agreement, dated February 24, 1997, between
Refrigeration Technology, Inc. and Rockney D. Bacchus. (11)
(f) Employment Agreement, dated February 24, 1997, between
Refrigeration Technology, Inc. and Ron Bacchus.(11)
(g) Conditional Sale and Purchase Agreement, dated February 19, 1997,
by and between Industrias Q.A.I., S.A. de C.V., Opal Elizabeth
Simmons Wheeler, Robert Harvey Given Trackman and Refrigeration
Technology, Inc. (11)
(h) Contract of Lease, dated February 1, 1996, between Polifibras de
Chihuahua, S.A. de C.V. and Industrias Q.A.I., S.A. de C.V.
45
<PAGE>
(i) Revolving Credit Note, dated December 2, 1996, in the principal
aggregate amount of $720,000, between RTI, Inc. and Quality Air,
Inc. (11)
(j) Form of Promissory Note from Quality Air, Inc. to Theo W. Muller
and his assigns. (11)
(k) Contract of Sale, dated February 11, 1997, between Quality Air,
Inc. and/or assigns and Stanley P. Jobe.
(l) Sales Agreement and Lease (Invoice #028019), dated October 21,
1994, between Bacchus Industries Inc. and Spec-Air.
(m) Lease of Real Property; Improvements; Other Assets; and
Miscellaneous Respective Agreements, dated March 13, 1997,
between Bacchus Industries, Inc. and Refrigeration Technology,
Inc.
(n) Promissory Note, dated December 30, 1996, from Rick Bacchus and
Philis Bacchus to Quality Air, Inc. in the principal amount of
$5,000.
(o) Promissory Note, dated March 11, 1997, from Rick Bacchus and
Philis Bacchus to Refrigeration Technology Inc. in the principal
amount of $50,000.
10.6 (a) 1987 Stock Option Plan of Radiation Technology, Inc. (3)
11. Statement re computation of per share earnings - not required since such
computation can be determined clearly from the material contained in this
Annual Report on Form 10-KSB.
13. Annual report to security holders, Form 10-Q or quarterly report to
security holders - not applicable.
16. Letter on change in certifying accountant - not applicable.
18. Letter on change in accounting principles - none.
21. Subsidiaries of the small business issuer.
(a) Refrigeration Technology Inc. (incorporated in Delaware)
(b) Process Technology, Inc. (incorporated in Arkansas) (inactive)
22. Published report regarding matters submitted to vote of security holders -
not applicable.
23. Consents of experts and counsel.
(a) Consent of BDO Seidman, LLP, to incorporation of financial statements
in Form S-8 Registration Statement (No. 33-34063).
24. Power of attorney - none.
27. Financial Data Schedule
28. Information from reports furnished to state insurance regulatory
authorities - not applicable.
99. Additional exhibits - none.
- --------
(1) Incorporated by reference; filed as an Exhibit to the Company's Annual
Report on Form 10-K for its fiscal year ended December 31, 1986.
46
<PAGE>
(2) Incorporated by reference; filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for its fiscal quarter ended September
30, 1987.
(3) Incorporated by reference; filed as an Exhibit to the Company's Annual
Report on Form 10-K for its fiscal year ended December 31, 1987.
(4) Incorporated by reference; filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for its fiscal quarter ended June 30,
1989.
(5) Incorporated by reference; filed as an Exhibit to the Company's Annual
Report on Form 10-K for its fiscal year ended December 31, 1991.
(6) Incorporated by reference; filed as an Exhibit to the Company's Annual
Report on Form 10-KSB for its fiscal year ended December 31, 1992.
(7) Incorporated by reference; filed as an Exhibit to the Company's Annual
Report on Form 10-KSB for its fiscal year ended December 31, 1994.
(8) Incorporated by reference; filed as an Exhibit to the Company's
Quarterly Report on Form 10-QSB for its fiscal quarter ended June 30,
1995.
(9) Incorporated by reference; filed as an Exhibit to the Company's Annual
Report on Form 10-KSB for its fiscal year ended December 31, 1995.
(10) Incorporated by reference; filed as an Exhibit to the Company's
Current Report on Form 8-K, dated August 23, 1996.
(11) Incorporated by reference; filed as an Exhibit to the Company's
Current Report on Form 8-K, dated March 6, 1997.
(b) REPORTS ON FORM 8-K. No report on Form 8-K was filed by the Company
during the fourth quarter of its fiscal year ended December 31, 1996, although a
report on Form 8-K (responding to Item 2 - "Acquisition or Disposition of
Assets") was filed by the Company in March 1997.
47
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 27, 1997
RTI INC.
By: /S/
---------------------------------------
Theo W. Muller, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Dated: March 27, 1997 /s/ Rick E. Bacchus
---------------------------------
Rick E. Bacchus, Director
March 27, 1997 /s/ Rockney D. Bacchus
---------------------------------
Rockney D. Bacchus, Director
March 27, 1997 /s/ Ronald A/ Bacchus
---------------------------------
Ronald A. Bacchus, Director
March 27, 1997 /s/ Sanders Davies
---------------------------------
Sanders Davies, Director
March 27, 1997 /s/ C.W. McMillan
---------------------------------
C. W. McMillan, Director
March 27, 1997 /s/ Theo W. Muller
---------------------------------
Theo W. Muller, Director
March 27, 1997 /s/ George M. Whitmore, Jr.
---------------------------------
George M. Whitmore, Jr., Director
March 27, 1997 /s/ Theo W. Muller
---------------------------------
Theo W. Muller
Chief Executive Officer
(Principal Executive, Financial
and Accounting Officer)
48
EXHIBIT 10.3(c)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
- ------------------------------------
)
United States of America )
)
Plaintiff, )
) Civil Action No.
v. )
)
American Optical Company )
B. Jadow and Sons, Inc. )
Bethlehem Steel Corporation )
CPS Chemical Company, Inc. )
Cyro Industries Inc. )
Cytec Industries )
Dentsply International, Inc. )
E.I. DuPont de Nemours & Co. )
RTI, Inc. )
)
Defendants. )
- ------------------------------------
PARTIAL CONSENT DECREE
<PAGE>
I. BACKGROUND
A. The United States of America ("United States"), on behalf of the
Administrator of the United States Environmental Protection Agency (as defined
below, "EPA"), filed a complaint in this matter pursuant to Sections 106 and 107
of the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (as defined below, "CERCLA"), 42 U.S.C. ss.ss. 9606 and 9607,
seeking injunctive relief regarding the cleanup of the Nascolite Corporation
Superfund Site in Millville and Vineland, New Jersey (as defined below, "Site"),
and recovery of costs incurred and to be incurred in responding to the release
or threat of release of hazardous substances at or in connection with the Site.
B. As a result of the release or threatened release of hazardous
substances, EPA has undertaken response actions at or in connection with the
Site under Section 104 of CERCLA, 42 U.S.C. ss. 9604, and will undertake
response actions in the future. In performing these response actions, EPA has
incurred and will continue to incur Response Costs (as defined below) at or in
connection with the Site.
C. Pursuant to Section 105 of CERCLA, 42 U.S.C. ss. 9605, EPA placed the
Site on the National Priorities List, set forth at 40 C.F.R. Part 300, Appendix
B, by publication in the Federal Register in September, 1983.
D. In response to a release or a substantial threat of a release of
hazardous substances at or from the Site, and with funds provided by EPA, in
November, 1984 the New Jersey Department of Environmental Protection ("State")
commenced a Remedial Investigation and Feasibility Study ("RI/FS") for the Site
pursuant to 40 C.F.R. ss. 300.430.
E. At the conclusion of the RI/FS, EPA and the State determined that
additional data were necessary to assess remedial actions for contaminated
soils. However, there was sufficient information available upon which to begin
planning remedial activities to treat contaminated groundwater. Consequently,
the Site was divided into two operable units, the first of which
<PAGE>
addresses groundwater (as defined below, "OU1") and the second of which
addresses surface soils and on-site structures (as defined below, "OU2").
F. Pursuant to Section 117 of CERCLA, 42 U.S.C. ss. 9617, EPA published
notice of the completion of the RI/FS and of the proposed plan for the OU1
remedial action in February of 1988, in a major local newspaper of general
circulation. EPA provided an opportunity for written and oral comments from the
public on the proposed plan for the OU1 remedial action. A public meeting
concerning OU1 was held on March 7, 1988 in the Millville City Hall Municipal
Complex.
G. The decision by EPA on the OU1 remedial action implemented and to be
implemented at the Site is embodied in a final record of decision executed on
March 31, 1988 ("OU1 Record of Decision"). The OU1 Record of Decision includes a
responsiveness summary to public comments. Notice of the final plan was
published in accordance with Section 117(b) of CERCLA.
H. On March 31, 1989 EPA entered into an Administrative Order on Consent
(II-CERCLA-90102) with American Cyanamid Company (the predecessor to Cytec
Industries Inc.) and CYRO Industries Inc. for the installation of a water main
to potentially effected residents, as required by the OU1 Record of Decision.
I. On September 24, 1990 EPA issued an Administrative Order (Index No.
II-CERCLA-00115) to, among others, Defendants B. Jadow and Sons, Inc. and
Dentsply International, Inc. The Administrative Order required the Respondents
named therein to undertake and complete the OU1 remedial design, remedial action
and operation and maintenance phases of work.
J. On August 9, 1994 EPA issued an Administrative Order (Index No.
II-CERCLA-94-0124) to Defendants CPS Chemical Company, Inc., RTI, Inc. and
Bethlehem Steel Corporation. The Administrative Order required these three
Respondents to coordinate the undertaking of remedial activities with the
Respondents named in the 1990 Administrative Order.
2
<PAGE>
K. Pursuant to the two Administrative Orders, certain of the Respondents
named therein have funded the OU1 remedial design and a portion of the OU1
remedial action.
L. On June 28, 1991 the Record of Decision for OU2 was issued ("OU2 Record
of Decision"). The OU2 Record of Decision calls for remediation of soils at the
Site. EPA has funded and completed the remedial design called for by the OU2
Record of Decision.
M. The Regional Administrator of EPA, Region II, or her delegatee, has
determined the following:
1. prompt settlement with each Settling Defendant (as defined below)
is practicable and in the public interest within the meaning of Section
122(g)(1) of CERCLA, 42 U.S.C. ss. 9622(g)(1);
2. the payment to be made by each Settling Defendant under this
Consent Decree (as defined below) involves only a minor portion of the Response
Costs at the Site within the meaning of Section 122(g)(1) of CERCLA, 42 U.S.C.
ss. 9622(g)(1), based upon EPA's estimate that the total Response Costs incurred
and to be incurred at or in connection with the Site by the EPA Hazardous
Substance Superfund (as defined below) and by private parties is between
$30,000,000 and $35,000,000; and
3. the amount of hazardous substances contributed to the Site by each
De Minimis Settling Defendant and the toxic or other hazardous effects of the
hazardous substances contributed to the Site by each De Minimis Settling
Defendant is minimal in comparison to other hazardous substances at the Site
within the meaning of Section 122(g)(1)(A) of CERCLA, 42 U.S.C. ss.
9622(g)(1)(A). This is because the amount of hazardous substances contributed to
the Site by each De Minimis Settling Defendant does not exceed approximately
1.61% of the more than 5,100,000 pounds of hazardous substances sent to the Site
and the hazardous substances contributed by each De Minimis Settling Defendant
to the Site are not significantly more toxic or of
3
<PAGE>
significantly greater hazardous effect than other hazardous substances at the
Site. Appendix A.
N. The Settling Defendants do not admit any liability to the United States
arising out of the transactions or occurrences alleged in the complaint.
O. The United States and Settling Defendants agree that settlement without
further litigation and without the admission or adjudication of any issue of
fact or law is the most appropriate means of resolving this action with respect
to Settling Defendants.
THEREFORE, with the consent of the Parties (as defined below) to this
Consent Decree, it is ORDERED, ADJUDGED, and DECREED:
II. JURISDICTION
------------
1. This Court has jurisdiction over the subject matter of this action
pursuant to 28 U.S.C. ss.ss. 1331 and 1345 and 42 U.S.C. ss. 9613(b), and also
has personal jurisdiction over Settling Defendants. Settling Defendants consent
to and shall not challenge the terms of this Consent Decree or this Court's
jurisdiction to enter and enforce this Consent Decree.
III. PARTIES BOUND
-------------
2. This Consent Decree is binding upon the United States and upon
Settling Defendants and their successors and assigns. Any change in ownership or
corporate or other legal status of a Settling Defendant, including but not
limited to, any transfer of assets or real or personal property shall in no way
alter such Settling Defendant's responsibilities under this Consent Decree.
IV. STATEMENT OF PURPOSE
--------------------
3. By entering into this Consent Decree, the mutual objectives of the
Parties are:
4
<PAGE>
a. to reach a final settlement among the Parties with respect to
the Site pursuant to Section 122(g) of CERCLA, 42 U.S.C. ss. 9622(g), that
allows Settling Defendants to make a cash payment, including a premium, to
resolve their alleged civil liability under Sections 106 and 107 of CERCLA, 42
U.S.C. ss.ss. 9606 and 9607, for injunctive relief with regard to the Site and
for Response Costs incurred and to be incurred at or in connection with the
Site, thereby reducing litigation relating to the Site;
b. to simplify any remaining administrative and judicial
enforcement activities concerning the Site by eliminating a number of
potentially responsible parties from further involvement at the Site; and
c. to obtain settlement with Settling Defendants for their fair
share of Response Costs incurred at or in connection with the Site, and to be
incurred at or in connection with the OU1 Remedy, by the EPA Hazardous Substance
Superfund, and by private parties, and to provide for full and complete
contribution protection for Settling Defendants with regard to the Site pursuant
to Sections 113(f)(2) and 122(g)(5) of CERCLA, 42 U.S.C. ss.ss. 9613(f)(2) and
9622(g)(5).
V. DEFINITIONS
-----------
4. Unless otherwise expressly provided herein, terms used in this
Consent Decree that are defined in CERCLA or in regulations promulgated under
CERCLA shall have the meaning assigned to them in the statute or regulations.
Whenever the terms listed below are used in this Consent Decree, the following
definitions shall apply:
a. "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601, et seq.
5
<PAGE>
b. "Consent Decree" shall mean this Consent Decree and all
appendices attached hereto. In the event of conflict between this Consent Decree
and any appendix, the Consent Decree shall control.
c. "Day" shall mean a calendar day. In computing any period of
time under this Consent Decree, where the last day would fall on a Saturday,
Sunday, or federal holiday, the period shall run until the close of business of
the next working day.
d. "EPA" shall mean the United States Environmental Protection
Agency and any successor departments, agencies or instrumentalities.
e. "EPA Hazardous Substance Superfund" shall mean the Hazardous
Substance Superfund established by the Internal Revenue Code, 26 U.S.C. ss.
9507.
f. "Interest" shall mean interest at the current rate specified
for interest on investments of the EPA Hazardous Substance Superfund established
by 26 U.S.C. ss. 9507, compounded annually on October 1 of each year, in
accordance with 42 U.S.C. ss. 9607(a).
g. "OU1" shall mean the operable unit addressing groundwater
contamination at the Site, as described in the OU1 Record of Decision.
h. "OU1 Remedy" shall mean all response actions undertaken at the
Site to implement the remedy identified in the OU1 Record of Decision.
i. "OU2" shall mean the operable unit addressing contaminated
surface soils and structures at the Site, as described in the OU2 Record of
Decision.
j. "OU2 Remedy" shall mean all response actions undertaken at the
Site other than the response actions undertaken to implement the remedy
identified in the OU1 Record of Decision. This definition shall include, but not
be limited to, those response actions undertaken to implement the remedy
identified in the OU2 Record of Decision, and any response actions that may be
undertaken as part of additional operable units.
6
<PAGE>
k. "Paragraph" shall mean a portion of this Consent Decree
identified by an arabic numeral or an upper or lower case letter.
l. "Parties" shall mean the United States and the Settling
Defendants.
m. "Response Costs" shall mean all costs of "response" as that
term is defined by Section 101(25) of CERCLA, 42 U.S.C. ss. 9601(25).
n. "Section" shall mean a portion of this Consent Decree
identified by a roman numeral.
o. "Settling Defendants" shall mean those persons, corporations
or other entities listed in Appendix B.
p. "Site" shall mean the Nascolite Corporation Superfund site,
encompassing approximately 17.5 acres, located at the intersection of U.S. Route
55 and Wheaton Avenue on Doris Avenue in Millville and Vineland, Cumberland
County, New Jersey and depicted generally on the map attached as Appendix C.
q. "United States" shall mean the United States of America,
including its departments, agencies and instrumentalities.
7
<PAGE>
VI. PAYMENT
-------
5. By the latter of either January 15, 1997 or 30 Days after the
effective date of this Consent Decree, each Settling Defendant shall pay to the
EPA Hazardous Substance Superfund the amount set forth below:
B. Jadow and Sons, Inc. .......................$231,762
Bethlehem Steel Corporation ................... $53,746
CPS Chemical Company, Inc. ....................$576,870
Dentsply International, Inc. ........................$1
RTI, Inc. ......................................$32,247
6. Each Settling Defendant's payment, other than that to be made by
Dentsply International, Inc. ("Dentsply"), includes an amount for: (a) past
Response Costs incurred at or in connection with the Site; (b) projected future
Response Costs to be incurred in connection with the OU1 Remedy ("OU1 Future
Costs"); and (c) a 100% premium on OU1 Future Costs to cover the risks and
uncertainties associated with this settlement, including but not limited to, the
risk that total Response Costs incurred or to be incurred at or in connection
with the OU1 Remedy by the EPA Hazardous Substance Superfund, or by any private
party, will exceed the estimated total Response Costs upon which Settling
Defendants' payments are based. Dentsply has previously paid $37,400 to fund a
portion of the OU1 Remedy, an amount in excess of Dentsply's allocated portion
of past Response Costs, OU1 Future Costs and the 100% premium which has been
added to OU1 Future Costs. B. Jadow and Sons, Inc. ("B. Jadow") has previously
paid $29,800 to fund a portion of the OU1 Remedy; this amount has been deducted
to reach the payment figure stated above for B. Jadow.
7. Each payment shall be made by certified or cashier's check made
payable to "EPA Hazardous Substance Superfund." Each check shall reference the
name and address of the party making payment, the Site name, the EPA Region and
Site Spill ID Number 02C6 and DOJ Case Number 90-11-2-492 and shall be sent to:
EPA Superfund
EPA Region II
Attention: Superfund Accounting
P.O. Box 360188M
Pittsburgh, PA 15251
8
<PAGE>
8. At the time of payment, each Settling Defendant shall send notice
that such payment has been made to:
Chief, Environmental Enforcement Section
United States Department of Justice
DOJ Case No. 90-11-2-492
P.O. Box 7611
Washington, D.C. 20044-7611
Mr. Ronald Gherardi
Financial Management Officer
United States Environmental Protection Agency
290 Broadway - 29th Floor
New York, NY 10007
VII. FAILURE TO MAKE PAYMENT
-----------------------
9. If any Settling Defendant fails to make full payment within the
time required by Paragraph 5, that Settling Defendant shall pay Interest on the
unpaid balance. In addition, if any Settling Defendant fails to make full
payment as required by Paragraph 5, the United States may, in addition to any
other available remedies or sanctions, bring an action against that Settling
Defendant seeking injunctive relief to compel payment and/or seeking civil
penalties under Section 122(1) of CERCLA, 42 U.S.C. 9622(1), for failure to make
timely payment.
VIII. CERTIFICATION OF SETTLING DEFENDANT
-----------------------------------
10. By signing this Consent Decree, each Settling Defendant certifies,
individually, that, to the best of its knowledge and belief, it has:
a. conducted a thorough, comprehensive, good faith search for
documents, and has fully and accurately disclosed to EPA, all information
currently in its possession, or in the possession of its officers, directors,
employees, contractors or agents, which relates in any way to the ownership,
operation, or
9
<PAGE>
control of the Site, or to the ownership, possession, generation, treatment,
transportation, storage or disposal of a hazardous substance, pollutant, or
contaminant at or in connection with the Site;
b. not altered, mutilated, discarded, destroyed or otherwise
disposed of any records, documents, or other information relating to its
potential liability regarding the Site after notification of potential liability
or the filing of a suit against it regarding the Site; and
c. fully complied with any and all EPA requests for information
regarding the Site pursuant to Sections 104(e) and 122(e) of CERCLA, 42 U.S.C.
ss.ss. 9604(e) and 9622(e) and Section 3007 of the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6927.
IX. COVENANT NOT TO SUE BY UNITED STATES
------------------------------------
11. In consideration of the payments that will be made by Settling
Defendants under the terms of this Consent Decree, and except as specifically
provided in Section X (Reservations of Rights by United States), the United
States covenants not to sue or take administrative action against any of the
Settling Defendants pursuant to Sections 106 or 107 of CERCLA, 42 U.S.C. ss.ss.
9606 or 9607, relating to the Site. With respect to present and future
liability, this covenant not to sue shall take effect for each Settling
Defendant upon receipt of that Settling Defendant's payment as required by
Section VI of this Consent Decree. With respect to each Settling Defendant,
individually, this covenant not to sue is conditioned upon: (a) the satisfactory
performance by Settling Defendant of all obligations under this Consent Decree;
and (b) the veracity of the information provided to EPA by Settling Defendant
relating to Settling Defendant's involvement with the Site. This covenant not to
sue extends only to Settling Defendants and does not extend to any other person.
10
<PAGE>
X. RESERVATIONS OF RIGHTS BY UNITED STATES
---------------------------------------
12. The covenant not to sue by the United States set forth in
Paragraph 11 does not pertain to any matters other than those expressly
specified in Paragraph 11. The United States reserves, and this Consent Decree
is without prejudice to, all rights against Settling Defendants with respect to
all other matters including, but not limited to, the following:
a. liability for failure to meet a requirement of this Consent
Decree;
b. criminal liability;
c. liability for damages for injury to, destruction of, or loss
of natural resources, and for the costs of any natural resource damage
assessments; or
d. liability arising from the future arrangement for disposal or
treatment of a hazardous substance, pollutant or contaminant at the Site after
the date of lodging of this Consent Decree.
13. a. Notwithstanding any other provision in this Consent Decree,
the United States reserves, and this Consent Decree is without prejudice to, the
right to institute proceedings against any individual Settling Defendant in this
action or in a new action or to issue an administrative order to any individual
Settling Defendant seeking to compel that Settling Defendant to perform response
actions relating to the Site, and/or to reimburse the United States for
additional costs of response, if information is discovered which indicates that
such Settling Defendant contributed hazardous substances to the Site in such
greater amount or of such greater toxic or other hazardous effects that such
Settling Defendant no longer qualifies as a de minimis party at the Site because
such Settling Defendant contributed greater than 1.61% of the hazardous
substances at the Site, or contributed hazardous substances which are
significantly more toxic or are of significantly greater hazardous effect than
other hazardous substances at the Site.
11
<PAGE>
b. Notwithstanding any other provision in this Consent Decree,
the United States reserves, and this Consent Decree is without prejudice to, the
right to institute proceedings against any individual Settling Defendant in this
action or in a new action or to issue an administrative order to any individual
Settling Defendant seeking to compel that Settling Defendant to perform response
actions, and/or to reimburse the United States for additional costs of response,
all with respect to the OU2 Remedy only, if information is discovered which
indicates that such Settling Defendant contributed hazardous substances to the
Site that caused the incurrence of Response Costs with respect to the OU2
Remedy.
XI. COVENANT NOT TO SUE BY SETTLING DEFENDANTS
------------------------------------------
14. Settling Defendants covenant not to sue and agree not to assert
any claims or causes of action against the United States or its contractors or
employees with respect to the Site or this Consent Decree including, but not
limited to:
a. any direct or indirect claim for reimbursement from the EPA
Hazardous Substance Superfund based on Sections 106(b)(2), 107, 111, 112, or 113
of CERCLA, 42 U.S.C. ss.ss. 9606(b)(2), 9607, 9611, 9612, or 9613, or any other
provision of law;
b. any claim arising out of response activities at the Site; and
c. any claim against the United States pursuant to Sections 107
and 113 of CERCLA, 42 U.S.C. ss.ss. 9607 and 9613, relating to the Site.
15. Nothing in this Consent Decree shall be deemed to constitute
approval or preauthorization of a claim within the meaning of Section 111 of
CERCLA, 42 U.S.C. ss. 9611, or 40 C.F.R. 300.700(d).
12
<PAGE>
16. Settling Defendants covenant not to sue and agree not to assert
any claims or causes of action against each other with regard to the Site
pursuant to Sections 107 or 113 of CERCLA, 42 U.S.C. ss.ss. 9607 and 9613.
XII. EFFECT OF SETTLEMENT/CONTRIBUTION PROTECTION
--------------------------------------------
17. Nothing in this Consent Decree shall be construed to create any
rights in, or grant any cause of action to, any person not a Party to this
Consent Decree. The United States and Settling Defendants each reserve any and
all rights (including, but not limited to, any right to contribution), defenses,
claims, demands, and causes of action which each Party may have with respect to
any matter, transaction, or occurrence relating in any way to the Site against
any person not a Party hereto.
18. In any subsequent administrative or judicial proceeding initiated
by the United States for injunctive relief, recovery of Response Costs, or other
relief relating to the Site, Settling Defendants shall not assert, and may not
maintain, any defense or claims based upon the principles of waiver, res
judicata, collateral estoppel, issue preclusion, claim-splitting, or other
defenses based upon any contention that the claims raised in the subsequent
proceeding were or should have been brought in the instant action; provided,
however, that nothing in this Paragraph affects the enforceability of the
covenant not to sue included in Paragraph 11.
19. The Parties agree, and by entering this Consent Decree this Court
finds, that each Settling Defendant is entitled, as of the date of entry of this
Consent Decree, to protection from contribution actions or claims as provided by
Sections 113(f)(2) and 122(g)(5) of CERCLA, 42 U.S.C. 9613(f)(2) and 9622(g)(5),
for "matters addressed" in this Consent Decree. The "matters addressed" in this
Consent Decree are all response actions taken and to be taken by the United
States and by private parties, and all Response Costs incurred and to be
incurred by the United States and by private parties, at or in connection with
the Site.
13
<PAGE>
XIII. RETENTION OF JURISDICTION
-------------------------
20. This Court shall retain jurisdiction over this matter for the
purpose of interpreting and enforcing the terms of this Consent Decree.
XIV. INTEGRATION/APPENDICES
----------------------
21. This Consent Decree and its appendices constitute the final,
complete and exclusive agreement and understanding among the Parties with
respect to the settlement embodied in this Consent Decree. The Parties
acknowledge that there are no representations, agreements or understandings
relating to the settlement other than those expressly contained in this Consent
Decree. The following appendices are attached and incorporated into this Consent
Decree:
"Appendix A" is the Waste-In List.
"Appendix B" is the List of Settling Defendants.
"Appendix C" is the Site Map.
XV. PUBLIC COMMENT
--------------
22. This Consent Decree shall be lodged with the Court for a period of
not less than 30 Days for public notice and comment. The United States shall
file with the Court any written comments received and the United States'
response thereto. The United States reserves the right to withdraw or withhold
its consent if comments regarding the Consent Decree disclose facts or
considerations which indicate that this Consent Decree is inappropriate,
improper or inadequate. Settling Defendants consent to entry of this Consent
Decree without further notice, and the United States reserves the right to
oppose an attempt by any person to intervene in this civil action.
14
<PAGE>
XVI. EFFECTIVE DATE
--------------
23. The effective date of this Consent Decree shall be the date of
entry by this Court, following public comment pursuant to Paragraph 22.
XVII. SIGNATORIES/SERVICE
-------------------
24. Each undersigned representative of a Settling Defendant to this
Consent Decree and the Assistant Attorney General for the Environment and
Natural Resources Division of the United States Department of Justice, or her
delegatee, certifies that he or she is fully authorized to enter into the terms
and conditions of this Consent Decree and to execute and bind legally such party
to this document.
25. Each Settling Defendant hereby agrees not to oppose entry of this
Consent Decree by this Court or to challenge any provision of this Consent
Decree, unless the United States has notified Settling Defendants in writing
that it no longer supports entry of the Consent Decree.
26. Each Settling Defendant shall identify, on the attached signature
page, the name and address of an agent who is authorized to accept service of
process by mail on behalf of that Party with respect to all matters arising
under or relating to this Consent Decree. Settling Defendants hereby agree to
accept service including, but not limited to, service of a summons, in that
manner and to waive the formal service requirements set forth in Rule 4 of the
Federal Rules of Civil Procedure and any applicable local rules of this Court.
SO ORDERED THIS ----- DAY OF ----------------, 1997.
-----------------------------
United States District Judge
15
<PAGE>
THE UNDERSIGNED PARTY enters into this Consent Decree in the matter of UNITED
STATES V. AMERICAN OPTICAL COMPANY, ET AL., relating to the Nascolite
Corporation Superfund Site.
For: ------------------------------
Settling Defendant Name
Date: ------------------- ------------------------------
Signature
------------------------------
Name - Please Type
------------------------------
Title
------------------------------
Address
------------------------------
16
<PAGE>
Agent Authorized to Accept Service on Behalf of Above-signed
Party:
Date: ------------------- ------------------------------
Signature
------------------------------
Name - Please Type
------------------------------
Title
------------------------------
Address
------------------------------
------------------------------
Telephone Number
17
<PAGE>
APPENDIX A - WASTE-IN LIST
COMPANY NAME WASTE-IN (PDS/%) PAYMENT
- ------------ ---------------- -------
B. Jadow and Sons, Inc. 37,285/0.73 $231,762
Bethlehem Steel Corporation 7,740/0.15 $ 53,746
CPS Chemical Company, Inc. 81,800/1.61 $576,870
Dentsply International, Inc. 3,529/0.07 $ 1
RTI, Inc. 4,400/0.09 $ 32,247
- --------------------------------------------------------------------------------
Cytec Industries 1,979,520/38.95
American Optical Company 1,085,850/21.37
CYRO Industries Inc. 1,826,400/35.94
E.I. DuPont de Nemours 55,845/1.10
EXHIBIT 10.5(h)
LEASE AGREEMENT
EXECUTED BETWEEN
POLIFIBRAS DE CHIHUAHUA, S. A. DE C. V.
("LESSOR")
AND
INDUSTRIAS Q. A. I., S.A. DE C. V.
("LESSEE")
FEBRUARY 1, 1996
<PAGE>
LEASE AGREEMENT
CONTENT
PAGE
REPRESENTATIONS.......................................................... 1
CLAUSES.................................................................. 2
FIRST Lease of the Leased Property......................... 2
SECOND Ownership of Leased Property......................... 2
THIRD Enforcement and Delivery of Leased
Property/optional enforcement...................... 3
FOURTH Use of the Leased Property........................... 3
FIFTH Lease Price and Deposit.............................. 3
SIXTH Improvements......................................... 5
SEVENTH Assignment and Sublease.............................. 6
EIGHTH Maintenance.......................................... 6
NINTH Responsibility of the parties........................ 6
TENTH Insurance............................................ 8
ELEVENTH Taxes and Public Services............................ 9
TWELFTH Delivery of Leased Property.......................... 10
THIRTEENTH Withholding of possession............................ 11
FOURTEENTH Environmental Clause................................. 12
FIFTEENTH Right of Lessor to Fulfill the Lessee's
Responsibilities................................... 12
SIXTEENTH Right of Lessee to fulfill the Lessor's
Responsibilities................................... 13
SEVENTEENTH Lessor's Access to the Leased Property............... 13
EIGHTEENTH Signs................................................ 13
NINETEENTH Notices.............................................. 14
TWENTIETH Headings............................................. 14
TWENTY FIRST Jurisdiction......................................... 14
TWENTY SECOND Commissions and Expenses............................. 14
EXHIBITS
A1. Plan of "Leased Property", first year
A2. Plan of "Leased Property", subsequent year
<PAGE>
LEASE AGREEMENT
LEASE AGREEMENT executed on the one hand by POLIFIBRAS DE CHIHUAHUA, S.
A. DE C. V., represented by Mr. Edmundo Castillo Ochoa, in his capacity as Legal
Representative (hereinafter called the "LESSOR") and INDUSTRIAS. Q. A. I., S. A.
DE C. V., represented by Ms Phillis Molan Bromfman, in her capacity as Legal
Representative of said corporation (hereinafter called the "LESSEE"), pursuant
to the following Representations and Clauses.
REPRESENTATIONS
1. The Lessor states:
a) That it is a corporation duly organized and existing pursuant to the
laws of the Republic of Mexico, with its main business domicile at
Ciudad Juarez, Chihuahua, Mexico.
b) That it holds the property and full possession and ownership and the
power to lease an industrial building (the "Building") constructed on a
land (the "Lot") with an area of 24,072.07 square meters located at the
Highway Juarez- Casas Grandes, Kilometro 1.1 in Ciudad Juarez,
Chihuahua, Mexico. The Lot was acquired through the purchase made to
Edmundo Castillo Ochoa and Mrs. Armida Medina Nevarez de Castillo
pursuant to public deed number 164 granted before Mr. Humberto Martinez
Vargas, Public Notary Number 21, to and for Bravos District.
c) That it wishes to lease an area of 1,538.74 square meter which
corresponds to a portion of building "A" during the first year of lease
and 2,317.00 square meters which is the complete building "A" during
the subsequent years (hereinafter the " Leased Property"). The Leased
Property is prominently displayed in the plans attached to the
Agreement herein as Exhibit "A1" and "A2", which form an integral part
of the agreement herein and are hereby considered as reproduced.
d) That it has the permits and licenses required to duly operate the
Leased Property and to authorize the Lessee the use of same for its
activities, pursuant to the terms and conditions herein provided.
e) That it wishes to lease the Leased Property to the Lessee pursuant to
the terms and conditions hereinafter provided.
<PAGE>
II. The Lessee states through its legal representative:
a) That the party she represents is a mercantile corporation duly
organized and existing pursuant to the terms of the General Mercantile
Corporations Law, with its main business domicile at Ciudad Juarez,
Chihuahua, Mexico.
b) That the party she represent wishes to use and the temporary possession
of the Leased Property by means of a lease, subject to the terms and
conditions herein provided.
c) That the party she represents and herself enjoy all the faculties
required to execute the agreement herein, faculties which have not been
limited or revoked.
III. The parties states through their legal representatives that:
In the execution of the Agreement herein there has been no error,
violence, bad faith or deceit between them.
Pursuant to the foregoing representations, the parties agree to the
following:
CLAUSES
FIRST. LEASE OF THE LEASED PROPERTY
The Lessor, by means of the agreement herein, leases to the Lessee and
the Lessee leases from the Lessor the Leased Property, together with all its
easements and rights of way belonging to it.
SECOND. OWNERSHIP OF LEASED PROPERTY
The Lessor has the right of use and exclusive possession of the Lease
Property and warranties to the Lessee that it shall have the use and peaceful
enjoyment of same. In addition, the Lessor and the Lessee are in agreement that,
pursuant to the provisions of Article 2308 of the Civil Code for the State of
Chihuahua, in the event the Lease Property is mortgaged or encumbered, the Lease
Agreement herein shall subsist pursuant to its terms and in the event of a
mortgage of the Leased Property, nonfulfillment in the payment as provided by
the mortgage or encumbrance shall not in any way damage the terms and conditions
agreed to by the parties in the Agreement herein or its extensions and that any
change or amendment to said mortgage or encumbrance agreement or the execution
of any new mortgages or encumbrances on the Leased Property must make reference
in their text and content of the existence and term of the Lease Agreement
herein and, in its case, to the clauses in reference to the extension of same,
if said right to extension is agreed to
-2-
<PAGE>
between the parties, at the time in which said mortgage is executed by the
Lessor. The Lessor states that at this time and at the delivery of possession of
the Leased Property to the Lessee, it shall not be in violation to any federal,
state or municipal laws.
THIRD. ENFORCEMENT AND DELIVERY OF LEASED PROPERTY/OPTIONAL ENFORCEMENT
A. ENFORCEMENT. The initial enforcement of the lease herein shall be
for five (5) years, effective from the first day of February, 1996 (Enforcement
of Lease or Enforcement of the Lease Herein).
B. DELIVER. The Lessor shall deliver possession of the Leased Property
on or before February 29, 1996. The Lessee's responsibility to make rent
payments shall begin February 1, 1996.
FOURTH. USE OF THE LEASED PROPERTY
The Lessee shall use the Leased Property to manufacture plastic
articles reinforced with glass fiber. Under no circumstance or condition may the
Lessee use the Leased Property to carry out chemical operations or industrial
operations which are considered in violation or contrary to the applicable
municipal, state or federal provisions.
FIFTH. LEASE PRICE AND DEPOSIT
A. RENT. During the enforcement of the Lease Agreement herein, the
Lessee shall pay as rent on the Lease Property, per square meter of built leased
area, per year, in dollars legal tender of the United States of America, the
following amounts:
LEASED AREA UNIT PRICE IN DOLLARS TOTAL ANNUAL
YEAR SQ. METER PER SQ. METER RENT IN DOLLARS
- ---- ----------- --------------------- ---------------
1 1,538.74 $41.00 $ 63,088.35
2 2,317.00 $43.47 $100,720.00
3 2,317.00 $46.27 $107,207.50
4 2,317.00 $48.96 $113,440.30
5 2,317.00 $52.08 $120,669.35
The total amount of the rent for the first year is sixty three thousand
eighty eight dollars 35/100 U. S. currency.
-3-
<PAGE>
The total amount of the rent for the second year is one hundred
thousand seven hundred and twenty dollars 00/100 U. S. currency.
The total amount of the rent for the third year is one hundred and
seven thousand two hundred and seven dollars 60/100 U. S. currency.
The total amount of the rent for the fourth year is one hundred and
thirteen thousand four hundred and forty dollars 30/100 U. S. currency.
The total amount of the rent for the fifth year is (one hundred and
twenty thousand six hundred and sixty nine dollars 35/100 U. S. currency.
B. PAYMENT. The monthly rent payment shall be for one twelfth of the
total yearly payments corresponding pursuant to the foregoing table. That is to
say:
YEAR MONTHLY RENT
---- ------------
1 $ 5,257.36
2 $ 8,393.33
3 $ 8,933.97
4 $ 9,453.36
5 $ 10,055.78
The Added Value Tax shall be added to the corresponding monthly rent,
as in force on the payment date and the result must be paid in advance within
the first five days of each month without requiring a notice or any requisition.
Once the Lessor receives the rent payment, the Lessor must deliver the
corresponding invoice to the Lessee, pursuant to the Mexican tax requirements.
The rent shall be paid at the Lessor's domicile located at Carretera
Juarez-Casas Grandes Number 140 Poniente, of this city, without written notice
to the Lessee to this respect.
C. DEPOSIT. The Lessee must deliver to the Lessor the amount of
US$5,257.36 (Five thousand two hundred and fifty seven dollars 36/100 U. S.
currency) as a deposit to be kept in an account of the Lessor. This deposit
shall increase, in addition to the initial deposit, in the amounts hereinafter
provided, for each subsequent year.
Second Year $3,135.00
Third Year $ 540.64
Fourth Year $ 519.39
Fifth Year $ 602.42
-4-
<PAGE>
The Lessor is authorized to use the deposit for the payment of
utilities or for any other amount paid to repair the Leased Property which
correspond to the Lessee, pursuant to the terms of the agreement herein.
At the time of non-fulfillment on the part of the Lessee and after
having been notified in writing of the amount owed, whether for consumption of
utilities or for any other expense made to repair the Leased Property and
corresponding to the Lessee, applicable to the deposit or any amount which is
owed pending payment by the Lessee pursuant to the agreement herein, the Lessor
may use the amounts disbursed by it, deducting them from the warranty deposit.
D. DEFAULT PAYMENT. The lack of on time payment of the lease rent shall
give the Lessor the right to collect from the Lessee, as conventional penalty, a
month charge equivalent to 1.5% on the total rent amount in default until its
full payment.
E. PAYMENT OF ADDED VALUE TAX. The Lessee shall pay the Added Value Tax
(IVA) applicable to the rent payments, in accordance with the rate of exchange
at the time of payment.
SIXTH. IMPROVEMENTS
The Lessee may not modify the basic structure, the outside appearance
or the basic public services of the Leased Property, without the written consent
of the Lessor. The Lessor authorizes the Lessee to make the improvements (the
"Improvements") to the Lease Property as specified in the document attached to
the agreement herein as Exhibit B. The Improvements shown in Exhibit B shall be
made to the account and risk of the Lessee. The Improvements shall become a part
of the Leased Property. At no time, during the term of the lease herein or at
its termination, shall the Lessor be responsible for the payment of the
Improvements. The Improvements shall be solely made at the risk and expense of
the Lessee. After the lease becomes effective, the Lessee shall be authorized to
make minor changes or alterations on the Leased Property, at its expense and
risk, provided said alterations or changes do not substantially alter or
deteriorate the structure of the Leased Property, which is part of the Building.
All the equipment or accessories of any nature which were installed, either
permanently or not, shall continue being the property of the Lessee and must be
removed by the Lessee at the expiration or termination of the agreement herein
or of any extension or extension to same, except in the event the Lessee
receives in advance written confirmation from the Lessor, for each specific
case, stating that the improvements made to the Lease property may remain on
said property to the termination of the lease herein. Notwithstanding the
foregoing it is hereby understood that the Lessee, at its cost and expense,
shall repair any damage suffered by the
-5-
<PAGE>
Leased Property as a result of the removal of said equipment and/or accessories
and shall return the Leased Property to the Lessor in adequate conditions of
order, presence and cleanliness.
SEVENTH. ASSIGNMENT AND SUBLEASE
The Lessee may not assign or sublease the Property Lease without the
express written authorization from the Lessor. Even though the Lessee obtains
the written authorization from the Lessor to sublease the Leased Property, the
Lessee shall continue being responsible with regards to the lease herein.
EIGHTH. MAINTENANCE
A. MAINTENANCE BY LESSOR. The Lessor must at all times, during the
enforcement of lease herein, keep and repair at its expense the Building's
foundation, floor structures, outside walls structure, roof structure, including
support walls.
B. MAINTENANCE BY LESSEE. The Lessee must at all times, during the
enforcement of the lease herein, keep and repair at its expense the inside of
the Leased Property, including painting, insides and ceilings and drainage, as
well as the insulation, air conditioning and heating systems and the green areas
existing in the place and all the constructions made as improvements to the
building.
NINTH. RESPONSIBILITY OF THE PARTIES
In accordance with applicable laws, the Lessor warranties to the Lessee
the use and peaceful enjoyment of the Lease Property during the full term of the
agreement herein and the Lessee agrees and accepts to use the Leased property
only for the purposes herein provided and in accordance with the nature and the
use specified for the Lease property. The responsibilities of the Lessee and of
the Lessor, in each case, shall be ruled in accordance with the following
provisions:
1. The Lessor or the Lessee, respectively, shall be responsible for any
damages suffered by the Leased Property, caused through their own fault
or negligence, or that of its agents, employees or guests, except in
the case of damages usually covered by fire insurance endorsed with
extended coverage.
2. In the event the Lessee would be unable to use, partially or fully, the
building for any cause not attributable to the Lessee, the rent payment
shall be prorated and reduced in proportion to the part it is unable to
use. However, should the Lessee
-6-
<PAGE>
be unable to use the Leased Property completely or to the extent which
the Lessee is unable to use it for the purposes herein provided, the
rent shall not be payable during the time the Leased Property is not in
use.
3. Should the Leased Property be damaged or destroyed for reasons
attributable to any of the parties, the party responsible agrees to
restore and leave same in adequate conditions so that the Lessee may
use it for the purposes provided for in the agreement herein. Once the
responsible party has restored the Leased Property to its original
condition, the Lessee must continue paying the full rent amount as
provided in the agreement herein. Notwithstanding the foregoing, the
enforcement of the lease may not be extended without the written
consent of the Lessor.
4. The responsibility of the Lessee shall be limited to the damages caused
through its negligence and the scope of specific risks which may be
insured under Mexican insurance policies on the property, (fire,
thunder, explosion, hurricanes, hale, strikes, mutiny, airplanes,
vehicles, smoke, earthquakes and volcanic eruptions). Should it be a
total destruction or should it exceed 50% the total replacement value
of the Leased Property and it is an Act of God or force majeure event,
the Lessee shall have the right to elect not to request reconstruction
from the Lessor and, in said case, the Lease Agreement shall be
terminated without any responsibility to any of the parties.
5. Should the impairment be attributable to the Lessee or its agents,
employees or guests, the Lessee shall continue paying the rent as if it
were using the Leased Property, unless the loss were covered by an
interruption of rent insurance or any other insurance and the rent were
paid by the insurance company.
6. In the case of a partial use impairment, pursuant to the second
paragraph of the Clause herein, the parties shall agree the proportion
to which the rent shall be reduced, should there be no agreement, each
party shall assign an expert and, if both experts would not reach an
agreement, both shall assign a third expert. The decision of the
majority of the experts shall be final and binding to the parties or if
the parties would agree to assign one expert, his decision shall be
final and binding to the parties.
7. The parties' responsibilities covered in the clause herein shall be
subject to the provisions of the Tenth Clause of the Agreement herein.
-7-
<PAGE>
TENTH. INSURANCE
The parties shall obtain an insurance coverage of adequate types and
amounts, to protect their respective interests against all type of losses and/or
risks. The following is specifically agreed to:
1. FIRE INSURANCE. The Lessor shall contract an insurance policy against
fire with extended coverage to protect the Leased Property for its
replacement vale, as well as the machinery, raw material and other
goods property of the Lessor and of the Lessee, during the initial
enforcement of the Lease Agreement herein and its extensions, the
Lessee binding itself to pay the Lessor the amount of the insurance
premiums. The Lessee shall pay US$2,900.00 (two thousand nine hundred
dollars 00/100 U. S. currency) per year One twelfth of said amount
shall be paid to the Lessor together with the monthly rent, effective
from the date of delivery of the Leased Property. The Lessee must pay
said amount monthly, that is to say the amount of $241.67 (Two hundred
and forty one dollars and 67/100 U. S. currency). The insurance policy
on the Leased Property normally expires January 31; as a result, during
the month of February of each year, the Lessor may adjust the cost of
the insurance during the enforcement of the agreement herein.
2. LIABILITY INSURANCE. The Lessee must obtain at its account and keep in
force during the enforcement of the agreement herein the following
coverage under valid insurance policies issued by an insurance company
approved by the Lessor.
a) General Civil Liability Insurance, insuring the Lessee and the
Lessor, as well as other interested parties which the Lessor appoints,
against liability against any individual/company or corporation, for
injuries or damages occurring in the Leased Property or in the parking
area or in the lots adjacent to the Property, in combined limits of not
less than $500,000.00 (Five hundred thousand dollars 00/100 U. S.
currency). Each policy must provide that it may not be cancelled by the
insurance company without first submitting a notice sent by certified
or registered mailed at lease 15 days prior to said cancellation. The
Lessee must deliver to the Lessor or to other interested parties who
the Lessor appoints the certificate or certificates issued by the
insurance company, certifying that such insurance is in full force, at
least 15 days in advance of the expiration of said policy. The Lessee
must provide the Lessor the evidence documents certifying that said
policy has been renewed or replaced. Should the Lessee fail to obtain
or keep said insurance, pay the premium on same as owed and/or cause
the policies to be renewed, then the Lessor shall have the right to
contract and pay said premium in which case the amounts paid by the
Lessor must be added and become a part of the rent owed the first month
of the following months.
3. SUBROGATION. There shall be no waiver of subrogation with respect to
any insurance policy as referred to in tho Clause herein.
4. FIRE AND OTHER DAMAGES. In the event of loss to the Leased Property
resulting in damage or destruction of the Leased Property, the Lessee
must immediately notify in writing to the Lessor.
The Lessee must immediately submit the initial adjustment applications.
All the insurance amounts paid for said damage or destruction, less the
cost, fees and expenses incurred in relation to the loss adjustment,
must be made available to the Lessor or to the Lessee, just as their
respective interests appear in relation with the Lease herein, for the
purpose of rebuilding the Leased Property in the fastest way possible,
to the conditions and with the characteristics it had prior to said
damage or destruction. The Lessee must certify to the Lessor that it
has obtained the insurance coverage required prior to taking possession
of the Leased Property. Should the Lessee install a boiler or
compressor, it must obtain an insurance coverage against losses or
damages caused by any malfunction or explosion of the boiler or
compressor, in an amount not under $100,000.00 (Ten thousand dollars
00/100 U. S. currency), pursuant to the satisfactory conditions for the
Lessor prior to the installation.
8
<PAGE>
ELEVENTH. TAXES AND PUBLIC SERVICES
a) Taxes
The Lessee is responsible for the payment of the Added Value Tax
accrued by the rent payments.
The Lessee shall be responsible for the payment of the property tax in
a proportion to the area being leased.
The Lessor or the Lessee may file a legal action, on behalf of the
Lessor, of the Lessee or of both, to object the validity or origin of any tax
encumbering the Leased Property or the tax amount being charged; or else, an
action to recover the payment of said taxes. Each of the parties shall cooperate
with the other with respect to any legal proceeding as is reasonably necessary.
The net amount of any tax to be recovered after payment of all the expenses
incurred, shall be payable to the party that paid same.
-9-
<PAGE>
b) Utilities
The Lessor states that all the utilities required in the Leased
Property to be used by the Lessee shall be provided as follows:
Water shall be provided by means of a water well of its property with
non- fresh water. The Lessee shall pay a amount of US$100 a month (one hundred
dollars 00/100 U. S. currency).
Sewage service shall be provided by means of a septic tank, for which
the Lessee shall pay the amount of US$50.00 (Fifty dollars 00/100 U. S.
Currency) a month.
These amounts shall be paid together with the monthly rent and the
corresponding Added Value Tax shall be added.
The gas service shall be separately contracted by the Lessee, as well
as the telephone services.
The electric power service shall by contracted by the Lessee.
Any additional contracts for the Leased Property shall be the
responsibility of the Lessee.
TWELFTH. DELIVERY OF LEASED PROPERTY
On the last day of the term of the agreement herein or of its
extensions, should there by any, or, in its case, on the corresponding day
should there be an advance termination, the Lessee must return and deliver the
Leased Property for the possession and use by the Lessor, without delay and in
good order, in good condition and with adequate maintenance, except for normal
and reasonable wear and tear due to normal use and the time transpired, except
for fire or other event damages. All the signs, inscriptions, partitions, and
installation of a similar nature, made by the Lessee must be removed before or
at the expiration date of the term of the Agreement herein. All the furniture,
accessories and equipment such as compressors, transformers and other equipment
installed by the Lessee shall continue being the property of the Lessee and
shall be removed by the Lessee at any time during or at the end of the
enforcement period of the Agreement herein and the Lessee must, at its expense,
repair any damage resulting from the installation or removal of said equipment
and/or accessories.
Any article remaining in the Leased Property thirty (30) days after the
termination of the Agreement herein shall be considered, at the option of the
Lessor, as being abandoned and the Lessor may keep or dispose of it as best
suited to its interest and
-10-
<PAGE>
without any obligation or responsibility. Any permanent improvement made on the
Leased Property by the Lessee and/or by the Lessor subsequent to the date of
execution herein shall be considered property of the Lessor and shall remain in
the Leased Property at the termination or prior to the termination of the Lease
Agreement herein, without any compensation being payable by the Lessor to the
Lessee for said installations or improvements, subject to the Lessee's right to
use same during the enforcement of the instrument herein.
THIRTEENTH. WITHHOLDING OF POSSESSION
The Lessee must deliver to the Lessor, at the termination of the Lease
Agreement, the Property Leased in the same condition it was received, except for
the normal wear and tear suffered due to the time elapsed.
a) In the event the Lessee remains in possession of the Leased Property
after the initial term, without having exercised its option to extend the
agreement, or in the event the Lessee remains in possession of the Leased
property after the expiration of the extension (should there be any), the Lessee
shall pay the Lessor as a new rent on the Leased Property 100% of the rent which
it is paying at that time, plus other amounts of immediate payment as requested
before said possession began, and must continue paying said amounts until the
Leased Property is delivered to the Lessor. This paragraph shall not be
construed as the granting of any right to remain in possession of the Property
Leased after the expiration of the enforcement period of the Lease Agreement
herein. It is expressly understood and agreed between the Lessor and the Lessee
that any possession by the Lessee of the Property Leased after the expiration of
the Lease Agreement herein must operate and constitute itself as a holding and
must be immediate expirable at the Lessor's will.
b) The Lessee must indemnify the Lessor for any loss or liability
directly resulting from the Lessee's delay in returning the Leased Property,
provided such loss or liability does not exceed of three (3) months of rent, at
the rent amount provided in the foregoing paragraph (a).
c) The Lessee acknowledges that it is bound to deliver the Leased
Property shall be subject to the clauses herein and hereby expressly waives any
right it may have pursuant to the Civil Code of the State of Chihuahua.
-11-
<PAGE>
FOURTEENTH. ENVIRONMENTAL CLAUSE
Effective from the date of execution of the agreement herein, the
Lessee is bound to observe the laws and regulations in matters of ecological
balance and environmental protection. The Lessee binds itself to deliver to the
Lessor the results of the test required by law, to verify that the Leased
property is free of pollution, releasing the latter of all responsibility in the
fulfillment of any fines and penalties or indemnities and expenses which could
be accrued upon or would have to be disbursed as a result of any pollution
caused by the Lessee. The Lessee shall not be responsible of any pollution
forthcoming from outside the limits of the Leased Property. The Lessee is
responsible for all environmental pollution caused during the enforcement of the
Lease Agreement herein.
On the other hand, the Lessor binds itself before the Lessee and before
any competent authority to answer for any pollution which could appear in the
Lease Property, as a result of the activities carried out on same prior to the
Lease Agreement herein, releasing the Lessee of all responsibility in the
fulfillment of the fines and penalties or indemnities and expenses which could
be accrued or would have to be disbursed as a result of any pollution existing
in the Leased Property on the date of execution of the agreement herein or as a
result of acts or omissions of the Lessor. The Lessee shall not be responsible
for any pollution occurring after the delivery of the Leased Property to the
Lessor. The Lessor states and warranties that the Leased Property is free of any
type of pollution at the time of delivery of the Leased Property.
FIFTEENTH. RIGHT OF LESSOR TO FULFILL THE LESSEE'S RESPONSIBILITIES
Should the Lessee no longer comply with any of the obligations
contracted herein, the Lessor after ten (10) days of having submitted a written
notice (or without prior notice in the event of any emergency) and without
exempting or releasing the Lessee of any of the responsibilities contracted by
the Agreement herein, may perform any action which the Lessee is bound to
fulfill in accordance with the agreement herein, without this implying that it
is the Lessor's responsibility to carry out said actions and the Lessor may
enter the Leased Property for the purpose of performing the actions necessary in
said case. All the amounts paid by the Lessor and all the expenses and costs
disbursed by the Lessor in relation with the fulfillment of said Lessee's
responsibilities shall be payable by the Lessee to the Lessor within ten (10)
days following receipt of the collection of said amounts.
SIXTEENTH. RIGHT OF LESSEE TO FULFILL THE LESSOR'S RESPONSIBILITIES
Should the Lessor no longer comply with any or various of the
obligations contracted herein, the Lessee after ten (10) days of having
submitted a written notice to the Lessor (or without prior notice in the event
of any emergency) and without exempting or releasing the Lessor of any of the
responsibilities contracted by the Agreement herein,
-12-
<PAGE>
may, without his implying the Lessee's obligation to carry out such actions,
perform any action which the Lessor is bound to fulfill in accordance with the
agreement herein. All the amounts paid by the Lessee in connection with the
fulfillment of said Lessor's responsibility shall be payable by the Lessor to
the Lessee within ten (10) days following receipt of the collection of said
amounts.
SEVENTEENTH. LESSOR'S ACCESS TO THE LEASED PROPERTY
The Lessee shall allow the Lessor and its authorized representatives
access to the Leased Property during reasonable hours, for the purpose of
inspecting and carrying out the works required from the Lessor or necessary as a
result of the Lessee's omissions or to carry out the works, at the beginning of
same, ten (10) days after receipt of written notice from the Lessor.
Nothing herein provided shall imply as the Lessor's obligation to carry
out said works and the performance of same by the Lessor shall not constitute
waiver of non- fulfillment by the Lessee of its obligation to carry them out.
All the Agents, employees or workers of the Lessor entering the Leased
Property must comply with the Lessee's personnel regulations and obligations,
including, but not limited to, hair nets, robes, hats, glasses, etc.
EIGHTEENTH. SIGNS
The Lessee shall have the right to place in the Leased Property or to
place outside the Building its signs and other notices required for its
operation including signs related to the hiring of personnel. No other sign may
be installed in the Leased Property without the written consent of the Lessor,
except that the Lessor shall have the right to place "For Sale" and "For Rent"
signs on the Leased Property.
NINETEENTH. NOTICES
When any of the parties must or wishes to send any notice or claim to
the other pursuant to the provisions of the Lease herein, said notice or claim
shall be personally delivered or by means of certified or registered mail,
return receipt requested, addressed as follows:
LESSOR: Polifibras de Chihuahua, S. A. de C. V.
Carretera Juarez-Casas Grandes No. 149
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<PAGE>
LESSEE: Industrias Q. A. I., S. A. de C. V.
Carretera Juarez-Casas Grandes No. 149
Poniente, Edificio "A"
Ciudad Juarez, Chihuahua
Attention: Ms. Phillis Molan Bromfman
TWENTIETH. HEADINGS
The parties hereby agree that the headings contained in the Lessee
herein are included exclusively as a reference and shall not be considered as a
part of the Lease herein nor shall they be used for their interpretation.
TWENTY FIRST. JURISDICTION
The agreement herein must be construed in accordance with the
provisions of the Civil Code and laws of the State of Chihuahua, United States
of Mexico, and both parties hereby submit to the jurisdiction of the court of
Ciudad Juarez, State of Chihuahua, United States of Mexico and waive any other
jurisdiction which could correspond to them for any reason whatsoever. The
provisions of the clause herein are not applicable to any warranty or warranties
granted by any third party to the Lessor to warranty the fulfillment on the
Lessee's part of any of its obligations.
TWENTY SECOND. COMMISSIONS AND EXPENSES
The Lessor acknowledges that the operation herein contracted has not
generated any broker or agents commission or fees or any other similar expense,
or compensation which would have to be paid by the parties with respect to the
operation herein. Each one of the parties shall be responsible for its own
representative, lawyers, auditors or consultant expenses and fees who have
participated in the agreement herein and in the foreseen transaction.
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<PAGE>
IN TESTIMONY OF THE FOREGOING
The agreement herein is executed by the parties in Ciudad Juarez,
Chihuahua, Mexico, on the first day of February nineteen hundred and ninety six.
THE LESSOR THE LESSEE
Polifibras de Chihuahua, S.A. de C. V. Industrias Q. A. I. S.A. de C. V.
/s/ Edmundo Castillo Ochoa /s/ Phillis Molan Bromfman
- ------------------------------ ---------------------------------
Edmundo Castillo Ochoa Phillis Molan Bromfman
Legal Representative Legal Representative
WITNESS WITNESS
/s/ Erick Simmons /s/ Liliana Castillo
- ------------------------------ ---------------------------------
Mr. Erick Simmons Liliana Castillo
-15-
EXHIBIT 10.5(K)
TEXAS ASSOCIATION OF REALTORS(R)
COMMERCIAL IMPROVED PROPERTY EARNEST MONEY CONTRACT
THIS FORM IS FURNISHED BY THE TEXAS ASSOCIATION OF REALTORS(R)
FOR USE BY ITS MEMBERS. USE OF THIS FORM BY PERSONS WHO ARE NOT MEMBERS
OF THE TEXAS ASSOCIATION OF REALTORS(R) IS NOT AUTHORIZED.
(C)Texas Association of REALTORS(R), Inc., 1995
1. PARTIES: MR. STANLEY JOBE (Seller) agrees to sell and convey to QUALITY
AIR INC. AND/OR ASSIGNS (Buyer) and Buyer agrees to buy from Seller the
property described below.
2. PROPERTY: The real property situated in EL PASO County, Texas,
described as follows or as described on attached exhibit:
Lots 3 to 20, 41 to 58 Block 15 Westway Unit #2
809 Kingsway
together with (a) all buildings, improvements, fixtures, and all
property of every kind and character and description (personal or real)
owned by Seller located on, attached to, or used in connection with the
Property; (b) all rights, privileges and appurtenances pertaining
thereto, including any right, title, and interest of Seller in and to
adjacent streets, alleys, and rights-of-way; (c) Seller's interest in
and to all leases or rents and security deposits; (d) Seller's interest
in and to all licenses and permits with respect to the Property; (e)
Seller's interest in all third party warranties or guaranties, if
transferable, relating to the Property or to any tangible personal
property and fixtures located on, attached to, or used in connection
with the Property; and (f) Seller's interest in any trade names, if
transferable, used in connection with the Property. The property sold
by this contract is called the "Property". The metes and bounds
description determined by the survey of the Property under paragraph
6(b) shall replace any exhibit describing the perimeter boundaries of
the Property if it differs from the exhibit. NOTICE: ANY PROPERTY TO BE
EXCLUDED FROM THE SALE SHOULD BE DESCRIBED IN PARAGRAPH 11.
3. SALES PRICE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(a) Cash portion of Sales Price payable by Buyer. . . . . . . . . . . . $ 450,000.00
------------
(b) Sum of all financing described in paragraph 4. . . . . . . . . . . . $ -0-
------------
(c) Sales price [sum of (a) and (b)]. . . . . . . . . . . . . . . . . . .$ 450,000.00
------------
</TABLE>
5. EARNEST MONEY: Buyer shall deposit $ 10,000.00 as Earnest Money with
SIERRA TITLE (Escrow Agent) at 1014 N. MESA, EL PASO, TEXAS 79902
(Address) on the Effective Date of this contract. The Earnest Money
shall be deposited in an |X| interest |_| non-interest bearing account
in a federally insured financial institution chosen by Escrow Agent and
any interest shall be credited to Buyer. If Buyer fails to deposit the
Earnest Money as required by this contract, Buyer shall be in default.
6. TITLE POLICY AND SURVEY:
|X| (a) TITLE POLICY: Buyer shall furnish to Buyer at Buyer's expense
an Owner Policy of Title Insurance (the Title Policy) issued
by SIERRA TITLE (the Title Company) in the amount of the Sales
Price, dated at or after closing, insuring Buyer against loss
under the provisions of the Title Policy, subject only to
those title exceptions permitted by this contract, or as may
be approved by Buyer in writing, and the standard printed
exceptions contained in the promulgated form of Title Policy;
provided however that (1) the exception as to area and
boundaries o shall o shall not be deleted except for any
shortages in area at the expense of |X| Buyer o Seller; and
(2) the exception as to restrictive covenants shall be
endorsed "None of Record", unless restrictions are approved by
Buyer. Within 15 days after the Title Company receives a copy
of this contract Seller shall furnish Buyer a commitment for
Title Insurance (the Commitment) including copies of recorded
<PAGE>
Commercial Improved Earnest Money Contract concerning 8909 KINGSWAY
--------------------------
documents evidencing title exceptions. Seller authorizes the
Title Company to deliver the Commitment and related documents
to Buyer at Buyer's address. Buyer shall have 30 days after
receipt of the Commitment and legible copies of documents
evidencing title exceptions required by this contract to
object in writing to matters disclosed in the Commitment other
than the standard printed exceptions as described or limited
in this paragraph.
[ ] (b) SURVEY REQUIRED: (Check (1) or (2) only)
[ ] (1) Within ---------- days after: o the Effective Date of
this contract; Rx the date by which Buyer is required
to complete inspections, studies or assessments in
paragraph 7(b); (check (i) or (ii) only):
|X| (i) Buyer may obtain a survey of the Property at
Buyer's expense.
7. PROPERTY CONDITION/FEASIBILITY STUDIES: (Check (a) or (b) only)
|X| (a) PRESENT CONDITION:
|X| (1) Buyer accepts the Property in its present "as-is"
condition. Buyer shall pay for any repairs required
by a lender.
[ ] (2) Buyer accepts the Property in its present condition
provided that Seller, at Seller's expense, shall
complete the following repairs prior to closing:-----
-----------------------------------------------------
----------------------- Buyer shall pay for any other
repairs required by a lender.
|X| (b) INSPECTIONS AND FEASIBILITY STUDIES: Within 60 days after the
Effective Date of this contract Buyer, at Buyer's expense, may
complete or cause to be completed inspections of the Property
(including all improvements and fixtures) by inspections of
Buyer's choice. Inspections may include but are not limited
to: (i) physical property inspections including, but not
limited to, structural pest control, mechanical, structural,
electrical, or plumbing inspections; (ii) economic feasibility
studies; (iii) any type of environmental assessment or
engineering study including the performance of tests such as
soils tests, air sampling, or paint sampling; and (iv)
compliance inspections to determine compliance with zoning
ordinances, restrictions, building codes, and statutes (e.g.,
ADA, OSHA, and others). Seller shall permit Buyer and Buyer's
inspectors access to the Property at reasonable times. Seller
shall pay for turning utilities on for inspections. If Buyer
determines, in Buyer's sole judgment, that the Property is not
suitable for any reason for Buyer's intended use or is not in
satisfactory condition, then Buyer may terminate this contract
by providing written notice of termination and copies of all
reports of inspections, studies, or assessments completed or
caused to be completed by Buyer under this paragraph to Seller
within the time required to complete the inspections, studies,
or assessments under this paragraph, and the Earnest Money
shall be refunded to Buyer less the sum of $ -0- to be
retained by Seller as independent consideration for Buyer's
right to terminate under this paragraph. If Buyer does not
terminate this contract within the time required by objections
with respect to the inspections, studies and assessments under
this paragraph shall be deemed waived by Buyer. If this
contract does not close through no fault of Seller, Buyer
shall restore the Property to its original condition if
altered due to inspections, studies, or assessments completed
by Buyer or Buyer's inspectors. Within 80 days after the
Effective Date of this contract Seller shall deliver to Buyer
(strike any not to be delivered):
(1) a current rent roll of all leases affecting
the Property certified by Seller to be true
and correct;
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<PAGE>
Commercial Improved Earnest Money Contract concerning 8909 KINGSWAY
--------------------------
(3) a current inventory of all tangible personal
property and fixtures, if any, owned by
Seller and located on, attached to, or used
in connection with the Property;
(4) copies of all notes and deeds of trust
assumed or taken subject to by Buyer;
(6) copies of all warranties and guaranties, if
any, relating to the Property, or any part
thereof, or to be tangible personal property
and fixtures owned by Seller and located on,
attached to, or used in connection with the
Property;
(7) copies of all fire, hazard, liability, and
other insurance policies held by Seller on
or affecting the Property;
(9) a copy of the "as-built" plans and
specifications of the Property, in Seller's
possession, if any;
(12) copies of all previous environmental
assessments, studies, or analyses affecting
the Property in Seller's possession.
8. BROKER'S REPRESENTATION AND FEES: John T. Hellard (Listing Broker): o
represents Seller only; |X| acts as an intermediary between Seller and
Buyer. Any other broker represents: o Seller as Listing Broker's
Subagent; o Buyer only. Seller shall pay Listing Broker (choose only
one):
[ ] (a) the fee specified by separate agreement between Listing Broker
and Seller.
|X| (b) a total cash fee of either $------- or 5 % of the total Sales
Price in -------------------- County, Texas on closing of this
sale, which Escrow agent shall pay from Seller's proceeds of
the sale. If Seller defaults, the cash fee shall be due and
payable in full. If Buyer defaults, Escrow Agent is authorized
to pay Listing Broker one-half of any Earnest Money Seller
receives under this contract not to exceed the amount of the
cash fee.
9. CLOSING:
(a) The closing of the sale shall be on or before April 28, 1997
or within 7 days after the objections to title or the survey
have been cured, whichever date is later (the Closing Date);
however, if financing or assumption approval has been obtained
pursuant to paragraph 4, the Closing Date shall be extended up
to 15 days only if necessary to comply with lender's closing
instructions (for example, survey, insurance policy, property
repairs, closing documents). If either party fails to close
this sale by the Closing Date, the non-defaulting party shall
be entitled to exercise the remedies contained in paragraph
15.
(b) At closing Seller shall furnish, at Seller's expense (strike
any not to be furnished):
(1) tax statements showing no delinquent taxes on the
Property;
(2) a |X| General [ ] Special Warranty Deed conveying
good and indefeasible title to the Property showing
no additional exceptions to those permitted in
paragraph 6;
(3) If applicable, a Bill of Sale with warranties to
title conveying title, free and clear of all liens,
to any personal property defined as part of the
Property in paragraph 2 and conveyed by this
contract;
(8) evidence that the person executing this contract is
legally capable and authorized to bind Seller.
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Commercial Improved Earnest Money Contract concerning 8909 KINGSWAY
--------------------------
10. POSSESSION: Seller shall deliver possession of the Property to Buyer on
-------------- in its present or required repaired condition, ordinary
wear and tear excepted. Any possession by Buyer prior to closing or
Seller after closing that is not authorized by a separate written lease
agreement, shall establish a landlord- tenant at sufferance
relationship between the parties.
11. SPECIAL PROVISIONS:
1 - Buyer to pay for all closing cost and Seller to pay his
legal fees.
2 - Buyer Accepts property in its present condition. See Addendum
3 - Buyer to pay for own environmental study.
4 - Seller agrees to lease to Buyer subject property for 90 days
or less at $5,000.00 per month beginning February 1st, 1997.
See attached lease agreement.
12. SALES EXPENSES: To be paid in cash at or prior to closing:
(a) Seller's Expenses: Releases of existing liens, including
prepayment penalties and recording fees; release of Seller's
loan liability; tax statements or certificates; preparation of
deed; one-half of escrow fee; and other expenses stipulation
to be paid by Seller under other provisions of this contract.
(b) Buyer's Expenses: All loan fees or expenses (e.g., fees for
application,origination, discount, appraisal, assumption,
recording, tax service, mortgagee title policies, credit
reports, document preparation and the like); preparation and
recording of deed of trust to secure assumption; required
premiums for flood and hazard insurance; interest on all
periodic installment payment notes from date of disbursements
to one payment period prior to dates of first monthly
payments; one-half of escrow fee; fees for copies and delivery
of title commitment and related documents; and other expenses
stipulated to be paid by Buyer under other provisions of this
contract.
(c) If any sales expense exceeds the amount stated in this
contract to be paid by either party, either party may
terminate this contract unless either party agrees to pay such
excess.
13. PRORATIONS AND ESTOPPEL CERTIFICATES:
(a) PRORATIONS: Insurance (at Buyer's option) if a transfer is
permitted by the insurance carrier, interest on any assumed
loan, current taxes, and any rents shall be prorated through
the Closing Date. If the amount of the ad valorem taxes for
the year in which the sale is closed is not available on the
Closing Date, proration of taxes shall be made on the basis of
taxes assessed in the previous year, with a subsequent cash
adjustment of such proration to be made between Seller and
Buyer, if necessary, when actual tax figures are available. If
Buyer is assuming payment of or taking subject to any existing
loan on the Property, all reserve deposits for the payment of
taxes, insurance premiums, and other charges,shall be
transferred to Buyer by Seller and Buyer shall pay to Seller
the amount of such reserved deposits at closing.
(b) ESTOPPEL CERTIFICATES: Within N/A days after the Effective
Date of this Contract, Seller shall deliver to Buyer estoppel
certificates signed not earlier than N/A by each tenant
leasing space in the Property stating that, as of the date
signed: no default exists under the terms of the lease
agreement by either lessor or lessee; the amount of any rental
payments made in advance, if any; the amount of any security
deposits made, if any; the amount of any offsets against rent,
if any; and that the tenant has no defenses against the
payment of rent accruing under the terms of the lease
agreement. If Seller is unable to deliver the estoppel
certificates in accordance with the terms of this paragraph
without fault by the specified time, Buyer may: (i) terminate
this contract and the Earnest Money shall be refunded to
Buyer; (ii) extend the time for performance up to 15
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Commercial Improved Earnest Money Contract concerning 8909 KINGSWAY
--------------------------
days and the Closing Date shall be extended as necessary; or
(iii) waive Seller's requirement to deliver the estoppel
certificates.
(c) Seller shall, at closing, tender to Buyer any security
deposits, prepaid expenses, and advanced rental payments paid
by any and all tenants.
14. CASUALTY LOSS AND CONDEMNATION:
(a) If any part of the Property is damaged or destroyed by fire or
other casualty loss, Seller shall restore the Property to its
previous condition as soon as reasonably possible, but in any
event by the Closing Date. If Seller is unable to do so
without fault, Buyer may: (i) terminate this contract and the
Earnest Money shall be refunded to Buyer; (ii) extend the time
for performance up to 15 days and the Closing Date shall be
extended as necessary; or (iii) accept the Property in its
damaged condition and accept an assignment of insurance
proceeds. Provisions of the Texas property Code to the
contrary shall not apply.
(b) If prior to closing condemnation proceedings are commenced
against any portion of the Property, Buyer may: (i) terminate
this contract by written notice to Seller within 15 days after
Buyer is advised of the condemnation proceeding and the
Earnest Money shall be refunded to Buyer; or (ii) appear and
defend in the condemnation proceeding and any award in
condemnation shall, at Buyer's election, become the property
of Seller and the sales price shall be reduced by the same
amount or any award shall become the property of Buyer and the
Sales price shall not be reduced.
15. DEFAULT: If Buyer fails to comply with this contract, Buyer shall be in
default. Seller may either, enforce specific performance, seek other
relief as may be provided by law, or both; or terminate this contract
and receive the Earnest Money as liquidated damages, thereby releasing
the parties from this contract. If Seller is unable without fault to
make any noncasualty repairs, deliver the estoppel certificates, or
deliver the Commitment within the time allowed, Buyer may either
terminate this contract and receive the Earnest Money as the sole
remedy or extend the time for performance up to 15 days and the Closing
Date shall be extended as necessary. If Seller fails to comply with
this contract for any other reason, Seller shall be in default and
Buyer may either enforce specific performance, seek such other relief
as may be provided by law, or both; or terminate this contract and
receive the Earnest Money, thereby releasing the parties from this
contract.
16. ATTORNEY FEES: If Buyer, Seller, Listing Broker, Other Broker, or
Escrow Agent is a prevailing party in any legal proceeding brought
under or with relation to this contract or this transaction, such party
shall be entitled to recover from the non-prevailing parties all costs
of such proceeding and reasonable attorney fees. The provisions of this
paragraph shall survive closing.
17. ESCROW: If either party makes demand for the payment of the Earnest
Money, Escrow Agent has the right to require from all parties and
brokers a written release of liability of Escrow Agent for disbursement
of the Earnest Money. Any refund or disbursement of Earnest Money under
this contract shall be reduced by the amount of unpaid expenses
incurred on behalf of the party receiving the Earnest Money, and Escrow
agent shall pay the same to the creditors entitled thereto. At closing,
the Earnest Money shall be applied first to any cash down payment, then
to Buyer's closing costs and any excess refunded to Buyer. Demands and
notices required by this paragraph shall be in writing and delivered by
hand delivery or by certified mail, return receipt requested.
18. MATERIAL FACTS:
(a) Seller shall convey the Property on closing: (i) with no
liens, assessments,. Uniform Commercial Code or other security
interests against the Property which will not be satisfied out
of the Sales Price unless securing payment of any loans
assumed by Buyer, (ii) without any assumed loans in default;
and (iii) with no parties in possession of any portion of the
Property as lessees, tenants at sufferance, or trespassers
except tenants under the written leases delivered to Buyer
pursuant to his contract.
(b) To the best of Seller's knowledge and belief (choose (1) or
(2) only):
-5-
<PAGE>
Commercial Improved Earnest Money Contract concerning 8909 KINGSWAY
--------------------------
[ ] (1) Seller is not aware of any material defects
to the Property except as stated in the
attached property Condition Statement.
|X| (2) Seller is not aware of:
(i) any material defects to the
Property except: ROOF SEE ADDENDUM
SUITABILITY, STRUCTURE SEE ADDENDUM
-----------------------------------
(ii) any environmental hazards or
conditions affecting the property
which would violate any federal,
state or local statutes,
regulations, ordinance or other
requirements and more specifically,
but without limitation, whether (1)
the Property is or has ever been
used for storage or disposal or
hazardous substances or materials
or toxic waste, a dump site or
landfill, or the housing of any
underground tanks or drums; (2)
radon, asbestos insulation or
fireproofing, ureaformaldehyde foam
insulation, lead-based paint or
other pollutants or contaminants of
any nature now exist or have ever
existed on the Property; (3)
wetlands, as defined by federal or
state law or regulation are on the
Property; and (4) threatened or
endangered species or their
habitat, as defined by the Texas
Parks and Wildlife Department or
the U.S. Fish and Wildlife Service,
are on the property; except as
follows----------------------------
-----------------------------------
19. NOTICES: All notices shall be in writing and effective when
hand-delivered, mailed by certified mail return receipt requested, or
sent by facsimile transmission to:
Buyer at P.O. Box 3048 Seller at One McKelligan Canyon Rd.
-------------------------- ------------------------------------
Sunland Park, NM El Paso, Tx. 79930
-------------------------- ------------------------------------
Phone (505) 589-5431 Phone ( )
-------------------------- ------------------------------------
Fax ( ) Fax ( )
-------------------------- ------------------------------------
20. FEDERAL TAX REQUIREMENT: If Seller is a "foreign person", as defined by
applicable law, or if Seller fails to deliver an affidavit that Seller
is not a "foreign person", then Buyer shall withhold from the sales
proceeds at closing an amount sufficient to comply with applicable tax
law and deliver the same to the Internal Revenue Service, together with
appropriate tax forms. Internal Revenue Service regulations require
filing written reports if cash in excess of specified amounts is
received in the transaction.
21. DISPUTE RESOLUTION: The parties agree to negotiate in good faith in an
effort to resolve any dispute related to this contract that may arise.
If the dispute cannot be resolved by negotiation, the dispute shall be
submitted to mediation before the parties resort to arbitration or
litigation and a mutually acceptable mediator shall be chosen by the
parties to the dispute who shall share the cost of mediation services
equally.
22. AGREEMENT OF THE PARTIES: This contract shall be binding on the
parties, their heirs, executors, representatives, successors, and
assigns. This contract shall be construed under and in accordance with
laws of the State of Texas. This contract contains the entire agreement
of the parties and cannot be changed except by written agreement. If
this contract is executed in a number of identical counterparts, each
counterpart is deemed an original and all counterparts shall,
collectively, constitute one agreement. Buyer o may o may not assign
this contract. If Buyer assigns this contract Buyer shall be relieved
of any future liability under this contract only if the assignee
assumes in writing all obligations and liability of Buyer under this
contract. Addenda which are part of this contract are: SEE
ADDENDUM---------------------------------------------------------------
-6-
<PAGE>
Commercial Improved Earnest Money Contract concerning 8909 KINGSWAY
--------------------------
23. TIME: Time is of the essence in this contract. Strict compliance with
the times for performance stated in this contract is required.
24. EFFECTIVE DATE: The Effective Date of this contract for the purpose of
performance of all obligations shall be the date this contract is
receipted by the Escrow Agent after all parties have executed this
contract.
25. MISCELLANEOUS:
(a) Buyer should have an Abstract covering the Property examined
by an attorney of Buyer's selection, or Buyer should be
furnished with or obtain a Title Policy.
(b) If the Property is situated in utility or other statutorily
created district providing water, sewer, drainage, or flood
control facilities and services, Chapter 50 of the Texas Water
Code requires Seller to deliver and the Buyer to sign the
statutory notice relating to the tax rate, bonded
indebtedness, or standby fee of the district prior to final
execution of this contract.
(c) If the Property adjoins or shares a common boundary with the
tidally influenced submerged lands of the state, Section
33.135 of the Texas Natural Resources Code, requires a notice
regarding coastal area property to be included in the
contract.
(d) Buyer should not rely upon any oral representations about the
Property from any source. Seller and any broker have no
knowledge of any defects in the Property other than what has
been disclosed in this contract or other writing.
(e) Brokers are not qualified to render property inspections,
survey,s engineering studies, environmental assessments, or
inspections to determine compliance with zoning, governmental
regulations, or laws. Buyer should seek experts to render such
services. Selection of inspectors and repairmen is the
responsibility of the Buyer and not the Broker.
26. CONTRACT AS OFFER: The execution of this contract by the first party
constitutes an offer to buy or sell the Property. Unless accepted by
the other party by 5:00 p.m. (in the time zone in which the Property is
located) on FEBRUARY 20, 1997------------------, the offer shall lapse
and be null and void.
This is intended to be a legally binding contract. READ IT CAREFULLY. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY BROKER OR ITS AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS DOCUMENT OR
TRANSACTION. CONSULT YOUR ATTORNEY BEFORE SIGNING.
Buyer's Seller's
Attorney Attorney
------------------------ ----------------------------
/s/ Ron Campbell 2-5-97 /s/ Stanley Jobe 2-11-97
- -------------------------------- ------------------------------------
Ron Campbell Stanley Jobe
Buyer Quality Air Inc. Seller
- -------------------------------- ------------------------------------
-7-
<PAGE>
Commercial Improved Earnest Money Contract concerning 8909 KINGSWAY
--------------------------
Buyer Seller
- --------------------------------------------------------------------------------
AGREEMENT BETWEEN BROKERS
Listing Broker agrees to pay -------------------------------------------. Other
Broker, a fee of $------------------------ or ----% of the Sales Price when the
Listing Broker's fee is received. Escrow Agent is authorized and directed to pay
Other Broker from Listing Broker's fee at closing. This Agreement between
Brokers supersedes any prior offers and agreements for compensation between
brokers.
John T. Hellard 0142054
- -------------------------------- ------------------------------------
Other Broker License No. Listing Broker License No.
By:----------------------------- By:---------------------------------
3707 Admiral (915) 593-1957
- -------------------------------- ------------------------------------
Other Broker's Address Phone No. Listing Broker's Address Phone No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECEIPT
On this day, -----------------------------, Escrow Agent acknowledges receipt
of: (a) [ ] Contract; and (b) [ ] Earnest Money in the form of
- -----------------------------------
Escrow Agent ------------------------------ By:--------------------------
Address:----------------------------------- Phone:-------------------------
- --------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
HAZARDOUS MATERIALS WARNING AND
DISCLAIMER FOR PROPERTIES INVOLVED
IN SALE AND/OR LEASE TRANSACTIONS
Property: 8909 KINGSWAY
----------------------------------------------------------------------
Various materials utilized in the construction of any improvements to the
Property may contain materials that have been or may in the future be determined
to be toxic, hazardous or undesirable and may need to be specially treated,
specially handled and/or removed from the Property. For example, some electrical
transformer sand other electrical components can contain PCB's, and asbestos has
been used in a wide variety of building components such as fire-proofing, air
duct insulation, acoustical titles, spray-on acoustical materials, linoleum,
floor tiles and plaster. Due to current or prior uses, the Property or
improvements may contain materials such as metals, minerals, chemicals,
hydrocarbons, biological or radioactive materials and other substances which are
considered, or in the future may be determined to be, toxic wastes, hazardous
materials or undesirable substances. Such substances may be above-and
below-ground containers on the Property or may be present on or in soils, water,
building components or other portions of the Property in areas that may or may
not be accessible or noticeable.
Current and future federal, state and local laws and regulations may require the
clean-up of such toxic, hazardous or undesirable materials at the expense of
those persons who in the past, present or future have had any interest in the
Property including, but not limited to, current, past and future users of the
property. Sellers/lessors and Buyers/Tenants are advised to consult with
independent legal counsel of their choice to determine their potential liability
with respect to toxic, hazardous, or undesirable materials. Sellers/lessors and
Buyers/Tenants should also consult with such legal counsel to determine what
provisions regarding toxic, hazardous or undesirable materials they may wish to
include in purchase and sale agreements, leases, options and other legal
documentation related to transactions they contemplate entering into with
respect to the Property.
The real estate salespersons and brokers in this transactions have no expertise
with respect to toxic wastes, hazardous materials or undesirable substances.
Proper inspections to the property by qualified experts are an absolute
necessity to determine whether or not there are any current or potential toxic
wastes, hazardous materials or undesirable substances in or on the Property. The
real estate salespersons and brokers in this transaction have not made, or will
they make, any representations, either express or implied, regarding the
existence or nonexistence of toxic wastes, hazardous materials, or undesirable
substances in or on the Property. problems involving toxic wastes, hazardous
materials, or undesirable substances can be extremely costly to correct. It is
the responsibility of Sellers/Lessors and Buyers/Tenants to retain qualified
experts to deal with the detection and correction of such matters.
SELLER/LESSOR BUYER/TENANT
By: /s/ Stanley Jobe By: /s/ Ron Campbell
--------------------------- ---------------------------
STANLEY JOBE RON CAMPBELL
Title: Title: Controller/CFO
--------------------------- ---------------------------
Date: 2-11-97 Date: 2-5-97
- --------------------------------------------------------------------------------
-9-
<PAGE>
ADDENDUM TO EARNEST MONEY CONTRACT
The Addendum is made by and between STANLEY JOBE ("Seller")
and QUALITY AIR, INC. and/or assigns ("Buyer") to that certain Earnest Money
Contract of Sale ("Contract") dated 11th day of February, 1997, for the purchase
and sale of that certain property legally described as follows:
Lots 3 to 20, 41 to 58, Block 15, WESTWAY UNIT II, an Addition
to El Paso County, Texas, according to the plat on file in
Volume 17, Page 35, Real Property Records, El Paso County,
Texas; also known as 8989 Kingsway in the City of Anthony,
Texas.
1. The parties desire to amend the contract with regards to
Paragraph 7(a)(1) and Paragraph II to more specifically set out all of their
terms of Buyer's acceptance of the Property. Said paragraph shall be amended by
adding the following:
"CONDITION OF PREMISES. Buyer acknowledges that Seller
acquired the property through a Deed in Lieu of Foreclosure and consequently
Seller discloses that there may be some defects in the roof and the roof
structure. Further, Seller discloses that the property is not connected to City
water or sewer. Accordingly, except as otherwise specifically stated herein,
BUYER ACKNOWLEDGES AND AGREES THAT NEITHER THE SELLER NOR THE BROKERS HAVE MADE,
DO NOT MAKE AND SPECIFICALLY NEGATE AND DISCLAIM ANY REPRESENTATIONS,
WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR
CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT
OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE VALUE, NATURE,
QUALITY OR CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER,
SOIL AND GEOLOGY, (B) THE INCOME TO BE DERIVED FROM THE PROPERTY, (C) THE
SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH BUYER MAY
CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS APPLICABLE
GOVERNMENTAL AUTHORITY OR BODY, (E) THE HABITABILITY, MERCHANTABILITY,
MARKETABILITY, PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE
PROPERTY, (F) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY
INCORPORATED INTO THE PROPERTY, (G) THE MANNER, QUALITY, STATE OF REPAIR OR LACK
OF REPAIR OF THE PROPERTY, OR (H) ANY OTHER MATTER WITH RESPECT TO THE PROPERTY,
AND SPECIFICALLY, THAT SELLER AND BROKERS HAVE NOT MADE, DO NOT MAKE AND
SPECIFICALLY DISCLAIM ANY REPRESENTATIONS REGARDING COMPLIANCE WITH ANY
ENVIRONMENTAL, PROTECTION, POLLUTION OR LAND USE, LAWS, RULES, REGULATIONS,
ORDERS OR REQUIREMENTS, INCLUDING SOLID, WASTE, AS DEFINED BY THE U.S.
ENVIRONMENTAL, PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, OR THE
DISPOSAL OR EXISTENCE, IN OR ON THE PROPERTY OF ANY HAZARDOUS SUBSTANCE, AS
DEFINED BY THE COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY
ACT OF 1980, AS AMENDED, AND REGULATIONS PROMULGATED THEREUNDER. BUYER FURTHER
INSPECT THE PROPERTY, BUYER IS RELYING SOLE ON ITS OWN INVESTIGATION OF THE
PROPERTY AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER OR
BROKER. BUYER FURTHER ACKNOWLEDGES AND
-10-
<PAGE>
AGREES THAT ANY INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE
PROPERTY WAS OBTAINED FROM A VARIETY OF SOURCES AND THAT SELLER AND BROKERS HAVE
NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND
MAKE NO REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION.
SELLER IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS,
REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION
HEREIN, FURNISHED BY ANY REAL ESTATE BROKER, AGENT, EMPLOYEE, SERVANT OR OTHER
PERSON, BUYER FURTHER ACKNOWLEDGES AND AGREES THAT TO THE MAXIMUM EXTENT
PERMITTED BY LAW, THE SALE OF THE PROPERTY AS PROVIDED FOR HEREIN IS MADE ON AN
"AS IS" CONDITION AND BASIS WITH ALL FAULTS. IT IS UNDERSTOOD AND AGREED THAT
THE PURCHASE PRICE HAS BEEN ADJUSTED BY PRIOR NEGOTIATION TO REFLECT THAT ALL OF
THE PROPERTY IS SOLD BY SELLER AND PURCHASED BY BUYER SUBJECT TO THE FOREGOING.
THE PROVISION OF THIS PARAGRAPH SHALL BE INCORPORATED IN THE DEED TO BE
DELIVERED AT CLOSING AND SHALL SURVIVE THE CLOSING."
2. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents
and warrants as of the date hereof and as of the date of closing, which
representations and warranties shall survive the closing, that it has the full
corporate power to enter into and consummate this transaction and that the
officer executing this document and the documents at closing has been duly
authorized and empowered to enter into this Agreement and consummate it
according to its terms.
3. All other terms and conditions unless modified herein shall
remain in full force and effect.
Dated this 11th day of February, 1997.
----
SELLER BUYER
QUALIFY AIR, INC.
By: /s/ Stanley P. Jobe By: /s/ Ron Campbell 2-17-97
- ---------------------------- ---------------------------------
STANLEY P. JOBE RON CAMPBELL
Its: Controller
-11-
EXHIBIT 10.5(l)
SPEC-AIR FAX # 915/877-1538
Special Performance Engineering Capacity
7249 Bosque Rd.,Canutillo, Texas 79835 915/877-3136
- --------------------------------------------------------------------------------
ADDENDUM A
INVOICE #028019 - OCTOBER 21, 1994
----------------------------------
The following constitutes the sales agreement between Bacchus Industries Inc.,
hereinafter called "BII") and:
Mr. Stephen L. Callaham
Spec-Air
7249 Bosque Road
Canutillo, Texas 79835
hereinafter called "Spec-Air", and in which BII agrees to sell to Spec-Air heat
exchanger manufacturing equipment with "first refusal" repurchase option in
favor of BII.
LIST OF EQUIPMENT
-----------------
<TABLE>
<CAPTION>
BII SPEC-AIR SALES
EQUIPMENT # EQUIPMENT # EQUIPMENT DESCRIPTION PRICE
- ----------- ----------- --------------------- -----
<S> <C> <C> <C>
OUTEHP001 93001711 100 Ton Hydraulic Press $ 12,000.00
OUTMPP002 93001724 Pin Plate 42 x 28 Mold $ 36,000.00
OUTMPP003 93001731 Pin Plate 42 x 28 Mold $ 36,000.00
76EVFCTS1 93001742 Vacuum Former-Cain D/Mold Shuttle $ 63,500.00
76EWVAT01 93001785 Double Shuttle E2PAK Dip Vat $ 9,000.00
76EMPPSD05 93001757 Pin Plate 17 x 18.5 x 22.75SD Mold $ 42,000.00
76EMPPSD04 93001763 Pin Plate 17 x 18.5 x 22.75SU Mold $ 42,000.00
None 93001777 Nordson Hot Melt Glue Machine $ 7,400.00
-----------
TOTAL SALES PRICE $247,900.00
===========
</TABLE>
The terms of this sale shall be as follows:
1. The term of this agreement is five (5) years.
2. Should Spec-Air or the mortgage holder decide to sell or move the equipment,
BII shall have a priority option to repurchase the equipment at the price set
forth in the attached schedule. BII shall have 60 days to effect said repurchase
from the receipt of notice that Spec-Air or the mortgage holder intends to sell
or move the equipment, except where such sale or movement is the result of BII's
default on the conditions of this agreement.
3. Spec-Air agrees that BII will continue to operate and maintain said
equipment. Maintenance shall include both preventive and causative to ensure
that all equipment is in good operating condition. At Spec-Air's sole
discretion, subject to the terms of the equipment repurchase by BII, the
equipment may be removed, sold or otherwise disposed of in any manner determined
appropriate. BII shall not move the equipment from its current location without
the expressed and written consent of Spec-Air.
<PAGE>
4. In consideration of the use of said equipment, BII shall pay $48,010.56 per
year to Spec- Air as an equipment rental fee.
5. During the term of this agreement, based on compliance with the terms,
Spec-Air will purchase engineering plastic from Klocknor Pentatherm on behalf of
BII for its production of heat exchanges. Spec-Air will bill BII the cost of
such purchases.
6. Bacchus will produce and deliver $25,000 per week in heat exchangers to
Spec-Air, based on the supply of plastic, and be paid $12,500.00 with the
additional $12,500.00 held by Spec-Air as a non-refundable payment toward the
repurchase of the said equipment (except for the first payment each calendar
month which will have the repurchase credit reduced by the amount of the monthly
equipment rental) until the non-refundable account equals $100,000.00.
Thereafter, BII will produce $12,500 per month for Spec-Air and Spec-Air will
have absolute first refusal on any heat exchangers produced in excess of the
foregoing minimum. BII agrees that it will price all heat exchangers 25% above
the sales price to Spec-Air for those heat exchangers sold to any parties which
were not a part of the pre-purchase agreement. In addition, BII will pay a
royalty to Spec-Air for such third party sales in the amount of $8.00 per foot
on large heat exchangers and $2.65 per foot on small heat exchangers.
a. The price of E2PAK heat exchangers shall be set at .34 multiplier
for the purpose of calculating the monthly production quota and shall constitute
the sales price throughout the term of this contract except that this multiplier
may be adjusted upward to reflect the actual documented cost increases and in
accordance with cost ratios.
b. For the purposes of this agreement, "...produce and deliver..." as
set forth above, solely includes E2PAK heat exchangers which meet the normal
production standards of quality. Therefore, E2PAK's which leak or otherwise
demonstrate quality failure, do not count towards the production quota, and they
will be returned to BII for repair.
c. During the period of this agreement, BII agrees that ADA Systems and
Barnhart- Taylor shall only be permitted to purchase heat exchangers directly
from Spec-Air.
7. Minimum monthly production payments from Spec-Air will be based on $12,500 in
heat exchangers delivered. Deliveries in excess of $12,500 per month will be
approved by Spec-Air. Payments may be reduced up to 50% for reimbursement of the
monthly rental payment and payment of any outstanding BII account.
8. BII will, throughout the term of this agreement, permit Spec-Air or its
representatives to have immediate access to BII facilities during normal
business hours for purposes of inventory and inspection of subject equipment,
heat exchangers, etc. No prior notification is required for this access.
9. BII will provide up to three (3) storage trailers until 12/31/94, to be
parked on Spec-Air property and used for the storage of heat exchangers.
Spec-Air will accept all liability for the safekeeping of such trailers while
they are parked on its property.
10. Spec-Air will be notified not less than seven (7) days in advance of BII
initiated dissolution, bankruptcy or re-organization, or, within 24 hours of
such dissolution, bankruptcy or reorganization is the result of other legal
action, and permitted immediate access to the encumbered equipment for purposes
of repossession at any BII property. This will include heat exchangers in
storage, under manufacture or materials for manufacturing heat-exchangers; which
will be considered encumbered for purposes of this action.
11. Upon entering into this agreement, throughout its term and thereafter,
Spec-Air may separately market those heat exchangers not utilized for its own
production.
-2-
<PAGE>
12. Default of contract will be defined to include the following:
a. Failure to make full rental payment for a term exceeding forty-five
(45) days.
b. Failure to comply with E2PAK production schedule for a term
exceeding forty- five (45) days.
c. Failure to comply with any conditions of this contract.
13. Should BII default within the meaning of this contract, BII agrees to
perform as follows:
a. Those funds held by Spec-Air (set forth in paragraph 6. above) fully
revert to Spec-Air and are not refundable in any amount to BII.
b. Permit Spec-Air or its representatives to have immediate (within 24
hours of notification of default) access to all BII facilities for the purposes
of taking possession of the equipment to BII under this agreement, or which may
be otherwise encumbered to Spec-Air, to recover any materials utilized in E2PAK
fabrication, or E2PAKs in storage, all of which shall be considered encumbered
by this contact and subject to repossession without intervening litigation by
BII staff, owners, stock-holders, or other BII interested parties.
c. BII will provide bill of materials for manufacturing heat exchangers
as well as a complete list of suppliers, addresses, parts numbers, etc.
d. BII will provide complete operating manuals, settings, calibrations
and related specific instructions for the set-up and use of the encumbered
equipment.
e. BII will fully disclose all proprietary information related to the
manufacture of heat exchangers and on-site assistance in the set-up and
operational training of the equipment for a term of not more than 80 hours at no
cost and will be available for subsequent instruction for a fee of $25.00 per
hour.
14. Upon acceptance of this agreement and receipt of lease purchase funding
Spec-Air will provide BI with $89,700.00 of the funds realized.
15. This agreement supersedes all previous agreements related to this purchase
THE FOREGOING SHALL CONSTITUTE THE FULL TERMS OF THIS AGREEMENT.
/s/ STEPHEN L. CALLAHAM /s/ ROCKY BACCHUS Treasurer
- --------------------------- ------------------------------
Stephen L. Callaham, Rocky Bacchus
Spec-Air Bacchus Industries, Inc.
-3-
EXHIBIT 10.5(m)
STATE OF NEW MEXICO
DONA ANA COUNTY
LEASE OF REAL PROPERTY; IMPROVEMENTS; OTHER ASSETS;
AND MISCELLANEOUS RESPECTIVE AGREEMENTS
PREAMBLE, PARTIES, PREMISES AND RECITAL OF
RESPECTIVE AGREEMENTS
The respective agreements entered into herein are by and between
BACCHUS INDUSTRIES, INC. (BII); and REFRIGERATION TECHNOLOGY, INC., a newly
formed Delaware corporation (RTI); in each entities' respective capacities, as
hereinafter set forth, for the lease of real property; improvements; other
assets and miscellaneous respective agreements.
PURPOSE
The purpose of the respective agreements contained herein are for a
lease of real property, improvements, equipment, molds, information and other
assets as related to sales; and the respective rights and obligations between
BII and RTI for the manufacturing and production, sales and all other related
rights, liabilities and obligations of the respective entities.
LEASE AGREEMENT
LEASE
This lease is made and entered into by and between BII, Lessor, and
RTI, Lessee.
In consideration of the mutual covenants and agreements set forth in
this lease, and other good and valuable consideration, Lessor demises and leases
to Lessee, and Lessee leases from Lessor, the premises situated on 301 Antone
Street in the city of Sunland Park, Dona Ana County, New Mexico and more
particularly described in Exhibit A attained to this lease. The premises are
referred to in this lease as "the premises" or the "leased premises."
<PAGE>
ARTICLE I. TERM
TERM OF LEASE
1.01. The Term of this lease shall be for three (3) years, commencing on March
1, 1997, and ending on March 1, 2000, unless sooner terminated as provided in
this lease. Provided however, that BII or RTI, will each have the sole
discretionary right, respectively to terminate this Lease with 120 days notice,
as provided herein, to the other party.
OPTION TO EXTEND TERMS
1.02. Lessee has the right to extend this agreement for five (5) years at its
option.
ARTICLE II
FIXED RENT
2.01. Lessee agrees to pay to Lessor the sum of $6,500.00 per month on or before
the 5th of each month until the full term of the lease has expired.
TAXES AND ASSESSMENTS AS ADDITIONAL RENT
2.02. In addition to the fixed rent specified in section 2.01, Lessee shall pay
the full amount of all real property taxes, special assessments and governmental
charges of every character imposed upon the leased premises during the term of
this lease, including any special assessments imposed on, or against, the
premises for the construction or improvements of public works. This additional
rent shall be payable directly to the entity prior to the entity imposing the
tax, assessment, or charge at least thirty days (30) prior to the date on which
the payment is due. Lessee shall provide Lessor with a receipt or other evidence
of payment for each such tax, assessment, or charge paid within a reasonable
time after receipt or other evidence is available to Lessee.
ARTICLE III. USE OF PREMISES
PERMITTED USE
3.01. Lessee may use the premises for offices and to operate and conduct heat
exchanger and an air conditioning manufacturing and warehousing. Lessee may not
use the premises for any other purpose without the written consent of the
Lessor. Such consent shall not be unreasonably withheld.
Waste, Nuisance, or Illegal Uses
2
<PAGE>
3.02. Lessee shall not use, or permit the use of, the premises in any manner
than results in waste of the premises or constitutes a nuisance or violates any
statute, ordinance, rule, or regulation applicable to the premises or for any
illegal purpose.
ARTICLE 4. REPAIRS AND MAINTENANCE
REPAIRS AND MAINTENANCE BY LESSEE
4.01. Lessee shall, throughout the term of this lease and any extensions of that
term, at its own expenses and right, maintain the order and condition, including
but not limited to making all repairs and replacements necessary to keep the
premises and improvements in such condition. All maintenance, repairs, and
replacements required by this section must be performed promptly when required.
ARTICLE 5. UTILITIES AND GARBAGE REMOVAL
UTILITY CHARGES
5.01. Lessee shall pay all utility charges for water, electricity, heat, gas,
and telephone service used in and about the leased premised during the term of
the lease, all such charges to be paid by the Lessee directly to the utility
company or municipality furnishing the same, before the same shall become
delinquent.
GARBAGE REMOVAL
5.02. Lessee shall pay for the removal of all its garbage and rubbish from the
leased premises during the term of the lease.
ARTICLE 6. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS
CONSENT OF LABOR
6.01. Lessee shall not make any alterations, additions, or improvements to the
leased premises without prior written consent of Lessor. Consent for
nonstructural alterations, additions, or improvements shall not be unreasonably
withheld by Lessor.
PROPERTY OF LESSOR
6.02. All alterations, additions, or improvements made by Lessee shall become
property of Lessor at the termination of this lease. Lessor may, however,
require that Lessee remove any or all alterations, additions, or improvements
installed or made by the Lessee, and any other property placed on the property
by Lessee, upon termination of the Lease. In the event that Lessor requires
Lessee to remove such alterations, additions, or improvements, Lessee shall
repair any damage to the premises caused by such removal.
3
<PAGE>
ARTICLE 7. TRADE FIXTURES AND SIGNS
TRADE FIXTURES
7.01. Lessee has the right at all times to erect or install shelves, bins,
machinery, or other trade fixtures, in, on or about the leased premises,
provided that Lessee complies with all applicable governmental laws, ordinances,
and regulations regarding such fixtures. Lessee has the right to remove all
trade fixtures at the termination of this lease, provided Lessee is not in
default under the terms of the and that the fixtures can be removed without
structural damage to the building.
ARTICLE 8. MECHANIC'S LIEN
8.01. Lessee will not permit any mechanic's lien or liens to be placed upon the
leased premises or improvements on the premises.
ARTICLE 9. INSURANCE AND INDEMNITY
PROPERTY INSURANCE
9.01. Lessee shall, at its own expense, during the term of the lease, keep all
buildings and improvements on the leased premises insured against loss or damage
by fire with extended coverage, to include direct loss by windstorm, hail,
explosion, riot, or riot attending a strike, civil commotion, aircraft,
vehicles, and smoke, in the aggregate amounts of not less than the full fair
insurable value of the buildings and improvements. Such policy or policies of
insurance shall name both Lessor and Lessee as named insured. The policy shall
provide that any proceeds for loss or damage to buildings or to improvements
shall be payable solely to Lessor, which such Lessor shall use for repair and
restoration purposes.
Lessee shall procure tenant insurance to cover all of the contents of
the building and premises, against loss by fire, theft and all other extended
coverage.
4
<PAGE>
LIABILITY INSURANCE
9.02. Lessee, at its own expense, shall provide and maintain in force during the
term of this lease, liability insurance in the amount of $1,000,000, covering
Lessor/Lessee, for any liability for property damage or personal injury arising
as a result of Lessee's occupation or Lessor's ownership of the leased premises.
This insurance is to be carried by one or more insurance companies authorized to
transact business in the state of New Mexico and approved by Lessor.
REMEDY FOR FAILURE TO PROVIDE INSURANCE
9.03. Lessor/Lessee shall furnish Lessor/Lessee with certificates of all
respective insurance requires by this article.
HOLD-HARMLESS CLAUSE
9.04. Lessee agrees to indemnify and hold Lessor harmless against any and all
claims, demands, costs, and expenses, including reasonable attorney's fees for
the defense of such claims and demands arising from the conduct or management of
Lessee's business on the lease premises, or its use of the leased premises or
from any breach on the part of Lessee of any conditions of this Lease, or from
any negligence of Lessee, its agents, contractors, employees, subtenants,
concessionaires, or licensees in or about the lease premises. In case of any
action or proceeding brought against Lessor by reason of any such claim, Lessee
upon notice from Lessor agrees to defend the action or proceeding by counsel
acceptable to Lessor.
ARTICLE 10. ASSIGNMENT AND SUBLEASE
ASSIGNMENT AND SUBLETTING BY LESSEE
10.01. Lessee may not sublet, assign, encumber, or otherwise transfer this
lease, or any right or interest in this lease or in the leased premises or the
improvements on the leased premises, without written consent of Lessor. If
Lessee sublets, assigns, encumbers or otherwise transfers its rights or interest
in this lease or in the leased premises or the improvements on the leased
premises without the written consent of Lessor, Lessor may, at its option,
declare this lease terminated. In the event Lessor consents in writing to an
assignment, sublease, or transfer of all or any of the Lessee's rights under
this lease, the assignee or sublessee must assume all of the Lessee's
obligations under the lease, and Lessee shall remain liable for every obligation
under the lease. Lessor's consent under this section will not be arbitrarily or
unreasonably withheld.
5
<PAGE>
ASSIGNMENT OF LESSOR
10.02. Lessor may assign or transfer any or all of its interests under the terms
of this lease.
ARTICLE 11. MISCELLANEOUS
NOTICES AND ADDRESSES
11.01. All notices required under this lease must be given by certified or
registered mail, addressed to the proper party, at the following addresses:
BII, Lessor
P.O. Box 465
Sunland Park, New Mexico 88063
RTI, lessee
P.O. Box 3048
Sunland Park, New Mexico 88063
Each party may change the address to which notices are to be sent it by giving
the other party notice of the new address in the manner provided in this
section.
PARTIES BOUND
11.02. This agreement shall be binding upon, and inure to the benefit of, the
parties to the lease and their respective heirs, executors, administrators,
legal representatives, successors, and assigns when permitted by this agreement.
NEW MEXICO LAW TO APPLY
11.03. This agreement shall be construed under, and in accordance with, the laws
of the State of New Mexico, and all obligations of the parties created by this
lease are performable in Dona Ana County, New Mexico.
LEGAL CONSTRUCTION
11.04. In case any one or more of the provisions contained in this lease
agreement shall for any reason be held by a court of competent jurisdiction to
be invalid, illegal, or enforceability in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision of this
agreement, and this agreement shall be construed as if the invalid, illegal, or
unenforceable provision had never been included in this agreement.
6
<PAGE>
PRIOR AGREEMENTS SUPERSEDED
11.05. This agreement constitutes the sole and only agreement of the parties to
this agreement and supersedes any prior understandings or written or oral
agreements between the parties respecting the subject matter of this agreement.
AMENDMENT
11.06. No amendment, modification, or alteration of the terms of this agreement
shall be binding unless it is in writing, dated subsequent to the date of this
agreement, and duly executed by the parties to this agreement.
RIGHTS AND REMEDIES CUMULATIVE
11.07. The rights and remedies provided by this lease agreement are cumulative,
and the use of any one right or remedy by either party shall not preclude or
waive that party's right to use any or all other remedies. The rights and
remedies provided in this lease are in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
ATTORNEY'S FEES AND COSTS
11.08. If, as a result of a breach of this agreement by either party, the other
party employs an attorney or attorneys to enforce its rights under this lease,
then the breaching or defaulting party agrees to pay the other party the
reasonable attorney's fees and costs incurred to enforce the lease.
FORCE MAJEURE
11.09. Neither Lessor nor Lessee shall be required to perform any term,
condition, or covenant in this lease so long as such performance is delayed or
prevented by force majeure, which shall mean acts of God, strikes, lockouts,
material or labor restrictions by any governmental authority, civil riot,
floods, and any other cause not reasonable within the control of Lessor or
Lessee and which by the exercise of due diligence Lessor or Lessee is unable,
wholly or in part, to prevent or overcome.
TIME OF ESSENCE
11.10. Time is of the essence of this agreement.
12.01. In the event of foreclosure directly or indirectly by the U.S. Small
Business Administration (SBA) on BII, RTI has the right to break the lease at
its option without penalty. RTI must give SBA 60 days written notice and vacate
premises accordingly.
7
<PAGE>
The undersigned Lessor and Lessee execute this agreement on MARCH 13,
1997, at Sunland Park, Dona County, New Mexico.
BII, Lessor
By: /s/ Rick Bacchus
-----------------------------
Rick Bacchus
P.O. Box 465
Sunland Park, New Mexico 88063
RTI, lessee
By: /s/ Ron Campbell
-----------------------------
Ron Campbell
P.O. Box 3048
Sunland Park, New Mexico 88063
8
EXHIBIT 10.5(n)
PROMISSORY NOTE
$5,000.00 Date: December 30, 1996
For value received, the undersigned Rick Bacchus and Philis Bacchus
(collectively the "Promisor") each as principal, jointly and severally, promise
to pay to the order of Quality Air Inc. (the "Payee"), at P.O. Box 3048, Sunland
Park, New Mexico 88063, (or at such other place as the Payee may designate in
writing) the sum of $5,000.00 with interest from December 30, 1996, on the
unpaid principal at the rate of 1.00 percent over prime published in the Wall
Street Journal, Eastern Edition, annually.
The unpaid principal shall be payable over five years accrued interest shall be
payable monthly. All payments on this Note shall be applied first in payment of
accrued interest and any remainder in payment of principal.
If any installment is not paid when due, the remaining unpaid balance and
accrued interest shall become due immediately at the option of the Payee.
The Promisor reserves the right to prepay this Note (in whole or in part) prior
to the Due Date with no prepayment penalty.
If any payment obligation under this Note is not paid when due, the Promisor
promises to pay all costs of collection, including reasonable attorney fees,
whether or not a lawsuit is commenced as part of the collection process. If any
of the following events of default occur, this Note and any other obligations of
the Promisor to the Payee, shall become due immediately, without demand or
notice:
1) the failure of the Promisor to pay the principal and any
accrued interest in full on or before the Due Date;
2) the death of the Promisor(s) or Payee(s);
<PAGE>
3) the filing of bankruptcy proceedings involving the Promisor
as a Debtor;
4) the application for appointment of a receiver for the
Promisor;
5) the making of a general assignment for the benefit of the
Promisor's creditors;
6) the insolvency of the Promisor; or
7) the misrepresentation by the Promisor to the Payee for the
purpose of obtaining or extending credit.
This Note is secured by Quality Air stock owned by promisor and, when converted,
RTI stock. The Payee is not required to rely on the above security for the
payment of this Note in the case of default, but may proceed directly against
the Promisor.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Promisor waives presentment for payment, protest,
and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
This note will be replaced with a promissory note after distribution of RTI
shares.
This Note shall be construed in accordance with the laws of the State of New
Mexico.
Signed this 30TH day of DECEMBER, 1996, at ------------------------------------.
2
<PAGE>
By: /s/ RICK BACCHUS
---------------------------
Rick Bacchus
By: /s/ PHILIS BACCHUS
---------------------------
Philis Bacchus
3
EXHIBIT 10.5(o)
PROMISSORY NOTE
$50,000.00 Date: March 11, 1997
For value received, the undersigned Rick Bacchus and Philis Bacchus
(collectively the "Promisor") each as principal, jointly and severally, promise
to pay to the order of Refrigeration Technology Inc. (the "Payee"), at P.O. Box
3048, Sunland Park, New Mexico 88063, (or at such other place as the Payee may
designate in writing) the sum of $50,000.00 with interest from March 11, 1997,
on the unpaid principal at the rate of 1.00 percent over prime published in the
Wall Street Journal, Eastern Edition, annually.
The unpaid principal shall be payable over five years accrued interest shall be
payable monthly. All payments on this Note shall be applied first in payment of
accrued interest and any remainder in payment of principal.
If any installment is not paid when due, the remaining unpaid balance and
accrued interest shall become due immediately at the option of the Payee.
The Promisor reserves the right to prepay this Note (in whole or in part) prior
to the Due Date with no prepayment penalty.
If any payment obligation under this Note is not paid when due, the Promisor
promises to pay all costs of collection, including reasonable attorney fees,
whether or not a lawsuit is commenced as part of the collection process. If any
of the following events of default occur, this Note and any other obligations of
the Promisor to the Payee, shall become due immediately, without demand or
notice:
1) the failure of the Promisor to pay the principal and any
accrued interest in full on or before the Due Date;
<PAGE>
2) the death of the Promisor(s) or Payee(s);
3) the filing of bankruptcy proceedings involving the Promisor
as a Debtor;
4) the application for appointment of a receiver for the
Promisor;
5) the making of a general assignment for the benefit of the
Promisor's creditors;
6) the insolvency of the Promisor; or
7) the misrepresentation by the Promisor to the Payee for the
purpose of obtaining or extending credit.
This Note is secured by Quality Air stock owned by promisor and, when converted,
RTI stock. The Payee is not required to rely on the above security for the
payment of this Note in the case of default, but may proceed directly against
the Promisor.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Promisor waives presentment for payment, protest,
and notice of protest and nonpayment of this Note.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
This note will be replaced with a promissory note after distribution of RTI
shares.
This Note shall be construed in accordance with the laws of the State of New
Mexico.
2
<PAGE>
Signed this 11TH day of MARCH, 1997, at ---------------------------------------
By: /s/ RICK BACCHUS
- ---------------------------
Rick Bacchus
By: /s/ PHILIS BACCHUS
- ---------------------------
Philis Bacchus
3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
RTI Inc.
We hereby consent to the incorporation by reference in Registration No. 33-34063
of RTI Inc. and subsidiaries on Form S-8 of our report dated March 20, 1997,
relating to the consolidated financial statements of RTI, Inc. included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
/s/ BDO Seidman, LLP
---------------------
BDO Seidman, LLP
Woodbridge, New Jersey
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE REGISTRANT'S
CONSOLIDATED BALANCE SHEET AS OF DECEMBER
31, 1996 AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000081699
<NAME> Refrigeration Technology, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 2,578,180
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,088,884
<PP&E> 2,015,254
<DEPRECIATION> 1,539,019
<TOTAL-ASSETS> 4,244,484
<CURRENT-LIABILITIES> 94,244
<BONDS> 265,000
0
0
<COMMON> 88,094
<OTHER-SE> 16,053,542
<TOTAL-LIABILITY-AND-EQUITY> 4,244,884
<SALES> 0
<TOTAL-REVENUES> 122,129
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 323,069
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 22,000
<INCOME-PRETAX> (297,182)
<INCOME-TAX> 0
<INCOME-CONTINUING> (200,940)
<DISCONTINUED> (96,242)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (297,182)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
