SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from:______________ to _________________
Commission File No. 33-21842-C
NORTECH FOREST TECHNOLOGIES, INC.
(Exact Name of Small Business Issuer as Specified in Charter)
Delaware 41-1818075
(State or Other Jurisdiction of (IRS Employer Identi-
Incorporation or Organization) fication Number)
7600 West 27th Street, No. B11
St. Louis Park, Minnesota 55426
(Address of Principal Executive Offices, Including Zip Code)
(612) 922-2520
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports; and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of July 22, 1996, the Registrant had 1,096,208 shares of $.01 par value
Common Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Required by Form 10-QSB.
Nortech Forest Technologies, Inc., a Delaware corporation (the "Registrant" or
"Company") files herewith balance sheets as of December 31, 1995 and June 30,
1996 and the related statements of operations and cash flows for the six months
ended June 30, 1996 and 1995, respectively. In the opinion of management of the
Registrant, the financial statements reflect all adjustments, all of which are
normal recurring adjustments necessary to fairly present the financial condition
of the Registrant for the interim period presented. The financial statements
included in this report on Form 10-QSB should be read in conjunction with the
audited financial statements of the Registrant and the notes thereto included in
the Annual Report filed on Form 10-KSB for the year ended December 31, 1995.
At the Company's 1995 Annual Meeting of Stockholders held on June 21, 1995, the
Company's stockholders approved, among other items, a proposal to change the
corporate domicile of the Company from Colorado to Delaware. One result of this
change in corporate domicile was that the Company's capital structure changed
from no par to $.01 par value preferred and common stock. All references in the
accompanying financial statements have been restated to reflect this change in
par value.
In October 1995, the Company merged the business and operations of its sole
wholly owned subsidiary, Nortech Forest Products (NFP) with and into Nortech
Forest Technologies, Inc. This merger was effected to simplify administrative,
record-keeping and accounting matters. Management of the Company believes
various operating and administrative efficiencies should be derived from this
corporate consolidation.
At the Company's 1996 Annual Meeting of Stockholders held on April 30, 1996, the
Company's stockholders approved, among other proposals, a proposal to effect a
one-for-four reverse stock split of the Company's issued and outstanding Common
Stock and an amendment to the Company's Certificate of Incorporation to reduce
the post-split authorized shares of Common Stock from 15,000,000 to 3,750,000
and the Preferred Stock from 2,000,000 to 500,000. The effective date of the
one-for-four reverse split of the Company's Common Stock was May 24, 1996, and
the financial statements enclosed herewith reflect said adjustment for the
number of shares of outstanding Common Stock.
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995(1)
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash $ 4,052 $ 30,919
Accounts receivable 1,250 3,104
Inventories
Finished goods 7,845 16,711
Raw materials 9,605 9,014
Prepaid expenses 14,012 6,500
--------- ---------
Total current assets 36,764 66,248
--------- ---------
Long-term assets:
Equipment 78,615 78,155
Accumulated depreciation (30,631) (23,513)
--------- ---------
47,984 54,642
--------- ---------
Other assets
Organizational costs, net of accumulated
amortization of $523 and $460 during
1996 and 1995, respectively 105 168
Patent costs, net of accumulated
amortization of $874 and $700 during
1996 and 1995, respectively 50,709 48,358
Other assets 3,250 3,250
--------- ---------
54,064 51,776
--------- ---------
$ 138,812 $ 172,666
========= =========
<FN>
(1) The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include the
information and notes required by generally accepted accounting
principles for complete financial statements.
</FN>
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
June 31, December 31,
1996 1995
(Unaudited)
LIABILITIES AND STOCKHOLDERS
EQUITY
<S> <C> <C>
Current liabilities:
Bank line-of-credit $ 69,000 $ 97,000
Accounts payable - trade 178,428 160,968
Accounts payable - related party 14,001 14,001
Notes payable - related party 262,500 106,000
Note payable - other 80,000 25,000
Accrued expenses 22,785 20,909
Current portion of long-term debt 2,150 3,228
----------- -----------
Total current liabilities 628,864 427,106
----------- -----------
Long-term liabilities:
Long-term debt 3,408 3,947
----------- -----------
Stockholders' equity:
Preferred Stock, par value $.01 per share;
500,000 shares authorized, none issued -- --
Common Stock, par value $.01 per share;
3,750,000 shares authorized; issued and
outstanding, 1,096,208 shares at June 30,
1996 and 1,065,375 shares at December 31, 1995 10,962 10,654
Paid in capital 982,218 982,526
Accumulated deficit (1,486,640) (1,251,567)
----------- -----------
Total stockholders' equity (493,460) 258,387
----------- -----------
$ 138,812 $ 172,666
=========== ===========
</TABLE>
See Notes to Financial Statements
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales $ 36,000 $ 47,360 $ 70,284 $ 75,088
Cost of sales 20,311 15,589 33,398 24,554
----------- ----------- ----------- -----------
Gross profit 15,689 31,771 36,886 50,534
Operating expenses:
Administrative 75,694 120,971 137,592 252,401
Sales and marketing 41,470 31,112 83,206 38,383
Research and development 8,510 1,787 30,386 5,837
----------- ----------- ----------- -----------
125,674 153,870 251,184 296,621
----------- ----------- ----------- -----------
Net operating loss (109,985) (122,099) (214,299) (246,087)
Interest expense - net (12,576) (1,581) (20,775) (617)
----------- ----------- ----------- -----------
Net loss $ (122,561) $ (123,680) $ (235,073) $ (246,704)
=========== =========== =========== ===========
Net loss per common share $ (.11) $ (.12) $ (.21) $ (.23)
=========== =========== =========== ===========
Outstanding shares of
common stock 1,096,208 1,059,966 1,096,208 1,060,295
=========== =========== =========== ===========
</TABLE>
See Notes to Financial Statements
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
Six months ended June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $(235,073) $(246,704)
Adjustments to reconcile net loss to
net cash flows from operating activities
Issuance of stock for services -0- -0-
Amortization 237 63
Depreciation 7,118 5,513
Accounts receivable (1,863) (20,791)
Inventories 8,275 (20,791)
Accounts payable 17,460 12,656
Accounts payable-related party -- 14,001
Accrued expenses 1,876 2,893
Other (7,512) 1,174
--------- ---------
Net cash flows from operating activities (205,939) (157,754)
--------- ---------
Cash flows from investing activities:
Purchase of long-term assets (460) (5,314)
Patent costs (2,588) 19,313)
Receivable - related party -0- 13,449
--------- ---------
Net cash flows from investing activities (2,811) (11,178)
--------- ---------
Cash flows from financing activities:
Bank line-of-credit (28,000) 75,000
Sale of stock for cash -0- 25,000
Proceeds from long-term debt -0- 9,700
Payment of long-term debt (1,617) (908)
Note payable - related party 186,500 1,000
Note payable - other 25,000 -0-
--------- ---------
Net cash flows from financing activities 181,883 109,792
--------- ---------
Net increase (decrease) in cash (26,867) (134,448)
Cash, beginning of period 30,919 140,944
--------- ---------
Cash, end of period $ 4,052 $ 14,961
========= =========
</TABLE>
See Notes to Financial Statements
<PAGE>
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
Three Months Ended June 30, 1996 (Unaudited)
1. Condensed Financial Statements
The financial statements included herein have been prepared by Nortech
Forest Technologies, Inc., a Delaware corporation, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted as allowed by such rules and
regulations. Nortech Forest Technologies, Inc. believes that the
disclosures are adequate to make the information presented not misleading.
It is suggested that these financial statements be read in conjunction with
the December 31, 1995 audited financial statements and the accompanying
notes thereto. Although management believes the procedures followed in
preparing these financial statements are reasonable, the accuracy of the
amounts are in some respects dependent upon the facts that will exist and
procedures that will be accomplished by Nortech Forest Technologies, Inc.
later in the year.
Management of Nortech Forest Technologies, Inc. believes that the
accompanying unaudited condensed financial statements contain all
adjustments (including normal recurring adjustments) necessary to present
fairly the operations and cash flows for the periods presented.
2. Organization and History; Predecessor Transactions
At the Company's 1996 Annual Meeting of Stockholders held on April 30,
1996, the Company's stockholders approved, among other proposals, a
proposal to effect a one-for-four reverse stock split of the Company's
issued and outstanding Common Stock and an amendment to the Company's
Certificate of Incorporation to reduce the post-split authorized shares of
Common Stock from 15,000,000 to 3,750,000 and the Preferred Stock from
2,000,000 shares to 500,000 shares. The effective date of the one-for-four
reverse split of the Company's Common Stock was May 24, 1996, and the
financial statements enclosed herewith reflect said adjustment for the
number of shares of outstanding Common Stock.
In October 1995, the Company merged the business and operations of its
former wholly owned subsidiary, Nortech Forest Products (NFP) with and into
Nortech Forest Technologies, Inc. This merger was effected to simplify
administration, record-keeping and accounting matters. Management of the
Company believes various operating and administrative efficiencies should
result from this corporate consolidation.
At the Company's 1995 Annual Meeting of Stockholders held on June 21, 1995,
the Company's stockholders approved, among other items, a proposal to
change the corporate domicile of the Company from Colorado to Delaware. One
result of this change in corporate domicile was that the Company's capital
structure changed from no par to $.01 par value preferred and common stock.
On June 11, 1993, the Company (then known as Emerald Eagle Corp.) acquired
all of the issued and outstanding shares of NFP in exchange for 2,800,000
post-split shares of the Company's Common Stock. The Company was originally
organized under the laws of Colorado in January 1986 under the name Service
Finders, Inc. The name of the Company was changed to Emerald Eagle Corp. in
September 1987 and its business was changed to that of a blank-check
company seeking business opportunities. Immediately following the tax-free
reorganization between the Company and NFP, approximately 77.8% of the
Company's Common Stock was held by the former shareholders of NFP.
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
For financial statement purposes, the acquisition of NFP was accounted for
as a "reverse acquisition," and thus, treated as if NFP had acquired the
Company. As a result, the financial statements of the Company have
presented the operations of NFP from inception and include the Company's
operations from the date of the consummation of such tax-free
reorganization. Historical combined pro forma financial for the `Company
and for NFP for the periods prior to the reorganization are not provided by
the Company because such information is not material to an understanding of
the current or future operations of the Company. The historical results of
operations of the Company include transactions and activities that are not
expected to recur subsequent to such reorganization.
3. Notes Payable - Bank
Effective March 10, 1995, the Company secured a $100,000 revolving line of
credit with Norwest Bank, Minnesota N.A. This line of credit is secured by
the Company's accounts receivable, inventories and substantially all assets
of the Company. This line of credit accrues interest at 5% over the prime
rate and interest is payable monthly. On June 28, 1996, this line of credit
was renewed, and the due date was extended from May 31, 1996 to August 31,
1996. At June 30, 1996, there was $69,000 outstanding under this line of
credit. The note is also personally guaranteed by Robert H. Gilbertson, the
Chairman of the Board of the Company.
On March 10, 1995, the Company entered into an agreement with Norwest Bank,
Minnesota N.A. for a $9,700 equipment note. The note establishes principal
payments due in 35 monthly installments of $269 from April 1, 1995 through
February 1, 1998. A final payment is due on March 1, 1998. Interest is
payable monthly under this obligation at the prime rate, plus 1.5%.
4. Related Party Transactions
Historically, the Company made certain advances to Nordic National Group,
Inc. ("Nordic"). Nordic is controlled by the Chairman of the Board of the
Company. Effective June 30, 1995, Nordic was no longer indebted to the
Company.
Effective June 30, 1995, the Company acquired from Nordic all of the assets
and proprietary rights with respect to three product formulas and product
lines for $14,001.
Between March 10, 1995, and February 2, 1996, three directors of the
Company and a fourth director loaned the Company a total of $262,500. Of
the $262,500 loaned by current or former directors, $110,000 is convertible
to Common Stock under the terms of 12% unsecured convertible subordinated
promissory notes. Of this $262,500, $150,000 was loaned by a director on
February 2, 1996, pursuant to a 12% Promissory Note, with the principal due
on the earlier of (i) the initial closing date of the Company's 1996
private placement; or (ii) September 30, 1996. Interest accrues at a rate
of 12% per annum and is payable monthly. In connection with this loan, the
Company issued the director five-year warrants to purchase 3,750 shares of
Common Stock at an exercise price of $4.00 per share, and granted the
director a security interest in the Company's assets. Also, in connection
therewith, the Company's Chairman agreed to pledge his shares of the
Company's Common Stock as collateral in the event the Company fails to pay
the director on or before September 30, 1996. The Company is currently in
default on the $150,000 secured promissory note due to its failure to pay
interest payments when due. Although on July 1, 1996, the director notified
the Company of its default, the Company is not currently aware of legal
action taken, or pending, in regard to this default. On July 3, 1996, the
same director advanced the Company $6,000 on under an unsecured promissory
note, payable on demand, with interest at 12% per annum.
<PAGE>
5. Equity
On June 20, 1995, the Company issued a Notice of Redemption to redeem all
outstanding warrants to acquire 326,000 pre-split shares of the Company's
Common Stock. On August 4, 1995, the Company redeemed warrants to acquire
pre-split 307,000 shares of Common Stock at a cost to the Company of $307
or $.001 per share. Prior to such redemption, five warrantholders elected
to exercise their warrants to purchase 19,000 pre-split shares of the
Company's Common Stock for gross proceeds to the Company of $14,250.
On December 11, 1995, the Company closed on an unsecured debt financing
with six accredited investors, including three then-current directors of
the Company. The Company issued a total of $190,000 of twelve percent (12%)
unsecured convertible subordinated promissory notes. Directors of the
Company, including Robert H. Gilbertson, Ronald R. Runck and David B.
Clinton, purchased $110,000 of such notes. Interest on the unpaid principal
balance of the notes is 12% per annum until paid in full by the Company, or
otherwise converted by the holder. The notes are due in full, on the
earlier of: (i) the initial or first closing of the Company's 1996 private
placement; or (ii) May 31, 1996. The notes are convertible into restricted
Common Stock of the Company at a rate equivalent to one (1) share of
Company Common Stock for every aggregate $2.00 of principal converted under
the note. In addition, all investors were issued warrants to purchase, in
the aggregate, 4,750 shares of Common Stock at a price of $4.00 per share
during a period of five years from the date of issuance of the warrants. Of
such warrants, directors of the Company received warrants to purchase a
total of 2,750 shares of Common Stock as follows: Robert H. Gilbertson,
warrants to purchase 875 shares; Ronald R. Runck, warrants to purchase 875
shares; and David B. Clinton, warrants to purchase 1,000 shares. Mr. Runck
is no longer a director of the Company. As of the date hereof, such notes
are in default under the terms of their May 31, 1996 maturity date, as well
as the fact that the Company has defaulted on interest payments. To date,
the Company has not been advised of any legal action taken or pending on
the part of any such noteholders due to the Company's default status.
On May 30, 1996, the Company issued an aggregate of 30,834 shares of Common
Stock to 10 shareholders who were previous warrantholders. The Company
issued said shares in order to match the lower exercise price of other
warrantholders who had subsequently exercised their warrants.
6. Manufacturing and Packaging Agreement
In April 1994, the Company entered into a manufacturing and packaging
agreement with Dyno Minnesota of Virginia, Minnesota ("Dyno"). During
January, the Company requested release from the manufacturing and packaging
contract when Dyno was sold to Georgia-Pacific. Management of Georgia
Pacific has verbally agreed to release the Company from the agreement.
Under the agreement, Dyno had exclusive worldwide manufacturing and
packaging rights. The Company is currently using an alternative source of
manufacturing.
7. Seasonal Nature of Sales
Although the Company has insignificant sales history, management believes
that, under normal circumstances, the Company will experience seasonal
demand for its products. The Company's best estimates are that peak sales
are most likely to occur just prior to customers' applications of the
Company's Tree Guard during the Spring and Fall. Other factors likely to
influence seasonality are weather conditions in areas which freeze, the
unique needs of commercial customers, and long lead-times in certain
distribution channels.
8. Going Concern
As stated in Note 13 of the Company`s audited financial statements for the
year ended December 31, 1995, such audited financial statements were
prepared on a going concern basis which contemplated the realization of
assets and satisfaction of liabilities in the normal course of business..
The Company incurred losses of $542,950 in 1995 and $510,062 in 1994. As of
June 30, 1996, the Company has accumulated losses of $1,486,640
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis provides information that management of
the Company believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the unaudited financial statements and footnotes
presented herewith and the audited financial statements for the year ended
December 31, 1995.
General
The Company has developed, introduced, and has commenced marketing of a new
proprietary product called Tree Guard(R) that is designed to deter deer,
rabbits, and other forest animals and wildlife from browsing and destroying
value-added trees, shrubs and other landscape and forest resources. The Company
believes, based on its own testing, that Tree Guard will fill a significant
niche in the animal repellent and forest resources industry.
In February 1995, the Company filed an application with the EPA to secure
federal registration for the sale and marketing of Tree Guard on a national
basis. This application followed an earlier, unsuccessful attempt to secure EPA
registration, which commenced during 1993. On January 30, 1996, the Company was
granted federal EPA registration number 66676-1. Although such registration has
been granted for Tree Guard, the Company must comply with all requirements of
the EPA on an ongoing basis, including, but not limited to: (i) the registration
of its EPA registration number with all state agencies throughout the United
States; and, (ii) the future possibility of incurring costs that may be required
in connection with re-registering denatonium benzoate (Bitrex(TM)) the active
ingredient in Tree Guard. In the future, if the Company fails to comply with
federal EPA regulations, it may be penalized, fined, or may have its EPA
registration revoked. To supplement the Company's EPA registration, the Company,
in July 1995, submitted a similar application to secure registration for the
sale and marketing of Tree Guard in Canada. Such application was submitted to Ag
Canada (the Canadian counterpart of the United States EPA). The Company had
anticipated that Canadian registration would be granted during the first half of
1996, but no such registration has yet been granted. However, the Company
believes it will be granted Canadian registration of Tree Guard during 1996.
While it was awaiting federal EPA registration of Tree Guard, the Company
applied for, and was issued, state registrations based on Special Local Needs
(SLNs) in 12 states. In July 1994, the Company commenced limited sales and
marketing activities in Minnesota under SLN provisions. Prior to July 1994, the
Company's activities consisted primarily of research and development, completing
the acquisition of Nortech Forest Products (NFP), its sole wholly owned
subsidiary, preparing and monitoring its EPA application, filing and pursuing
domestic and foreign patent applications and special use permits, conducting
market evaluation, and evaluating suppliers.
Effective October 1, 1994, the Company entered into an exclusive sales agreement
with a locally-based exclusive sales agent to market Tree Guard. In the second
quarter of 1995, this agent abandoned this contract and ceased doing business.
This resulted in an adverse effect on the Company's sales and marketing efforts
during the second and third quarters of 1995.
<PAGE>
Results of Operations
Three and Six Months Ended June 30, 1996 vs. the Three and Six Months Ended June
30, 1995
Sales:
Sales for the three month (second quarter) and six month periods ended June 30,
1996 were $36,000 and $70,284, respectively, compared to $47,360 and $75,088 for
the respective periods last year. Sales during the second quarter and first six
months of 1996 were adversely impacted for the following reasons: (i)
insignificant historical sales activity and the resulting small customer base;
(ii) insufficient marketing and sales experience in the markets the Company
serves; (iii) delays with the EPA registration of Tree Guard with the resulting
delay in successfully launching Tree Guard into the Spring season; and, (iv)
inadequate capital for marketing and sales activity.
In January 1996, the Company hired a Director of Sales. In April 1996, the
Director of Sales was replaced by a salesperson with 19 years experience in the
markets the Company serves. In May 1996, the Company announced that it has
reached agreements in principle with two key customers for the purchase of Tree
Guard. One such arrangement involves the bulk sale of the Company's deer
repellent to a Texas-based cooperative, under the terms of a three-year
sub-registration agreement. The cooperative, who services approximately 8,000
independent lawn and garden stores and approximately 200 independent
distributors, will package and distribute the Company's product under a
private-label arrangement. The Company's initial truckload shipment was
delivered to the customer on August 5, 1996.
Under a second purchase agreement that is pending, Nortech will sell bulk
quantities of Tree Guard to an Ohio-based commercial distributor who is the
nation's largest manufacturer and marketer of supplies and equipment for lawn
care operators, lawn maintenance companies, and golf courses. The Company
received an initial purchase order from this customer on August 6, 1996. The
purchase order was for a truckload shipment of pre-packaged Tree Guard with an
anticipated shipment to the customer in late August. In addition, the Company is
in the process of negotiating a long-term distribution agreement with the same
customer.
Although subsequent to June 30, 1996, the Company's sales to new and existing
customers has increased, the degree to which sales can be expanded during 1996
will be largely subject to the Company's ability to fund sales and marketing
activities to further expand its customer base and sales volume. The Company is
attempting to raise additional capital through the sale of private equity.
Gross Profit and Gross Profit Margin:
For the second quarter and six months ended June 30, 1996, gross profit was
$15,689 (43.6% of sales) and $36,886 (52.5% of sales), respectively, compared to
$31,771 (67.1% of sales) and $50,534 (67.3% of sales) during the same periods
last year. The decrease in gross profit was due in part to increased raw
material costs associated with the Company's decision to increase the
concentration of its active ingredient. In the future, the Company anticipates
that part of the increase in raw material costs will be offset by a decrease in
formulation costs. Furthermore, the Company's cost of sales was lower in the
prior year because the Company purchased formulated Tree Guard from an outside
supplier who absorbed inventory and other costs. This year, the Company
performed blending and bottling activities at its own facility. Subsequent to
June 30, 1996, the Company began using a new formulator and also began producing
in higher quantities. The Company anticipates that in upcoming quarters, its
gross profit margin will increase.
<PAGE>
Operating Expenses:
Administrative Expense. During the second quarter ended June 30, 1996,
administrative expense was $75,694 compared to $120,971 during the second
quarter last year. During the six months ended June 30, 1996, administrative
expense was $137,592 compared to $252,401 during the same period last year. The
decrease in administrative expense was primarily due to a change in
record-keeping that, during the quarter and first six months of 1996, allocated
a portion of salary expense to cost of sales, research and development expense
and sales and marketing expense, rather than to administrative expense.
Accordingly, administrative expense decreased, cost of sales increased, and
research and development expense and sales and marketing expense increased
during the second quarter and first six months of 1996 compared to the
comparable periods in 1995. Sales and Marketing Expense. During the second
quarter ended June 30, 1996, sales and marketing expense was $41,470 compared to
$31,112 during the second quarter last year. During the six months ended June
30, 1996, sales and marketing expense was $83,206 compared to $38,383 during the
same period last year. The increase in sales and marketing expense during both
periods was primarily due to a change in record-keeping that, during the quarter
and six months ended June 30, 1996, allocated a portion of salary expense to
sales and marketing, rather than to administrative expense.
Research and Development Expense. During the second quarter ended June 30, 1996,
research and development expense was $8,510 compared to $1,787 for the second
quarter last year. During six months ended June 30, 1996, research and
development expense was $30,386 compared to $5,837 during the same period last
year. The increase in research and development expense during the second quarter
and six months ended June 30, 1996 resulted primarily from a change in
record-keeping that allocated a portion of salary expense to research and
development rather than to administrative expense. During the second quarter of
1995, no record-keeping system was in place to accurately charge such expenses
to research and development.
Interest Expense - Net. During the second quarter ended June 30, 1996, interest
expense was $12,576 compared to $1,581 during the second quarter last year.
During the six months ended June 30, 1996, interest expense was $20,775 compared
to $617 during the same period last year. Interest expense during the quarter
and six months ended June 30, 1996 was primarily due to the Company's use of its
bank line of credit, as well as that fact that the Company received interest
bearing loans from certain directors and stockholders and others.
Net Loss. For the reasons discussed above, the Company incurred a net loss of
$122,561, or $.11 per share, for the second quarter ended June 30, 1996,
compared to a net loss of $123,680, or $.12 per share, during the second quarter
of 1995. For the six months ended June 30, 1996, the Company incurred a net loss
of $235,074, or $.21 per share, compared to a net loss of $246,703, or $.23 per
share for the same period last year.
<PAGE>
Liquidity and Capital Resources
At June 30, 1996 the Company had current assets of $36,764, current liabilities
of $628,864, and negative working capital of $592,100 compared to current assets
of $66,248, current liabilities of $427,106 and negative working capital of
$360,858 on December 31, 1995. The increase in negative working capital was
primarily due to increases in notes payable and accounts payable, and decreases
in cash, accounts receivable and inventories, offset in part by a decrease in
bank line-of-credit payable.
Effective March 10, 1995, the Company secured a $100,000 revolving line of
credit with Norwest Bank, Minnesota N.A. This line of credit is secured by the
Company's accounts receivable, inventories and substantially all assets of the
Company. This line of credit accrues interest at 5% over the prime rate and
interest is payable monthly. On June 28, 1996, this line of credit was renewed,
and the due date was extended from May 31, 1996 to August 31, 1996. At June 30,
1996, there was $69,000 outstanding under this line of credit. The note is also
personally guaranteed by Robert H. Gilbertson, the Chairman of the Board of the
Company.
On March 10, 1995, the Company entered into an agreement with Norwest Bank,
Minnesota N.A. for a $9,700 equipment note. The note establishes principal
payments due in 35 monthly installments of $269 from April 1, 1995 through
February 1, 1998. A final payment is due on March 1, 1998. Interest is payable
monthly under this obligation at the prime rate, plus 1.5%.
On February 2, 1996, a director loaned the Company $150,000 pursuant to a 12%
Promissory Note, with the principal due on the earlier of (i) the initial
closing date of the Company's 1996 private placement; or (ii) September 30,
1996. Interest accrues at a rate of 12% per annum and is payable monthly. In
connection with this loan, the Company issued the director five-year warrants to
purchase 3,750 shares of Common Stock at an exercise price of $4.00 per share,
and granted the director a security interest in the Company's assets. Also, in
connection therewith, the Company's Chairman agreed to pledge his shares of the
Company's Common Stock as collateral in the event the Company fails to pay the
director on or before September 30, 1996. The Company is currently in default on
the $150,000 secured promissory note due to its failure to pay interest payments
when due. Although on July 1, 1996, the director notified the Company of its
default, the Company is not currently aware of legal action taken, or pending,
in regard to this default. On July 3, 1996, the same director advanced the
Company $6,000 on under an unsecured promissory note, payable on demand, with
interest at 12% per annum.
On December 11, 1995, the Company closed on an unsecured debt financing with six
accredited investors, including three then-current directors of the Company. The
Company issued a total of $190,000 of twelve percent (12%) unsecured convertible
subordinated promissory notes. Directors of the Company, including Robert H.
Gilbertson, Ronald R. Runck and David B. Clinton, purchased $110,000 of such
notes. Interest on the unpaid principal balance of the notes is 12% per annum
until paid in full by the Company, or otherwise converted by the holder. The
notes are due in full, on the earlier of: (i) the initial or first closing of
this private placement; or (ii) May 31, 1996. The notes are convertible into
restricted Common Stock of the Company at a rate equivalent to one (1) share of
Company Common Stock for every aggregate $2.00 of principal converted under the
note. In addition, all investors were issued warrants to purchase, in the
aggregate, 4,750 shares of Common Stock at a price of $4.00 per share during a
period of five years from the date of issuance of the warrants. Of such
warrants, directors of the Company received warrants to purchase a total of
2,750 shares of Common Stock as follows: Robert H. Gilbertson, warrants to
purchase 875 shares; Ronald R. Runck, warrants to purchase 875 shares; and David
B. Clinton, warrants to purchase 1,000 shares. Mr. Runck is no longer a director
of the Company. At the present time, such notes are all in default under the
terms of their May 31, 1996 maturity date, as well as the fact that the Company
has defaulted on interest payments. To date, the Company has not been advised of
any legal action taken or pending on the part of any such noteholders due to the
Company's default status.
<PAGE>
On September 25, 1995, a director of the Company loaned the Company $25,000
under a 12% unsecured note payable on demand. In December 1995, the director
converted this obligation into a new 12% convertible unsecured promissory note
which is convertible into shares of Common Stock at $2.00 per share and payable
on the earlier of (i) the initial closing of the Company's 1996 private
placement; or (ii) March 31, 1996. As part of the 1995 bridge financing, The
director also received a five-year warrant to purchase 1,000 shares of Common
Stock at an exercise price of $4.00 per share.
On June 20, 1995, the Company issued a Notice of Redemption to redeem all
outstanding warrants to acquire 326,000 pre-split shares of the Company's Common
Stock. On August 4, 1995, the Company redeemed warrants to acquire 307,000
pre-split shares of Common Stock at a cost to the Company of $307 or $.001 per
share. Prior to such redemption, five warrantholders elected to exercise their
warrants to purchase 19,000 pre-split shares of the Company's Common Stock for
gross proceeds to the Company of $14,250.
Although the Company is attempting to raise additional capital through a private
offering of its Common Stock, the fund-raising process has taken significantly
longer than was anticipated. Furthermore, the Company believes that, in order to
achieve aggressive market penetration objectives, it may be required to raise
additional capital during 1997. Although the Company has established new
customer relationships that it believes are strategically important in the long
term, and has increased its level of sales experience significantly, no
assurances can be given that the Company will be successful in acquiring
short-term or long-term financing, or that such sales activities will provide
the level of sales and future earnings potential to make the Company successful.
The Company's obligation under its secured line of credit with Norwest Bank in
the amount of $69,000 becomes due on August 31, 1996. The Company will be unable
to repay these obligations in full on such date without obtaining additional
debt or equity financing, and there is no assurance that the bank will renew or
extend the line of credit. In addition, the Company is in default in connection
with its $150,000 secured promissory note held by a director, as well its
unsecured convertible subordinated promissory notes in the amount of $190,000.
If no additional financing is obtained, these creditors may take action against
the Company which might prevent the Company from continuing operations or cause
the Company to seek protection from its creditors under the bankruptcy laws.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
On August 2, 1996, a creditor acting as plaintiff filed with the Fourth Judicial
District, Hennepin County, Minnesota against the Company, as defendant, (i) a
Notice of Motion and Motion for Confirmation of Arbitration Award; (ii) a
Memorandum in Support of Motion for Confirmation of Arbitration Award; (iii) an
Affidavit; (iv) an Order; and (v) an Affidavit of Service by Mail. The action
against the Company is in connection with an Arbitration Award in the amount of
$21,500.02 granted on July 19, 1996 in favor of the creditor, who is former
legal counsel for the Company. The Arbitration arose due to the Company's
dispute of the amount of billings for legal services provided by its former
legal counsel. Prior to the Company's dispute, the amount claimed by the former
legal counsel was $31,899.52. Therefore, the $21,500.02 Arbitration Award
reduced the Company's obligation by $10,399.50.
Item 2. Change in Securities.
At the Company's 1996 Annual Meeting of Stockholders held on April 30, 1996, the
Company's stockholders approved, among other proposals, a proposal to effect a
one-for-four reverse stock split of the Company's issued and outstanding Common
Stock and an amendment to the Company's Certificate of Incorporation to reduce
the post-split authorized shares of Common Stock from 15,000,000 to 3,750,000
and the Preferred Stock from 2,000,000 shares to 500,000 shares. The effective
date of the one-for-four reverse split of the Company's Common Stock was May 24,
1996.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities-Holders.
a) The Company held its Annual Meeting on April 30, 1996.
b) Proxies for the Annual Meeting were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934. There was no solicitation in
opposition to management's nominees as listed in the proxy statement, and
all of such nominees were elected.
The shareholders elected the following persons to serve as directors of the
Company until the next annual meeting of shareholders with the following
votes representing pre-split shares:
Nominee Number of Number of
Votes For Votes Withheld
David B. Clinton 3,247,402 72,200
Thomas J. de Petra 3,228,067 91,535
Robert H. Gilbertson 3,119,902 199,700
Randy G. Hines 3,240,802 78,800
Robert W. Mayer 3,427,402 72,200
The shareholders approved a one-for-four reverse stock split by a vote of
2,525,930 pre-split shares in favor, with 750,602 pre-split shares voting
against, 1,500 pre-split shares abstaining, and 41,570 pre-split shares as
broker non-votes.
The shareholders ratified the appointment of Stirtz, Bernards, Boyden, Surdel &
Larter as independent auditors for the Company by a vote of 3,316,902 pre-split
shares in favor, 200 pre-split shares voting against, and 2,500 pre-split shares
abstaining.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
Exhibit 3.1 Certificate of Incorporation, as amended
Exhibit 27. Financial Data Schedule (filed with electronic version only)
b) Form 8-K
For the quarter ended June 30, 1996, the Company did not file any reports
on Form 8-K.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NORTECH FOREST TECHNOLOGIES, INC.
(the "Registrant" or "Company")
Dated: August 7, 1996 By: /s/ Thomas J. de Petra
Thomas J. de Petra, Chief Executive
Officer, Principal Executive Officer
and Principal Financial and
Accounting Officer
<PAGE>
Nortech Forest Technologies, Inc.
Form 10-QSB Quarterly Report
For the Quarter Ended June 30, 1996
EXHIBIT INDEX
Exhibit
Number Item
3.1 Certificate of Incorporation, as amended
27 Financial Data Schedule (filed with electronic version only)
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
NORTECH FOREST TECHNOLOGIES, INC.
ARTICLE ONE
The name of the Corporation is Nortech Forest Technologies, Inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware, 19801,
and the name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE THREE
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware ("Act").
ARTICLE FOUR
The Corporation shall have authority to issue two classes of stock, and
the total number authorized shall be fifteen million (15,000,000) shares of
Common Stock, $.01 par value, and two million (2,000,000) shares of Preferred
Stock, $.01 par value. A description of the different classes of stock of the
Corporation and a statement of the designations and the powers, preferences and
rights, and the qualifications, limitations or restrictions thereof, in respect
of each class of such stock are as follows:
1. Issuance in Class or Series. The Common Stock or Preferred
Stock may be issued from time to time in one or more series, or either
or both of the Common and Preferred Stock may be divided into
additional classes and such classes into one or more series. The terms
of a class or series, including all rights and preferences, shall be as
specified in the resolution or resolutions adopted by the Board of
Directors designating such class or series which resolution or
resolutions the Board of Directors is hereby expressly authorized to
adopt. Such resolution or resolutions with respect to a class or series
shall specify all or such of the rights or preferences of such class or
series as the Board of Directors shall determine, including, without
limitation, any or all of the following, if applicable: (a) the number
of shares to constitute such class or series and the distinctive
designation thereof; (b) the dividend or manner for determining the
dividend payable with respect to the shares of such class or series and
the date or dates from which dividends shall accrue, whether such
dividends shall be cumulative, and if cumulative, the date or dates
from which dividends shall accumulate and whether the shares in such
class or series shall be entitled to preference or priority over any
other class or series of stock of the Corporation with respect to
<PAGE>
payment of dividends; (c) the terms and conditions, including price or
a manner for determining the price, of redemption, if any, of the
shares of such class or series; (d) the terms and conditions of a
retirement or sinking fund, if any, for the purchase or redemption of
the shares of such class or series; (e) the amount that the shares of
such class or series shall be entitled to receive, if any, in the event
of any liquidation, dissolution or winding up of the Corporation and
whether such shares shall be entitled to a preference or priority over
shares of another class or series with respect to amounts received in
connection with any liquidation, dissolution or winding up of the
Corporation; (f) whether the shares of such class or series shall be
convertible into, or exchangeable for, shares of stock of any other
class or classes, or any other series of the same or any other class or
classes of stock, of the Corporation and the terms and conditions of
any such conversion or exchange; (g) the voting rights, if any, of
shares of stock of such class or series in addition to those granted
herein, if any; (h) the status as to reissuance or sale of shares of
such class or series redeemed, purchased or otherwise reacquired or
surrendered to the Corporation on conversion; (i) the conditions and
restrictions, if any, on the payment of dividends or on the making of
other distributions on, or the purchase, redemption or other
acquisition by the Corporation or any subsidiary, of any other class or
series of stock of the Corporation ranking junior to such shares as to
dividends or upon liquidation; (j) the conditions, if any, on the
creation of indebtedness of the Corporation, or any subsidiary; and (k)
such other preferences, rights restrictions and qualifications as the
Board of Directors may determine.
All shares of the Common Stock shall rank equally and all
shares of the Preferred stock shall rank equally, and be identical
within their classes in all respects regardless of series, except as to
terms which may be specified by the Board of Directors pursuant to the
above provisions. All shares of any one series of a class of Common
Stock or Preferred Stock shall be of equal rank and identical in all
respects, except that shares of any one series issued at different
times may differ as to the dates which dividends thereon shall accrue
and be cumulative.
2. Other Provisions. Shares of Common Stock or Preferred Stock
of any class or series may be issued with such voting powers, full or
limited, or no voting powers, and such designations, preferences and
relative participating, option or special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed
in the resolution or resolutions providing for the issuance of such
stock adopted by the Board of Directors. Any of the voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions of any such class or series of stock may be made dependent
upon facts ascertainable outside the resolution or resolutions of the
Board of Directors providing for the issue of such stock by the Board
of Directors, provided the manner in which such facts shall operate
upon the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions or such class or series is
clearly set forth in the resolution or resolutions providing for the
issue of such stock adopted by the Board of Directors.
2
<PAGE>
3. Common Stock. Except as otherwise provided in any
resolution or resolutions adopted by the Board of Directors providing
for the issuance of a class or series of Preferred Stock or Common
Stock, the Common Stock shall: (a) have the exclusive voting power of
the Corporation; (b) entitle the holders thereof to one vote per share
at all meetings of the stockholders of the Corporation; (c) entitle the
holders to share ratably, without preference over any other shares of
the Corporation, in all assets of the Corporation in the event of any
dissolution, liquidation or winding up of the Corporation; and (d)
entitle the record holders thereof, on such record dates as are
determined, from time to time, by the Board of Directors, to receive
such dividends, if any, if, as and when declared by the Board of
Directors.
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE SEVEN
Subject to the rights of the holders of any series of Preferred Shares
then outstanding, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly-called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders, unless all of the stockholders
entitled to vote thereon consent thereto in writing.
ARTICLE EIGHT
The Corporation shall have the power to indemnify its present or former
directors, officers, employees and agents or any person who served or is serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise to
the full extent permitted by the Act. Such indemnification shall not be deemed
exclusive of any other rights to which such person may be entitled, under any
Bylaws, agreements, vote of stockholders or disinterested directors, or
otherwise.
ARTICLE NINE
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability: (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of law; (iii) under Section 174 of the Act; or, (iv) for any
transaction from which the director derived an improper personal benefit.
3
<PAGE>
ARTICLE TEN
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized to
make, alter or repeal the Bylaws of the Corporation.
ARTICLE ELEVEN
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may, from time to time, provide. The books of the
Corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.
ARTICLE TWELVE
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE THIRTEEN
The initial members of the Board of Directors of the Corporation shall
be:
Robert H. Gilbertson
Robert Mayer
Ronald Runck
ARTICLE FOURTEEN
The name and address of the incorporator of the Corporation is as
follows:
Thomas J. Puff, Esq.
Petersen, Tews & Squires, P.A.
4800 IDS Center
80 South 8th Street
Minneapolis, Minnesota 55402
IN WITNESS WHEREOF, this Certificate of Incorporation was executed by
the above named individual on this 8th day of May, 1995.
/s/ Thomas J. Puff, Esq.
Thomas J. Puff, Esq.
4
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and
entered into effective the 4th day of May, 1995, between Nortech Forest
Technologies, Inc., a Colorado corporation (the "Company"), and Nortech Forest
Technologies, Inc., a Delaware ("Nortech Delaware" and/or the "Surviving
Corporation"). Nortech Delaware and the Company are sometimes hereinafter
collectively referred to as the "Constituent Corporations."
RECITALS
WHEREAS, the respective Board of Directors of each of the Constituent
Corporations have determined that, subject to the terms and conditions
hereinafter set forth, it is advisable and to their respective shareholders'
mutual advantage and benefit to adopt a plan, whereby the Company will merge
with and into Nortech Delaware (the "Merger") pursuant to this Agreement; and
WHEREAS, to effect the Merger, the Constituent Corporations desire to
adopt a Plan of Reorganization in accordance with the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements, and conditions herein
contained, the parties hereto agree as follows:
ARTICLE I. THE MERGER; CLOSING; EFFECTIVE TIME
Section 1.1 The Merger. Subject to the terms and conditions of this
Agreement at the Effective Time (as defined in Section 1.3), the Company shall
be merged with and into Nortech Delaware and the separate corporate existence of
the Company shall thereupon cease. The Company's wholly-owned subsidiary,
Nortech Forest Products, Inc., a Minnesota corporation, shall continue as a
separate Minnesota corporate entity and shall continue to operate as a
wholly-owned subsidiary of the Surviving Corporation subsequent to the Merger.
Nortech Delaware shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the State of Delaware, and the separate corporate
existence of Nortech Delaware, with all of its rights, privileges, immunities,
and franchises shall continue, unaffected, by the Merger. The Merger shall have
the effects specified in the Colorado Corporation Code ("CCC") and the General
Corporation Law of the State of Delaware with respect to the Company and Nortech
Delaware.
Section 1.2 Closing. The closing of the Merger (the "Closing") shall
take place at the offices of Petersen, Tews & Squires, P.A., 4800 IDS Center, 80
South Eighth Street, Minneapolis, Minnesota 55402 at approximately 5:00 p.m.
C.D.T. time on June 21, 1995 ("Closing Date").
<PAGE>
Section 1.3 Effective Time. As soon as practicable following
fulfillment, or waiver, of the conditions specified in Article VII hereof, and
provided that this Agreement has not been terminated or abandoned, pursuant to
Article VIII hereof, Nortech Delaware and the Company will cause Certificates of
Articles of Merger to be signed by each Constituent Corporation ("Articles of
Merger") and then filed with the Secretaries of State of the states of Delaware
and Colorado. The Merger shall become effective upon the filing of Articles of
Merger with the Delaware Secretary of State pursuant to Section 252 of the
General Corporation Law of the State of Delaware, and such time is hereinafter
referred to as the "Effective Time."
Section 1.4 Subsequent Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider, or be advised, that any deeds,
bills of sale, assignments, assurances, or any other actions or things are
necessary or desirable to vest, perfect, or confirm of record or otherwise in
the Surviving Corporation its right, title, or interest in, to, or under any of
the rights, properties, or assets of the Company or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger, or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of each of the Constituent Corporations or otherwise, all such
deeds, bills of sale assignments, and assurances, and to take and do, in the
name and on behalf of each of the Constituent Corporations or otherwise, all
such other actions and things as may be necessary or desirable to vest, perfect,
or confirm any and all right, title, and interest in, and under such rights,
properties, or assets in the Surviving Corporation or otherwise to carry out
this Agreement.
ARTICLE II. THE MERGER; CLOSING; EFFECTIVE TIME
Section 2.1 The Certificate of Incorporation. The Certificate of
Incorporation of Nortech Delaware in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the General Corporation Law of the State
of Delaware.
Section 2.2 The Bylaws. The Bylaws of Nortech Delaware in effect at the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with the terms thereof and the General Corporation Law of
the State of Delaware.
ARTICLE III. OFFICERS AND DIRECTORS
OF THE SURVIVING CORPORATION
Section 3.1 Officers and Directors. The directors of Nortech Delaware
at the Effective Time, from and after the Effective Time, shall be the directors
of the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation, or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
Bylaws. The officers of Nortech Delaware at the Effective Time shall, from and
after the Effective Time, be the officers of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation, or removal in accordance with the Surviving
Corporation's Bylaws.
2
<PAGE>
ARTICLE IV. CONVERSION OF CANCELLATION
OF SHARES IN THE MERGER
Section 4.1 Conversion or Cancellation of Shares. The manner of
converting or cancelling the Company's shares in the Merger shall be as follows:
(a) Conversation of Common Stock. At the Effective
Time, each share of the no par value common stock of the
Company ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time (the "Cancelled
Shares"), other than shares as to which appraisal rights have
been perfected, and not withdrawn or otherwise forfeited under
the CCC, by virtue of the Merger, and without any action on
the part of the holder thereof, shall be automatically and
immediately converted into the right to receive one (1) share
of common stock, $.01 par value per share, of Nortech Delaware
common stock ("New Common Stock") (the "New Common Stock" set
forth in this subsection is herein referred to as the "Merger
Consideration"). All such Cancelled Shares, by virtue of the
Merger, and without any action on the part of the holders
thereof, shall no longer be outstanding and shall be cancelled
and retired and shall cease to exist, and each holder of a
certificate representing any such Cancelled Shares shall
thereafter cease to have any rights with respect to such
Cancelled Shares, except the right to receive the Merger
Consideration for such Cancelled Shares, upon the surrender of
such certificate in accordance with Section 4.2 hereof. No
fractional shares of New Common Stock shall be issued as
Merger Consideration. Instead of any fractional shares of New
Common Stock which would otherwise be issuable, Nortech
Delaware will have such fraction rounded to the next higher
whole number of shares. For purposes of determining the number
of shares to be issued in the Merger, Company Common Stock
held by one (1) person, in multiple accounts, shall be
aggregated.
Section 4.2 Surrender and Delivery of Shares. Promptly after the
Effective Time, the Surviving Corporation shall cause Norwest Stock Transfer, as
the Surviving Corporation's Exchange Agent, to mail to each person who was, at
the Effective Time, a holder of record of issued and outstanding Cancelled
Shares a Letter of Transmittal, and instructions, for use in effecting the
surrender of the certificates which, immediately prior to the Effective Time,
represented any of such Cancelled Shares. Upon surrender to the Exchange Agent
of such certificates, together with such Letter of transmittal, duly executed
and completed in accordance with the instructions thereto, the Surviving
Corporation shall cause the Exchange Agent promptly to deliver to the persons
entitled thereto a certificate in the name of such person representing New
Common Stock to which such person is entitled. If delivery of such certificate
is to be made to a person other than the registered holder of the certificate
surrendered, it shall be a condition of such delivery that the certificate so
surrendered shall be properly endorse [sic] or otherwise in proper form for
transfer and that the person requesting such delivery shall pay any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the certificate surrendered or establish to the
satisfaction of the Exchange Agent and Surviving Corporation that such tax has
been paid or is not applicable.
3
<PAGE>
Section 4.3 Transfer of Shares After the Effective Time. No transfers
of Cancelled Shares shall be made on the stock transfer books of the Surviving
Corporation at or after the Effective Time.
Section 4.4 Dissenting Shareholders. Each share of Company Common Stock
with respect to which the holder thereof is entitled to an appraisal pursuant to
Section 7-4-123 of the CC ("Dissenting Shares") shall be converted into the
right to receive such consideration as may be determined to be due to such
holder pursuant to Sections 7-4-123 and 7-4-124 of the CCC, unless such holder
shall have effectively withdrawn, or forfeited, such right to appraisal, at
which time such Company Common Stock shall be converted into and represent a
right to receive the Merger Consideration in respect thereof in accordance with
Section 4.1 hereof.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of Nortech Delaware. Nortech
Delaware hereby represents and warrants to the Company as follows:
(a) Organization, Corporate Power and Good Standing of Nortech
Delaware. Nortech Delaware is a corporation legally incorporated,
duly-organized, validly existing and in good standing under the laws of
its state of incorporation and has the corporate power and authority to
carry on its businesses, as now conducted and to own or lease its
properties and other assets as now owned or leased.
(b) New Common Stock. The New Common Stock is duly authorized
and, when issued as contemplated by this Agreement, will be validly
issued, fully paid and non-assessable shares of common stock of Nortech
Delaware.
(c) Authority; Binding Obligation. Nortech Delaware has full
corporate power and authority to enter into this Agreement and to
perform its obligations hereunder. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized and approved by all
required corporate action of Nortech Delaware. This Agreement has been
duly executed and delivered by, and constitutes a legal, valid and
binding obligation of Nortech Delaware, enforceable against it in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally or by the principles
governing the availability of equitable remedies).
Section 5.2 Representations and Warranties of the Company. The Company
represents and warrants to Nortech Delaware, as the Surviving Corporation
pursuant to this Merger, as follows:
4
<PAGE>
(a) Organization, Corporate Power and Good Standing of the
Company. The Company is a corporation legally incorporated, duly
organized, validly existing in good standing under the laws of the
State of Colorado and has the corporate power and authority to carry on
its businesses as now conducted and to own or lease its properties and
other assets as now owned or leased. The Company is duly qualified as a
foreign corporation and is in good standing under the laws of each
jurisdiction where the nature of its business or its ownership of
property requires such qualifications.
(b) Authority; Binding Obligation. The Company has full power
and authority to enter into this Agreement and to perform all of its
obligations hereunder. The execution, delivery and performance of this
Agreement, and the consummation of the transactions contemplated
hereby, have been duly authorized and approved by the Board of
Directors of the Company and except for its consent of the Company's
shareholders contemplated by Section 6.1, no other corporate action on
the part of the Company or its shareholders is necessary to authorize
and approve this Agreement or the transactions contemplated hereby.
This Agreement has been duly executed and delivered by, and constitutes
a legal, valid and binding obligation of, the Company, enforceable
against the Company in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by the principles governing the availability of equitable
remedies).
ARTICLE VI. COVENANTS OF THE PARTIES
Section 6.1 Consent of the Company's Shareholders. The Company will
immediately take all action necessary in accordance with applicable law and its
Articles of Incorporation and Bylaws to convene a special or regular meeting of
its shareholders for the purpose of voting on and approving this Agreement and
approving the Merger.
Section 6.2 Consents of Third Parties. The Company and Nortech Delaware
each will use their respective best efforts to obtain such consents of third
parties to agreements which would otherwise be violated by any provisions
hereof, to take all actions necessary to effect the transactions contemplated
hereby, and to make such filings with governmental authorities necessary to
consummate the transactions contemplated by this Agreement including, without
limitation: (i) the vigorous defense of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of this Merger and the transactions contemplated hereby, including
seeking to have any stay or temporary restraining order entered by any court or
governmental authority vacated or reviewed; and (ii) the execution and delivery
of any additional instruments necessary to consummate the transactions
contemplated by this Agreement. Each party shall promptly consult with the other
with respect to, provide any necessary information with respect to and provide
the other (or its counsel) copies of, all filings made by such party with any
governmental authority in connection with this Agreement and the transactions
contemplated hereby.
5
<PAGE>
ARTICLE VII. CONDITIONS TO THE CLOSING
Section 7.1 Conditions to the Company's and Nortech Delaware's
Obligations. The obligations of the Company and Nortech Delaware to consummate
the Merger are subject to the fulfillment, at or prior to the Closing, of each
of the following conditions, any or all of which may be waived in whole or in
part by the Company and Nortech Delaware, to the extent permitted by applicable
Colorado and Delaware law:
(a) Shareholder Approval. This Agreement shall have been duly
approved by the holders of at least a majority of the shares of Company
Common Stock at a Regular or Special Meeting of Shareholders, in
accordance with applicable law and the Articles of Incorporation and
Bylaws of the Company and Colorado Law; and
(b) No Injunction. No court of competent jurisdiction shall
have issued an injunction enjoining the Merger or otherwise preventing
any of the parties hereto from complying with its obligations
hereunder.
ARTICLE VIII. TERMINATION
Section 9.1 Headings. The Section headings herein are for convenience
of reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
Section 9.2 Entire Agreement. This Agreement (including all Exhibits
hereto) embodies the entire agreement and understanding of the parties with
respect to the transactions contemplated hereby and supersedes all prior written
oral commitments, arrangements or understandings with respect thereto. There are
no restrictions, agreements, promises, warranties, covenants or undertakings
with respect to the transactions contemplated hereby other than those expressly
set forth herein or therein.
Section 9.3 Counterparts. This Agreement shall be executed in two or
more counterparts, all of which shall be considered one and the same agreement
and each of which shall be deemed an original.
Section 9.4 Governing Law. This Agreement shall be governed by the laws
of the State of Colorado (regardless of the laws that might be applicable under
principles of conflicts of law) as to all matters including, but not limited to
matters of validity, construction, effect and performance.
Section 9.5 Severability. If any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
Section 9.6 Specific Performance. Nortech Delaware and the Company
recognize that any breach of the terms of this Agreement will give rise to
irreparable harm for which money damages, or damages at law, would not be an
adequate remedy, and accordingly, agree that, in addition to other remedies, any
non-breaching party shall be entitled to enforce the terms of this Agreement by
a decree of specific performance without the necessity of proving the inadequacy
as a remedy of money damages.
6
<PAGE>
Section 9.7 Construction. Whenever the context requires, the gender of
all words used herein shall include the masculine, feminine and neuter, and the
number of all works shall include the singular and plural.
Section 9.8 References. Unless otherwise specified, references in this
Agreement to "Sections", "Subsections" or "Articles" refer to the sections,
subsections or articles in this Agreement.
Section 9.9 Survival. All representations, warranties, agreements and
obligations contained in this Agreement, or in any Exhibit or statement
contained herein shall survive (and not be affected in any respect by) the
Closing or termination of this Agreement, any investigation conducted by any
party hereto, or any information which any party may receive.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed effective the day and year first above written.
NORTECH FOREST TECHNOLOGIES,
INC., a Delaware corporation ("Nortech
Delaware" or the "Surviving Corporation")
By: /s/ Robert H. Gilbertson
Robert H. Gilbertson
Its Chief Executive Officer
NORTECH FOREST TECHNOLOGIES,
INC., a Colorado corporation (the
"Company")
By: /s/ Robert H. Gilbertson
Robert H. Gilbertson
Its Chief Executive Officer
7
<PAGE>
SECRETARY CERTIFICATE
I, Thomas J. Puff, Secretary of Nortech Forest Technologies, Inc., a
corporation organized and existing under the laws of the State of Delaware,
hereby certify, as such Secretary, that the attached Agreement and Plan of
Merger between Nortech Forest Technologies, Inc., a Colorado corporation, and
Nortech Forest Technologies, Inc., a Delaware corporation, after having been
first duly signed on behalf of Nortech Forest Technologies, Inc., a Colorado
corporation, and approved by such corporation's shareholders at an Annual
Meeting of Shareholders held in Minneapolis, Minnesota, on June 21, 1995, that
said Agreement and Plan of Merger between said companies was duly adopted
pursuant to Subsection (f) of Section 251 of Title 8 of the Delaware Code by the
Board of Directors of Nortech Forest Technologies, Inc., a Delaware corporation,
without any vote of the stockholders of such surviving corporation; and that, no
shares of stock of Nortech Forest Technologies, Inc., a Delaware corporation,
were issued prior to the adoption by its Board of Directors of the resolution
approving the Agreement and Plan of Merger, and that, Subsection (f) of Section
251 of Title 8 of the Delaware Code is applicable, and further, that the
Agreement and Plan of Merger was thereby adopted by action of the Board of
Directors of Nortech Forest Technologies, Inc., a Delaware corporation, and is
the duly-adopted agreement and act of said Delaware corporation.
WITNESS my hand this 21st day of June, 1995.
/s/ Thomas J. Puff
Its Secretary
8
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
AND
ARTICLES AND PLAN OF MERGER
OF
NORTECH FOREST PRODUCTS, INC. INTO
NORTECH FOREST TECHNOLOGIES, INC.
The directors of Nortech Forest Technologies, Inc., a Delaware
corporation, ("NFTI") owning at least 90 percent of the outstanding shares of
each class and series of Nortech Forest Products, Inc., a Minnesota corporation
("NFP"), having resolved by unanimous written consent effective August 2, 1995
to merge NFP into NFTI, do hereby adopt the following Certificate of Ownership
and Merger and Articles and Plan of Merger, pursuant to Section 253 of the
Delaware General Corporation law and Minnesota Statutes Section 302A.621:
I.
The names of the corporations participating in the merger and the
States under the laws of which they are respectively organized are as follows:
Name of Corporation State
Nortech Forest Technologies, Inc. Delaware
Nortech Forest products, Inc. Minnesota
II.
The laws of the State of Minnesota and the State of Delaware permit the
merger of NFP and NFTI.
III.
The name of the surviving corporation will be Nortech Forest
Technologies, Inc. and such corporation will be governed by the laws of the
State of Delaware.
IV.
The following Plan of Merger was approved by unanimous written consent
of the directors of NFTI.
1. In accordance with the provisions of the Minnesota Business
Corporation Act and the Delaware General Corporation law, upon
the filing of a Certificate of Ownership and Merger and
Articles and Plan of Merger with the Offices of the
Secretaries of State of Minnesota and Delaware (the "Effective
Time"), Nortech Forest Products, Inc. will be merged with, and
into, Nortech Forest Technologies, Inc. and Nortech Forest
Technologies, Inc. will be the surviving corporation and
continue its separate existence under the laws of the State of
Delaware.
1
<PAGE>
2. At the Effective Time, each share of the Common Stock, no par
value, of Nortech Forest Products, Inc. currently issued and
outstanding or held in treasury will, by virtue of the merger
and without any action on the part of any holder thereof, be
cancelled without payment of any consideration therefor or any
conversion thereof.
V.
There are no other holders of NFP Common Stock, other than NFTI, and
therefore, no copies of the Plan of Merger of NFTI have been mailed pursuant to
Minnesota Statute Section 302A.621, Subd. 2. As the sole shareholder of NFP,
NFTI hereby waives any said mailing and receipt of said Plan of Merger.
VI.
The number of authorized and outstanding shares of each class and
series of the NFP and the number of shares of each class and series owned by
NFTI are as follows:
Authorized Capital Stock; Number of Number of Shares
Designation of Outstanding of Each Class and
Class and Series Shares Series Owned by NFTI
(1) Common Stock, 1,312,568 1,312,568
no par value
(2) Preferred Stock, 0 0
no par value
VII.
NFTI, as the surviving corporation, agrees that it may be served with
process in Minnesota in any proceeding for the enforcement of any obligation of
NFP and in any proceeding for the enforcement of the rights of a dissenting
shareholder of NFP against NFTI.
Furthermore, NFTI, as the surviving corporation, irrevocably appoints
the Secretary of State of Minnesota as its agent to accept service of process in
any proceeding. The address to which the Secretary of state may mail a copy of
any process that may be served on it is Nortech Forest Technologies, Inc., 7600
West 27th Street, Suite B11, St. Louis Park, Minnesota 55426.
NFTI, as the surviving corporation, agrees that it will promptly pay to
the dissenting shareholders of NFP the amount, if any, to which they are
entitled under Minnesota Statue Section 302A.473.
2
<PAGE>
VIII.
Based upon the foregoing, and the requirements of Minnesota Statue
Section 302A.621, et. seq., NFTI, constituting and being the surviving parent
corporation of the aforementioned statutory merger, hereby requests that the
Secretaries of State of Minnesota and Delaware duly issue Certificates of Merger
to counsel to NFTI as soon as practicable.
IX.
NFTI, as the surviving parent corporation of the aforementioned
statutory merger, hereby requests that the merger of NFP into NFTI be deemed
effective and fully consummated upon the filing of this Certificate of Ownership
and Merger and Articles and Plan of Merger with the Offices of the Minnesota and
Delaware Secretaries of State.
IN WITNESS WHEREOF, Nortech Forest Technologies, Inc. has caused this
Certificate of Ownership and Merger and Articles and Plan of Merger to be
executed on its behalf by the undersigned, thereunto duly authorized, as of the
day and year set forth below.
NORTECH FOREST TECHNOLOGIES, INC.,
a Delaware corporation
Dated: October 13, 1995 By: /s/ Robert H. Gilbertson
Robert H. Gilbertson
Its: Chief Executive Officer
STATE OF MINNESOTA )
)ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 13th day of
October, 1995, by Robert H. Gilbertson, the Chief Executive Officer of Nortech
Forest Technologies, Inc., a corporation organized under the laws of Delaware,
on behalf of the corporation.
/s/ Thomas J. Puff
Notary Public
3
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
NORTECH FOREST TECHNOLOGIES, INC.
Nortech Forest Technologies, Inc., a corporation duly organized and
existing under the General Corporation law of the State of Delaware (the
"Corporation") does hereby certify:
FIRST: That the first paragraph of Article Four of the corporation's
Certificate of Incorporation is hereby amended to read as follows (the
"Amendment"):
ARTICLE FOUR
The Corporation shall have authority to issue two classes of
stock, and the total number authorized shall be three million seven
hundred and fifty thousand (3,750,000) shares of Common Stock, $.01 par
value, and five hundred thousand (500,000) shares of Preferred Stock,
$.01 par value. A description of the different classes of stock of the
Corporation and a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or
restrictions thereof, in respect of each class of such stock are as
follows:....
SECOND: That the following paragraph is hereby added to the end of such
Article Four:
Upon the filing of this Certificate of Amendment to the
Certificate of Incorporation, pursuant to a plan of recapitalization in
order to effect a reverse stock split approved by the Board of
Directors and the stockholders, one share of Common Stock shall be
issued in exchange for every four shares of Common Stock outstanding as
of the date of the filing of this Certificate of Amendment to the
Certificate of Incorporation, provided that no fractional shares shall
be issued and the corporation shall pay cash in lieu of issuing
fractional shares.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, Nortech Forest Technologies, Inc. has caused this
Certificate of Amendment to be signed by Thomas J. de Petra, its Chief Executive
Officer, and attested by R. Robert Wyant, its Secretary, this 23rd day of May,
1996.
By /s/ Thomas J. de Petra
Thomas J. de Petra
Chief Executive Officer
Attest:
/s/ R. Robert Wyant
R. Robert Wyant, Secretary
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