SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year ended: DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File No. 33-21842-C
NORTECH FOREST TECHNOLOGIES, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 06-1342912
(State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) Identification Number)
7600 WEST 27TH STREET, NO. B-11
ST. LOUIS PARK, MINNESOTA 55426
(Address of Principal Executive Offices, Including Zip Code)
Registrant's Telephone Number: (612) 922-2520
Securities Registered Pursuant to Section 12(b) of the Act: NONE.
Securities Registered Pursuant to Section 12(g) of the Act: NONE.
Check whether the Registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports); and (2) has been subject to such filing requirements for the past
90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not 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: $205,154
As of March 24, 1997, 1,602,401 shares of Common Stock were outstanding, and the
aggregate market value of the Common Stock of the Registrant held by
nonaffiliates was approximately $3,163,000.
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference pursuant to Rule 12b-23: Portions of the
Company's: Proxy Statement for its 1997 Annual Meeting are incorporated by
reference into Items 9, 10, 11 and 12 of Part III.
Transitional Small Business Disclosure Format (check one) Yes ____ No __X__
PART I
ITEM 1. DESCRIPTION OF BUSINESS:
GENERAL:
Nortech Forest Technologies, Inc. (the "Company" or "Nortech") manufactures and
markets TREE GUARD(R) brand deer repellent, and is engaged in the development of
products designed to protect plants, trees and landscaping from damage by
animals and certain acts of nature. In addition to TREE GUARD, the Company sells
a deer repellent to Voluntary Purchasing Groups (VPG) of Bonham, Texas, under a
private label agreement. Under this agreement, the TREE GUARD formulation is
sold in bulk tanker truck loads, for repackaging under the FERTI-LOME "This 1
Works" brand name owned by VPG.
The Company is currently in the preliminary stages of developing two new
products that are each derived from the proprietary technology of TREE GUARD.
Management believes such technology can serve as the foundation for additional
products in the future.
At inception, the Company's founder recognized an increasing need for a product
that would safely and efficiently prevent feeding deer from destroying millions
of dollars of valuable plants, trees and landscaping. Market research showed
that homeowners, tree and landscape producers, farmers, industry and government
agencies all suffer economic losses due to feeding (deer browse), and the
problem is aggravated by a deer population that has been growing rapidly.
The Company generated no revenue during the period from its inception through
mid-1994, when initial research and development of TREE GUARD was completed. The
Company had submitted an application for registration of TREE GUARD with the
United States Environmental Protection Agency (EPA) during 1993 and had
resubmitted its application in February 1995. In July 1994, the Company
commenced limited sales of TREE GUARD under Special Local Needs Registrations
(SLNs). Individual states grant SLNs under EPA rules that allow them to grant
provisional permits pending EPA registration. From July 1994 through January
1996, the Company conducted limited sales activity under SLN registrations in 13
states. On January 30, 1996, the EPA issued the Company federal registration
number 66676-1 for TREE GUARD. Subsequently, all states except California,
Hawaii and Alaska, and the District of Columbia have accepted the Company's
federal registration of TREE GUARD; and sales are permitted in such states.
PRODUCT(S) AND TECHNOLOGY:
During the year ended December 31, 1996, TREE GUARD brand deer repellent (and
substantially the same product sold under Ferti-lome's "This 1 Works" brand
name) were the Company's only product offerings. TREE GUARD is an easy-to-use,
pre-formulated liquid that, when sprayed on plant material, is effective in
minimizing damage resulting from deer browsing. The active ingredient,
denatonium benzoate (Bitrex(TM)), produces an extremely bitter, lingering taste
that animals do not like. TREE GUARD is ready-to-use, user-friendly and, unlike
most competitive products, requires no mixing. It provides effective adhesion to
surfaces to which it is applied. For these reasons, TREE GUARD remains
effective, even after rain, and requires less frequent application than many
competitive products.
COMPETITIVE ADVANTAGES. The Company believes that competitive animal repellents
share a common attribute--they generally don't provide a sufficient level of
protection to satisfy customer expectations--or their effectiveness is
diminished (or eliminated) after a single exposure to rain or snow. Also,
products that compete with TREE GUARD tend to be less user-friendly. They are
generally more difficult to use because they require mixing, or are unpleasant
to work with because of foul odor. For these reasons, sales of competitive deer
repellents have been primarily limited to low-volume purchases to homeowners for
use on residential property.
The Company believes that several key attributes distinguish Nortech and TREE
GUARD from the competition, including: (1) superior efficacy by combining the
extremely bitter taste of Bitrex with an agent that allows deer to detect a TREE
GUARD treatment; (2) a proprietary formula that resists wash off in rain or
snow; (3) the convenience of a ready-to use formula that requires no mixing or
preparation; (4) an active ingredient that is considered safe for plants,
animals and the environment; and (5) a clear coat finish versus some
competitors' chalky residue.
The Company believes that TREE GUARD's performance characteristics offer a
significant competitive advantage. Because TREE GUARD demonstrates superior
efficacy, the Company believes it can be successful in expanding beyond the
consumer/residential market segment into more diverse, technology-demanding
markets. These additional market segments represent markets with potentially
high volume opportunities, and include: (1) commercial tree and shrub
applicators; (2) the forestry industry; (3) tree producers; and, (4) government
agencies.
CURRENT MARKET EMPHASIS. Throughout 1996, the Company's sales efforts with TREE
GUARD have been primarily directed toward the consumer/residential and
commercial market segments, including LESCO. Under its private label agreement
with VPG, the FERTI-LOME "This 1 Works" brand deer repellent is being
distributed to independent lawn and garden centers who are patron members of
VPG. The Company's relationship with VPG commenced in July 1996, and the Company
shipped the first tanker truck load to VPG during August 1996. The Company's
Agreement with LESCO was effective as of August 1, 1996, and the Company made
its first shipment to LESCO on September 3, 1996.
CHALLENGE OF CUSTOMER ACCEPTANCE. The market for deer repellents is
distinguished by a high level of customer skepticism because, for many years,
the majority of deer repellents have under-performed the expectations of
customers. Although many deer repellents have been marketed using a variety of
deterrent methods, most have either: (1) lacked sufficient deterrent effect; (2)
been not been user-friendly; or (3) have not been durable enough to resist wash
off from rain.
Accordingly, the Company has been required to overcome a variety of objections,
based on customers' prior experience with products in the deer repellent
category. Prior to hands-on experience with TREE GUARD, the large majority of
prospective customers claim that "No deer repellents really work." As a result,
the Company's sales efforts have been primarily directed toward achieving
customer trial. Once customers have tried TREE GUARD, the Company's experience
has been that they will follow with repeat purchases in larger quantities.
EXPANSION OF TREE GUARD LABEL. Early in 1997, the Company initiated the
preliminary steps necessary to expand the TREE GUARD label to include protection
from rabbits, as well as deer. Customer feedback and other non-scientific data
indicates that the current TREE GUARD formula is an efficacious deterrent to
rabbits. Accordingly, the Company will contract independent scientific tests,
the results of which are expected during late spring 1997. The Company will
submit these scientific findings to the EPA, with the objective of modifying the
TREE GUARD label using the existing EPA registration number 66676-1.
NEW PRODUCTS UNDER CONSIDERATION. In addition, the Company is conducting
informal tests of various ingredients for the development of a proposed product
in the anti-transpirant category. Anti-transpirants are designed to reduce
moisture loss in plants under stress, including "winter burn" or transplant
shock. Such conditions result in brown foliage and overall plant degradation.
Subject to the success of the Company's informal tests, further testing will
follow prior to any attempt to commercialize such a product. The Company
believes that its proposed anti-transpirant will not be regulated by the EPA. If
the Company's efforts in this area are deemed successful, it anticipates a
product launch during fall 1997.
The Company is also evaluating the feasibility of developing an alternate animal
repellent utilizing all "natural" ingredients. Currently, this project is in the
theoretical stage, and no testing activities have commenced. The Company
believes that, as currently conceived, such a proposed product will not be
regulated by the EPA.
COMPETITION
The animal repellent industry is extremely competitive, and the Company competes
with many larger, more-established companies, most of which have significantly
greater financial and other resources than the Company, and many have greater
industry-specific experience.
The following partial list of competitive products includes some of the most
popular brands that compete, directly, or indirectly, with TREE GUARD.
DEER AWAY HINDER ROPEL DETOUR REPEL BYE DEER BOBBEX
XP-20 GET AWAY SHOTGUN REPEL MILORGANITE DEER OFF
No assurances can be given that the Company will be able to compete effectively
in the animal repellent market, or that one of its competitors will not develop
another type of product which would compete directly with the Company. The
Company believes its TREE GUARD deer repellent offers many competitive
advantages (see "Products and Technology").
MARKET SEGMENTS AND DISTRIBUTION CHANNELS:
Currently, the Company identifies its four primary market segments as follows:
INDEPENDENT GARDEN CENTERS. Approximately 20,000 independent garden centers
currently serve residential customers throughout the United States. These retail
outlets provide a variety of seasonal and non-seasonal products for
"do-it-yourself" gardeners. They sell hundreds of products, including plants,
seed, chemical and organic lawn and garden supplies (including fertilizers, weed
killers, etc.); animal repellents and other products designed to limit the
effect of pests; and tools and other equipment related to residential
landscaping. Most independent garden centers emphasize a high level of service,
qualified advice on the best products and techniques, and the highest quality
plant material. Large garden centers often provide floral services and landscape
design and construction services. Independent garden centers may also be called
retail nurseries. Most customers of independent garden centers expect to pay
somewhat higher prices than discount stores, in exchange for the know-how of the
garden center personnel.
The Company's TREE GUARD is currently sold to selected distributors who sell to
a variety of independent garden centers. At the present time, the independent
garden market segment is the primary market for TREE GUARD. In addition, sales
of Ferti-lome "This 1 Works" deer repellent are sold to independent lawn and
garden centers through VPG distributors under the Company's private label
agreement with VPG
COMMERCIAL CUSTOMERS. The commercial market primarily consists of service
organizations who resell supplies under contract. These are largely comprised of
landscape maintenance companies (or commercial applicators). Other commercial
customers purchase equipment and supplies for use by their own staff, and may
include institutional and commercial complexes, golf courses, cemeteries,
schools and municipalities. Commercial customers can be characterized as highly
knowledgeable and demanding of quality and performance in the products they use.
Although the Company has had limited exposure of its TREE GUARD within the
commercial market segment, management believes there is a high probability of
rapid growth within this segment. LESCO, Inc. is the Company's largest customer
in the commercial market segment (see "LESCO, INC. AGREEMENT")
FORESTRY. The forestry segment is largely comprised of commercial tree
producers, public and private reforestation and soil conservation agencies,
federal, state and local governments, and producers of wood and paper products.
Commercial nurseries sell to forestry customers.
Forestry customers purchase products like the Company's TREE GUARD from a
variety of sources, including distributors and catalogs specializing in
equipment and supplies for the forestry industry. TREE GUARD is currently
available to forestry customers by catalog and through selected distributors who
serve the forestry industry. Forestry professionals are generally well-versed in
technology and demand the highest quality and performance in the products they
use.
Because of the lengthy adoption cycle inherent with TREE GUARD and the need for
customer trial, the Company believes the forestry market segment will take
longer than other market segments to achieve broad acceptance of its TREE GUARD.
MASS MERCHANDISERS - DISCOUNT RETAILERS. During the past two decades,
high-volume, national and mass merchandisers have expanded significantly
throughout the country. Most are either regional or national chains. The largest
mass merchandisers are discount department stores that sell everything from
clothing housewares and pharmaceuticals to automotive products and services,
electronics and even grocery items. Such stores often utilize the "store within
a store" layout. Others are referred to as "superstores" and concentrate of
specialty products and services, including electronics, home improvements, or
pet supplies. There are many chains that operate in the farm and home category.
Most mass merchandisers operate lawn and garden centers with their stores and
expand floor and shelf space during eight-week seasonal sales "windows" during
both the spring and fall. Instead of emphasizing customer service, they
generally promote low prices. These stores generally operate on low gross profit
margins in exchange for very high volume. Accordingly, they demand high
inventory turns, and manage their inventory on a "just-in-time basis."
Although mass merchandisers use their own distribution centers for stocking most
inventories, they do not warehouse chemicals, including animal repellents.
Accordingly, mass merchandisers will purchase these products from distributors
who warehouse chemicals and drop ship to individual store locations on a
just-in-time basis, or expect manufactures of these products to accomplish these
tasks. In addition to their requirements of high inventory turn rates, low
inventory levels, and just-in-time order fulfillment, mass merchandisers
typically expect aggressive advertising and promotional programs from
manufacturers, return privileges (or guaranteed sales) and extended payment
terms. Also, they frequently require manufactures to purchase certain kinds of
premium shelf space.
Currently, the Company's TREE GUARD is being tested in one 28-store regional
discount farm and home chain, and is being supplied by an independent
distributor. The Company intends to seek distribution of its products in
additional mass merchandisers in the future. In this regard, the Company would
prefer to conduct such sales through partnerships with independent distributors
or other resellers who would help absorb inventory risks and accommodate
just-in-time shipping. There is no assurance that the Company will be able to
secure distributors to service this market segment. Further, if the Company is
not successful in securing such distribution/partnership relationships, it will
be subject to the risks associated with funding higher inventories. Currently,
the Company is planning to re-label TREE GUARD with an alternate brand name
prior to widespread attempts to develop distribution with mass merchandisers. In
its decisions to formally expand this new channel of trade in the future, the
Company will evaluate the relationship between potentially high volume sales and
offsetting factors such as pricing pressures (and the resulting effect on gross
profit margins) and the additional costs associated with carrying inventory,
granting extended terms and other related factors.
As a result of these factors and the long sales cycle and seasonal nature of
TREE GUARD, management believes that sales to mass merchandisers will account
for an insignificant share of the Company's sales during 1997.
INTERNATIONAL MARKETS:
The Company believes that substantial international market opportunities exist
for TREE GUARD and for other products that that the Company may develop in the
future. In particular, management believes that Canada, Europe and selected
areas of South America and Asia represent attractive potential markets for the
Company.
The Company's present status with respect to international marketing and sales
is as follows:
Canada: The Canadian forestry industry is a major worldwide source of wood and
paper products. In July 1995, the Company submitted an application with Ag
Canada (the equivalent of the US EPA) to register TREE GUARD for sale in Canada.
There have been significant delays in connection with this Canadian
registration, the reasons for which the Company believes relate primarily to
administrative procedures, rather than any objections to TREE GUARD or its
formulation. While the Company has had indications that its application for
Canadian registration is far along in the approval process, there can be no
assurance that the Company will ever be successful in obtaining Canadian
registration of TREE GUARD.
Europe: In November 1996, the Company entered into a Technology License
Agreement with Macfarlan Smith Ltd. This Agreement will pay a royalty of seven
percent (7%) for 10 years on sales of TREE GUARD in certain European countries.
No TREE GUARD sales have occurred under this agreement, nor can they commence
until regulatory clearances are obtained. See "Macfarlan Smith Agreements."
South America and Asia: Forestry markets in certain parts of South America and
Asia are expanding rapidly, as natural resources play a more important role in
the development of the world economy. The Company intends to analyze these
markets and, subject to the feasibility of establishing distribution or
licensing rights in these areas, it intends to pursue distribution opportunities
in the future.
SALES AND MARKETING:
SALES. Currently, the majority of the Company's sales activities are managed by
one experienced sales professional who develops distribution sources and key
account relationships. Due to the sales practices of the independent lawn and
garden industry and, to a large degree, the commercial market segment, a
considerable level of sales effort is performed by distributors and dealers.
Therefore, the Company's sales efforts in these market segments largely involve
training, including helping distributors and dealers understand the TREE GUARD
product adoption cycle, identifying the most common customer objections (and
providing the answers to those objections), and providing customer testimonials
and test results.
The Company has a non-exclusive agreement with Reforestation Technologies, Inc.
(RTI) in connection with sales of TREE GUARD to the forestry industry. RTI,
which maintains staff on the west coast and in Canada, has served in both a
distributor and sales agent capacity, primarily in the forestry segment.
Although the agreement with RTI expires in July 1997, the Company intends to
evaluate the Nortech/RTI relationship in the future and will explore the
potential for a future agreement. Although not routinely involved in sales, the
Company's Chief Operating Officer has been the primary contact with RTI, and was
primarily responsible for establishing and maintaining the Company's
relationship with Macfarlan Smith (See "Macfarlan Smith Agreements"). Also, the
Company's Chief Executive Officer maintains executive level relationships with
primary customers.
CATALOG/MAIL ORDER SALES. TREE GUARD is currently listed in the dominant catalog
being mailed to forestry professionals. Currently, TREE GUARD is being reviewed
by several additional catalog marketers.
CO-OP ADVERTISING. The Company offers a co-op advertising allowance to
qualifying distributors, based on a percentage of purchases.
BOOKING PROGRAMS AND SALES INCENTIVE PROGRAMS. The Company offers distributors
special booking programs during the spring and fall which offer either extended
terms or a discount on distributor invoice. This practice is customary in the
industry.
In the future, the Company will most likely be required to add staff or retain
outside manufacturers' representatives, or both, to support expanding sales
activities. From time to time, the Company will engage the services of part-time
telephone sales personnel to augment sales programs.
MARKETING. The Company's sales executive, Chief Executive Officer and Chief
Operating Officer develop and coordinate marketing activities with an
independent marketing consultant. The Company's 1997 marketing plan integrates
the following activities (1) publicity; (2) trade advertising and limited
consumer advertising; (3) direct mail to dealers, with supporting facsimile and
telemarketing activities; and (4) a site on the worldwide web
(www.nortechforest.com). The publicity, advertising and direct mail marketing
components are directed toward consumers, independent garden centers,
distributors and buyers in the commercial segment. The web site is primarily
intended to support the needs of a more technical audience of forestry
professionals, university extension service personnel, and government agency
personnel, including state animal control officers, natural resources personnel,
and soil conversation professionals.
TRADE SHOWS. The Company also attends trade shows and conventions that attract
potential customers, distributors, and personnel who influence the industry.
VOLUNTARY PURCHASING GROUPS (VPG) AGREEMENT:
During 1996, the Company entered into a three-year sub-registration and
repackaging agreement with VPG. Under this agreement, commonly referred to as a
private label agreement, the Company manufactures and ships its deer repellent
(substantially the same formulation as TREE GUARD) in bulk tanker truck load
quantities to VPG. The agreement contains no minimum purchase provision.
LESCO AGREEMENT:
On August 1, 1996, the Company entered into a three-year commercial distribution
agreement with LESCO, Inc. of Rocky River, Ohio. LESCO is the nation's largest
manufacturer and marketer of supplies and equipment for the commercial segment
of the green industry. LESCO sells directly to approximately 90,000 customers,
operating approximately 200 service centers in 38 states and 67 LESCO
Stores-on-Wheelssm in 36 states. The Company's agreement with LESCO provides
limited exclusivity, and permits purchases of pre-packaged TREE GUARD or bulk
purchases of product for repackaging under the TREE GUARD label. The Company
shipped its first order to LESCO in September 1996.
Although the Company's sales activities with LESCO have been of limited
duration, management believes that the relationship between LESCO and the
Company is very promising.
MACFARLAN SMITH AGREEMENTS:
During November 1996, the Company entered into a Technology License Agreement,
Trademark License Agreement and Supply Agreement with Macfarlan Smith Limited
("Macfarlan") of Edinburgh, Scotland. Each of these agreements is dated November
1, 1996. Macfarlan is the Company's supplier of denatonium benzoate, purchased
under Macfarlan's "Bitrex" trademark.
TECHNOLOGY LICENSE AGREEMENT. The Technology License Agreement names Nortech as
the "Licensor" and Macfarlan as "the "Licensee." The agreement grants to
Macfarlan the exclusive right to use the Company's intellectual property rights
in connection with TREE GUARD to manufacture, use, distribute and sell in a
defined territory. The territory includes the European Union countries of
western Europe, plus Norway, Finland, Switzerland, Poland, Slovakia, Romania,
Albania, the Ukraine, Latvia, Lithuania, Estonia, the Czech Republic, the
Russian Federation, Hungary, Bulgaria, Liechtenstein and Andorra. Macfarlan will
pay a royalty of seven percent (7%) of net sales income. The term of the
agreement is 10 years.
SUPPLY AGREEMENT. The Supply Agreement is for a term of five (5) years and
covers the Company's supply of denatonium benzoate NF grade 99.5% minimum, as
sold under Macfarlan's trademark "Bitrex" for the United States and Canada.
Under the agreement, Macfarlan has become Nortech's exclusive supplier of
denatonium benzoate. The agreement contains no minimum-purchase clause, but
requires Nortech to make advance forecasts of purchase quantities.
TRADEMARK LICENSE AGREEMENT. The Trademark License Agreement is in the form of a
schedule to the Supply Agreement referenced above, and grants from Macfarlan,
the "licensor" to Nortech, the "licensee", the right to use the Bitrex
trademarks, in connection with purchases of Bitrex under the Supply Agreement.
PATENT AND TRADE SECRETS
Nortech believes that the technology used in TREE GUARD is unique and provides a
significant advantage over competitive products in the animal repellent
marketplace. The Company took steps to protect this technology through patent
protection of the basic TREE GUARD formulation (chemical and foliage coating
techniques) and through agreement with MacFarlan Smith, the manufacturer of
denatonium benzoate. Nortech filed a patent application in the U.S. and Canada
on all potential commercial formulations of a nasty tasting substance such as
denatonium benzoate coupled with a broad range of chemicals to bond to leaves
and resist wash-off.
During February 1997, the Company's U.S. patent application was denied. Based on
this denial, it is unlikely that the Company will continue to fund a similar
patent application that has been pending in Canada. Although management was
hopeful that a patent would be granted, it believes that other factors may, for
a period of time, continue to provide meaningful protection from competition.
For example, the Company holds various trade secrets related to the
manufacturing process which it believes have a bearing on the efficacy and
overall performance of TREE GUARD. Also, any use of a formula similar to TREE
GUARD by a competitor in the future would require EPA registration and related
costs and delays associated with such EPA registration that could be similar to,
or higher than, the Company's cost of EPA registration.
With or without patent protection for the Company's TREE GUARD technology, there
can be no assurance that others will not independently develop substantially
equivalent proprietary information or otherwise obtain access to the Company's
know-how or that others may not be issued patents which may require licensing by
the Company for the pursuit of its business.
MANUFACTURING AND WAREHOUSING:
During 1996, the Company engaged the services of Iowa-based Imperial Inc.
("Imperial") to formulate and package TREE GUARD, and to perform shipping, as
well as limited warehousing and fulfillment services. Imperial is a high-volume
formulator of chemicals for a variety of manufacturers. In connection its
formulation, packaging and shipping services for the Company, Imperial also
warehouses certain raw materials associated with TREE GUARD, which the Company
purchases from outside suppliers and arranges for shipment to Imperial. Certain
packaging components are taken from Imperial's inventory. Depending on the
Company's need to stage orders, Imperial will maintain TREE GUARD inventory as
either raw materials, work in progress, finished goods inventory or a
combination thereof.
The Company commenced its relationship with Imperial during the summer of 1996,
with the objectives of securing high-volume (truckload) capacity, reliable
turnaround, and consistently high quality. These objectives have been achieved,
and the Company contemplates that it may enter into a formal binding agreement
with Imperial in the future.
Prior to engaging the services of Imperial, the Company performed product
packaging activities in its warehouse adjacent to the Company's principal
offices. In April 1994, the Company entered into a manufacturing and packaging
agreement with Dyno Minnesota of Virginia, Minnesota ("Dyno"). Under this
agreement, Dyno had exclusive worldwide manufacturing and packaging rights for
TREE GUARD. Dyno formulated TREE GUARD and shipped it to the Company in 275
gallon mini-bulk containers for bottling by the Company. During January 1996,
the Company requested written release from the manufacturing and packaging
contract when Dyno was sold to Georgia-Pacific. Prior to, and in connection with
the Company's request for release from this contract, the Company had submitted
a termination notice to Dyno, under contract termination provisions. Late in
1996, the Company settled its account with Dyno. Although management of Georgia
Pacific has verbally agreed to release the Company from the agreement, the
Company has not received written verification from Dyno of such release.
FACILITIES:
The Company leases approximately 2,096 square feet of office space in a light
industrial complex in suburban Minneapolis. The Company's current lease expires
September 30, 1997, and is a one-year renewal of an initial lease that commenced
January 1, 1994. Under the current lease, gross monthly rent is $1,950 plus
utilities and a prorated portion of operating expenses and property taxes.
During September 1996 and in conjunction with renewing the initial lease, the
Company reduced its square footage from 5,430 square feet to the current 2,096
sq. ft., and reduced its monthly base rent from $3,250 per month to its current
monthly base rent of $1,950 per month. The warehouse space that the Company
vacated was less costly than the office space that it maintained under the
one-year renewal. The decrease in facilities was implemented because the Company
was operating with fewer employees and its relationship with Imperial eliminated
the need for warehouse space.
Management believes the Company's current facility, or a similar facility, can
accommodate its needs, for the foreseeable future.
EMPLOYEES:
As of March 1997, the Company had four permanent, full-time employees and one
part-time independent contractor. The full-time employees are engaged in
activities primarily related to management and administration, research and
development, marketing and sales. The part-time independent contractor serves as
financial controller.
During May 1996, Robert H. Gilbertson, the Company's founder, Chairman of the
Board and former Chief Executive Officer, retired. Mr. Gilbertson served as
Chief Executive Officer from inception until EPA registration was granted on
January 30, 1996.
SEASONALALITY:
Management believes that the Company will experience seasonal demand for its
TREE GUARD deer repellent. Peak sales are most likely to occur just prior to
customers' applications 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.
The Company's product diversification plans are, in part, intended to reduce the
impact of off-season sales on cash flows. There is no assurance that such
product diversification plans, if successful, will have a meaningful effect on
cash flows.
CORPORATE HISTORY
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 unaudited 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 on June 21, 1995,
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
value to $.01 par value per share on both common and preferred 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.
Company's name 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.
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 information 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.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION.
The Company's Common Stock is traded in the over-the-counter market, is quoted
in the "pink sheets" published by the National Quotation Bureau and is listed on
the OTC Bulletin Board under the symbol "NRTC". The market for the Company's
Common Stock must be characterized as a limited market due to the relatively low
trading volume and the small number of brokerage firms trading in the Company's
Common Stock and acting as market makers. No assurance can be given that the
over-the-counter market for the Company's securities will continue or that the
prices in such market will be maintained at their present levels.
The following table sets forth, for the periods indicated, certain information
with respect to the high and low bid quotations Company's shares of Common
Stock. The quotations reflect the effect of the 1-for-4 reverse split which was
effective on May 24, 1996 represent interdealer quotations without retail
markups, markdowns or commissions and may not represent actual transactions.
Bid
-----------------------------
Quarter Ended High Low
- ------------- -----------------------------
March 31, 1995 $14.00 $8.00
June 30, 1995 $ 8.50 $2.50
September 30, 1995 $ 4.00 $2.50
December 31, 1995 $ 3.50 $2.66
March 31, 1996 Not available through the
National Association of Securities Dealers
June 30, 1996 $2.875 $2.00
September 30, 1996 $2.625 $1.00
December 31, 1996 $2.50 $ .75
On March 24, 1997, the high bid and low asked prices for the Company's shares as
quoted on the OTC Bulletin Board were $3.125 and $3.50, respectively.
As of March 24, 1997, there were 1,602,401 shares of the Company's Common Stock
issued and outstanding held by approximately 280 holders of record. This number
does not include shares beneficially held of record by brokerage houses and
clearing corporations on behalf of their customers.
The Company has not paid cash dividends with respect to its Common Stock and
does not intend to pay cash dividends on its Common Stock in the foreseeable
future.
(b) RECENT SALE OF UNREGISTERED STOCK.
During October 1996, the Company completed an initial closing on its pending
private equity placement, receiving cash proceeds of $340,000 in exchange for
284,615 shares of Common Stock. In connection with this investment, the Company
issued this investor a three-year warrant to purchase 100,000 shares of Common
Stock at $1.30 per share.
Subsequent to December 31, 1996, the Company completed a second closing on its
pending private equity placement, receiving cash proceeds of $200,000 in
exchange for 125,000 shares of Common Stock. In connection with this investment,
the Company issued the investor a three-year warrant to purchase 40,000 shares
of Common Stock at $1.60 per share.
In connection with a 12% Promissory Note (principal amount $150,000) held by a
former director, the Company issued five-year warrants to purchase 3,750 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.
On December 11, 1995, directors/stockholders of the Company and outside
investors were issued five-year warrants to acquire 13,000 shares of the
Company's Common Stock at $1.00 per share in connection with unsecured debt
financing.
ITEM 6. 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 accompanying audited financial statements and
footnotes.
Certain statements contained herein are forward-looking statements within the
meaning of the Securities Act of 1933 and the Securities and Exchange Act of
1934 that involve a number of risks and uncertainties. Such forward-looking
information may be indicated by words such as will, may be, expects or
anticipates. In addition to the factors discussed herein, among the other
factors that could cause the Company's actual results to differ materially from
current expectations are the following: business conditions and growth in the
plant protection industry and the general economy; competitive factors such as
rival manufacturers and sellers of plant and tree protection products and price
pressures; availability of product component chemicals at reasonable prices;
inventory risks due to shifts in market demand; and risks presented from time to
time in reports filed by the Company with the Securities and Exchange
Commission, including, but not limited to the Company's audited financial
statements for the year ended December 31, 1996, enclosed herein.
GENERAL
The Company manufactures and markets TREE GUARD(R), a proprietary, ready-to-use
product that the Company developed 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 manufactures substantially the
same product as TREE GUARD, which is packaged and sold under the Ferti-lome
brand labeled as "THIS 1 WORKS" DEER REPELLENT.
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 the registration of
its EPA registration number with all state agencies throughout the United
States. 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. There can be no assurance that the Company will comply with such
requirements or that the Company will not incur significant costs for failing to
do so. 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. The Company believes it will be
granted Canadian registration of TREE GUARD during 1997. However, there can be
to assurance that such registration will be granted or if granted, will be
within the period anticipated by the Company.
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.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Sales. Sales for the year ended December 31, 1996 were $205,154 compared to
$112,333 reported in 1995. Although sales during 1996 reflect improved
performance over 1995, the Company's progress in expanding sales was curtailed
by inadequate working capital. In part, sales during 1996 were adversely
impacted by insignificant historical sales activity, resulting in a small
customer base. Further, the Company experienced delays with the EPA registration
of TREE GUARD, resulting in a delay in successfully launching TREE GUARD into
the Spring 1996 season. As a result, the Company's distribution of TREE GUARD
remains limited primarily to the midwest, east coast and pacific northwestern
states during 1996. Furthermore, the Company's relationships with Voluntary
Purchasing Groups (VPG) and LESCO, Inc. did not result in product deliveries to
those customers until the second half of 1996. Management is optimistic about
sales in 1997 because the distribution relationships that the Company has been
able to establish during the past year offer the potential for high volume in
the future. Also, as more fully described in Part I, "DESCRIPTION OF BUSINESS,
Market Segments and Distribution Channels - MASS MERCHANDISERS", the Company is
developing an alternative label for its TREE GUARD deer repellent with the
intent of expanding sales into mass merchandisers.
In May 1996, the Company 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 Voluntary Purchasing Groups (VPG), a Texas-based
cooperative, under the terms of a three-year sub-registration and private label
agreement. VPG distributes the Company's product under the Ferti-lome brand
labeled as "THIS 1 WORKS" DEER REPELLENT. Although VPG sells products to
approximately 200 independent distributors who sell to 8,000 independent garden
centers, the Company anticipates that full national expansion of sales of its
deer repellent by VPG will occur gradually over the next one to two years. There
can be no assurance that any such expansion will occur within a period of time
acceptable to the Company, if at all.
Under a second purchase agreement, Nortech sells TREE GUARD to LESCO, Inc., the
nation's largest supplier of supplies and equipment to commercial customers such
as lawn care operators, landscape maintenance companies, and golf courses.
During 1996, LESCO's distribution of TREE GUARD has been primarily limited to
the northeastern United States.
The Company's primary efforts have been directed at expanding its base of
distributors who sell to independent garden centers. To secure additional
distributors, the Company is promoting the positive results that the most
seasoned TREE GUARD distributors have experienced. Subsequent to December 31,
1996 and as a result of this effort, the Company has added two of the most
prominent distributors that service garden centers in the eastern and
mid-Atlantic states.
The degree to which sales can be expanded during 1997 will be largely subject to
the Company's ability to raise additional capital and more specifically, to fund
sales and marketing activities to further expand its customer base and sales
volume. Although the Company is continuing its efforts to raise additional
capital through the sale of private equity, it may be required to change its
approach to fundraising activities. There can be no assurance that the Company
will be able to raise any additional capital or that the acquisition of such
capital will be on terms acceptable to the Company. Moreover, there can also be
no assurance that the Company will be able to expand its customer base and sales
volume if the Company's current capital needs are met. Also, see the risks
associated with seasonality as more fully described in Part I, "DESCRIPTION OF
BUSINESS, SeasonalitY."
Gross Profit and Gross Profit Margin. For the year ended December 31, 1996,
gross profit was $121,313, or 59.1% of sales, compared to $59,000 or 52.5% of
sales during 1995. The increase in gross profit, as a percentage of sales, was
primarily due to increased efficiencies associated with higher manufacturing
volume and the use of a new outside contract formulator. During the first two
quarters of 1996 and prior to the time the Company began using a new outside
contract formulator, the Company performed its formulation activities in-house.
During 1996, 1996, the Company received a $42,116 concession from a primary
supplier of raw materials. In the future, it is unlikely that the Company will
receive similar concessions.
Operating Expenses. Total operating expenses declined 26% in 1996 to $436,123
from $591,774 reported in 1995. The decrease was primarily due to the Company
operating with fewer employees during most of 1996, savings related to a
reduction in facilities, and other factors. Increased expenditures related to
sales and marketing during 1996 did not offset this reduction in total operating
expenses.
Administrative expense was $249,277 in 1996 compared to $364,276 in 1995. The
decrease was due, in part, to reclassifying a portion of salary expense to cost
of sales and sales and marketing expense in 1996, rather than to administrative
expense. Sales and marketing expense was $145,020 in 1996 compared to $103,957
in 1995. The increase was in response to the Company receiving its EPA
registration during January 1996, and was necessary to support the increase in
sales. Research and development expense was $41,826 in 1996 compared to $123,541
in 1995, and primarily reflects increased focus on sales and marketing of TREE
GUARD during 1996. In addition, the Company received $150,000 from a technology
license agreement.
Interest expense was $41,102 in 1996 compared to $11,317 in 1995. Increased
interest expense was incurred during 1996 primarily from the use of a bank line
of credit and certain promissory notes. Substantially all interest-bearing debt
was repaid during 1996.
Net Loss. For the reasons discussed above, the Company incurred a net loss of
$163,795, or $.13 per share, for the year ended December 31, 1996, compared to a
net loss of $542,950, or $.51 per share, during 1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Sales. Sales for the year ended December 31, 1995 increased nominally to
$112,333 compared to $82,628 for the year ended December 31, 1994. Throughout
the year, the Company continued to experience limited sales activity primarily
resulting from: (i) a limited marketing area due to the Company not having been
issued federal EPA registration for TREE GUARD; (ii) a loss of sales momentum,
particularly during the second half of the year, as a result of an independent
sales organization's unsuccessful efforts, contract abandonment, and eventual
demise as the Company's exclusive sales representative; and (iii) limited
financial resources and staff with which to execute a more aggressive sales
strategy.
In January 1996, the Company hired a Director of Sales with approximately 20
years experience in consumer product sales and marketing.
Management anticipates that the Company will experience a substantial increase
in sales during the year ended December 31, 1996. The degree to which sales can
be expanded during 1996, if at all, will be largely subject to the Company's
ability to fund sales and marketing activities to expand its customer and sales
volume. The Company is attempting to raise additional capital through the sale
of private equity.
Gross Profit and Gross Profit Margin. Gross profit for the year ended December
31, 1995 was $59,000, or 52.5% of sales compared to $43,426, or 52..6% of sales
during 1994. Because management plans to utilize a different source of
manufacturing during 1996, it is currently reviewing two additional sources of
formulation of TREE GUARD, and anticipates that, during 1996, its cost of goods
will be reduced if it selects either one of the two additional sources of
manufacturing.
Administrative Expense. Administrative expense declined to $468,233 during the
year ended December 31, 1995 compared to $484,597 during 1994. The decrease in
administrative expense was primarily due to a voluntary reduction in salary by
Robert H. Gilbertson, the Company's Chairman of the Board and former Chief
Executive Officer. The decrease in administrative expense is also due, in part,
to a change in recordkeeping that, during 1995, captured a portion of salary
expense deemed chargeable to research and development, rather than
administrative expense. Accordingly, administrative expense decreased, and
research and development increased during 1995 compared to 1994.
Research and Development Expense. Research and development expense increased to
$123,541 during the year ended December 31, 1995 from $73,377 during 1994. The
increase in research and development expense during 1995 resulted primarily from
a change in recordkeeping that, during 1995, captured a portion of salary
expense deemed chargeable to research and development. During 1994, no
recordkeeping system was in place to accurately charge such expenses to research
and development.
Interest Expense. Interest expense was $11,317 during the year ended December
31, 1995 compared to no interest expense during 1994. Interest expense during
1995 was primarily attributable 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.
Net Loss. For the reasons discussed above, the Company incurred a net loss of
$542,950, or $.52 per share, for the year ended December 31, 1995, compared to a
net loss of $510,062, or $.52 per share, during 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had current assets of $76,455, current
liabilities of $126,714, and negative working capital of $50,259, compared to
current assets of $66,248, current liabilities of $427,106, and negative working
capital of $360,858 on December 31, 1995. The reduction in negative working
capital is primarily due to the repayment of all secured bank debt, repayment of
a 12% secured promissory note in the amount of $150,000, and conversion of
approximately $190,000 of 12% Convertible Subordinated Promissory Notes to
Common Stock.
During October 1996, the Company completed an initial closing on its pending
private equity placement, receiving cash proceeds of $340,000 in exchange for
284,615 shares of Common Stock. In connection with this investment, the Company
issued this investor a three-year warrant to purchase 100,000 shares of Common
Stock at $1.30 per share.
Subsequent to December 31, 1996, the Company completed a second closing on its
pending private equity placement, receiving cash proceeds of $200,000 in
exchange for 125,000 shares of Common Stock. In connection with this investment,
the Company issued the investor a three-year warrant to purchase 40,000 shares
of Common Stock at $1.60 per share. The Company's private placement, seeking to
raise a total of $1,500,000, is continuing.
On February 2, 1996, a director loaned the Company $150,000 pursuant to a 12%
Promissory Note, with the principal due on September 30, 1996. Interest accrued
at a rate of 12% per annum and was 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 failed to pay the director
on or before September 30, 1996. On September 16, 1996, the director resigned
his position on the Company's Board. Prior to September 30, 1996, the Company
had been in default on the $150,000 secured promissory note due to its failure
to pay interest payments when due. The Company further defaulted on its
obligation to repay the former director in full upon the September 30, 1996 due
date of the promissory note. During the fourth quarter of 1996, the Company
repaid in full its $150,000 obligation to the former director.
Effective March 10, 1995, the Company secured a $100,000 revolving line of
credit with Norwest Bank, Minnesota N.A. This line of credit was secured by
substantially all assets of the Company. The note was also personally guaranteed
by Robert H. Gilbertson, the Company's Chairman. This line of credit accrued
interest at 1.5% over the prime rate and interest was payable monthly. On June
28, 1996, this line of credit was renewed and the interest rate was raised to 5%
over the prime rate. The due date was extended from May 31, 1996 to August 31,
1996. Also, on March 10, 1995, the Company entered into an agreement with
Norwest Bank, Minnesota N.A. for a $9,700 equipment note. The note established
principal payments due in 35 monthly installments of $269 from April 1, 1995
through February 1, 1998. Interest was payable monthly under this obligation at
the prime rate, plus 1.5%. During the fourth quarter of 1996, the Company repaid
all amounts owed to Norwest on October 21, 1996, and Norwest released its
security interest in the Company's assets.
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 or former 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
was 12% per annum until paid in full by the Company, or otherwise converted by
the holder. The notes were due in full, on May 31, 1996. In addition, all
investors were issued five-year warrants to purchase, in the aggregate, 4,750
shares of Common Stock at a price of $4.00 per share. 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. Clinton and Mr. Runck are no longer
directors of the Company. As of September 30, 1996, such notes were 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. During the fourth quarter of
1996 and the first quarter of 1997, holders of convertible promissory notes
converted $190,000 in principal from debt to Common Stock at $1.30 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
pre-split 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.
The Company has had limited success in its attempt to raise additional capital
through a pending private offering of its Common Stock. To date, the Company has
raised $540,000 toward completion of the full $1.5 million sought in the pending
private offering of its Common Stock. There is no assurance that the full $1.5
million can be secured on a timely basis, if at all, or that if additional
capital is raised, it will be under terms that will be attractive to the
Company. Furthermore, even if the Company is successful in raising additional
capital in the near future, management believes that, in order to achieve
aggressive market penetration objectives, it may be required to raise additional
capital during 1997 or 1998.
ITEM 7. FINANCIAL STATEMENTS:
The Company's financial statements for the years ended December 31, 1996 and
1995 are included on pages F-1 through F-18.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE:
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.:
The information required by Item 9 concerning the directors and executive
officers of the Company is incorporated by reference to the Company's definitive
proxy statement for its 1997 Annual Meeting of Stockholders under the caption
"Election of Directors."
The information required by Item 9 concerning compliance with Section 16(a) of
the Exchange Act is incorporated by reference to the Company's definitive proxy
statement for its 1997 Annual Meeting of Stockholders under the caption
"Compliance with Section 16(a) of the Exchange Act."
ITEM 10. EXECUTIVE COMPENSATION:
The information required by Item 10 is incorporated by reference to the
Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders
under the caption "Executive Compensation."
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The information required by Item 11 is incorporated by reference to the
Company's definitive proxy statement for its 1997 Annual Meeting of Stockholders
under the caption "Principal Stockholders; Management Shareholdings."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS:
The information required by Item 12 is incorporated by reference to the
Company's definitive proxy statement for its 1997 Annual Meeting of Shareholders
under the caption "Certain Relationships, Transactions."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits.
The following Exhibits are included in this report: See "Exhibit Index" on page
E-1 immediately following the Financial Statements of this Form 10-KSB.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the year ended December
31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities and Exchange Act of
1934, the Company has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NORTECH FOREST TECHNOLOGIES, INC.
("Company")
Dated: April 2, 1997 /s/ Thomas J. de Petra
------------------------------------------
Thomas J. de Petra, President and Chief
Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Company, in the
capacities, and on the dates, indicated.
Each person whose signature appears below constitutes and appoints Thomas J. de
Petra as his true and lawful attorney-in-fact and agent, acting alone, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to the Annual
Report on Form 10-KSB and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming said attorney-in-fact and
agent, each or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.
Signature and Title Date
- ------------------- ----
/s/ Thomas J. de Petra
- -------------------------------------------------- April 2, 1997
Thomas J. de Petra, President, Chief Executive
Officer and Director (Principal Executive Officer
and Principal Financial and Accounting Officer)
/s/ Robert H. Gilbertson
- ------------------------------ April 7, 1997
Robert H. Gilbertson, Chairman
/s/ Calvin E. Blanchard
- -------------------------------------------- April 7, 1997
Calvin E. Blanchard, Chief Operating Officer
and Director
/s/ Randy L. Hines
- ------------------------ April 7, 1997
Randy L. Hines, Director
NORTECH FOREST TECHNOLOGIES, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PAGE NUMBER IN SEQUENTIALLY
NUMBERED FORM 10-KSB OR
ITEM NO. ITEM INCORPORATION BY REFERENCE TO
- -------- ---- -----------------------------
<S> <C> <C>
3.1 Certificate of Incorporation of the Exhibit 3.1 to the Company's Form
Company, as amended 10-KSB for the fiscal year ended
December 31, 1995
3.2 Bylaws of the Company, as amended Exhibit 3-2 to the Company's Form
10-KSB for the fiscal year ended
December 31, 1993
10.1* 1995-1996 Incentive Stock Option Exhibit 10-1 to the Company's Form
Plan and form of Agreement 10-KSB for the fiscal year ended
December 31, 1995
10.2* 1995-1996 Nonqualified Stock Exhibit 10-2 to the Company's Form
Option Plan and form of Agreement 10-KSB for the fiscal year ended
December 31, 1995
10.3* Employment Agreement dated April Exhibit 10.3 to the Company's Form
1, 1994 with Calvin E. Blanchard 10-KSB for the fiscal year ended
December 31, 1995
10.4 Toll Manufacturing and Packaging Exhibit 10-3 to the Company's Form
Agreement with Dyno Polymers 10-KSB for the fiscal year ended
Minnesota Incorporated dated April December 31, 1994
5, 1994
10.5 Promissory Note dated March 10, Exhibit 10-6 to the Company's Form
1995 in the principal amount of 10-KSB for the fiscal year ended
$100,000 in favor of Norwest Bank December 31, 1995
Minnesota, N.A. (repaid in 1996)
10.6 Promissory Note dated March 10, Exhibit 10-7 to the Company's Form
1995 in the principal amount of 10-KSB for the fiscal year ended
$9,700 in favor of Norwest Bank December 31, 1995
Minnesota, N.A. (repaid in 1996)
10.7 Promissory Note dated March 8, Exhibit 10-8 to the Company's Form
1995 in the principal amount of 10-KSB for the fiscal year ended
$72,000 in favor of Norwest Bank December 31, 1995
Minnesota, N.A. (repaid in 1996)
10.8 Personal Guaranty and Collateral Exhibit 10-9 to the Company's Form
Pledge Agreement dated March 8, 10-KSB for the fiscal year ended
1996 between Norwest Bank December 31, 1995
Minnesota, N.A. and Robert H.
Gilbertson
10.9 Guarantee Agreement dated March 8, ----
1996 between Norwest Bank
Minnesota, N.A. and Robert H.
Gilbertson, and related Installment
Promissory Note with principal of
$72,000 dated March 8, 1996 in
favor of Norwest Bank Minnesota,
N.A.
10.10 Security Agreement dated June 28, ----
1996 between Nortech Forest
Technologies, Inc. and Norwest
Bank Minnesota, N.A. and related
Installment Promissory Note with
principal of $69,000 dated June 28,
1996 in favor of Norwest Bank
Minnesota, N.A.
10.11 Repackaging Agreement dated July ----
3, 1996 with Voluntary Purchasing
Groups (VPG)
10.12** Distribution/Repackaging Agreement ----
dated August 1, 1996 with LESCO,
Inc.
10.13 Technology Licensing Agreement ----
dated November 1, 1996 with
Macfarlan Smith Ltd.
10.14** Supply Agreement dated November ----
1, 1996 with Macfarlan Smith Ltd.
10.15 Investment Agreement dated October 9, ----
1996 with Richard Neslund
27 Financial Data Schedule ----
(filed with electronic version only)
- ----------------------------
</TABLE>
* Management agreement or compensatory plan or arrangement.
** Confidential Treatment has been requested on certain information pertaining
to these exhibits
NORTECH FOREST TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
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Independent Auditors' Report 1
Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Stockholders' Equity (Deficit) 4
Statements of Cash Flows 5
Notes to Financial Statements 6
[LETTERHEAD]
STIRTZ BERNARDS BOYDEN SURDEL & LARTER
To The Board of Directors
NORTECH FOREST TECHNOLOGIES, INC.
Minneapolis, Minnesota
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Nortech Forest Technologies,
Inc. as of December 31, 1996 and 1995, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nortech Forest Technologies,
Inc. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that Nortech
Forest Technologies, Inc. will continue as a going concern. As discussed in Note
16 to the financial statements, the Company's accumulated deficit and lack of
profitable operations raise substantial doubt as to the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 16. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Stirtz Bernards Boyden
Surdel & Larter, P.A.
Edina, Minnesota
February 27, 1997
NORTECH FOREST TECHNOLOGIES, INC.
BALANCE SHEETS
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
ASSETS
------
Current assets:
Cash $ 34,578 $ 30,919
Accounts receivable -- 3,104
Inventories 36,949 25,725
Prepaid expenses 4,928 6,500
----------- -----------
Total current assets 76,455 66,248
----------- -----------
Equipment 78,155 78,155
Less accumulated depreciation (37,750) (23,513)
----------- -----------
40,405 54,642
----------- -----------
Organization costs, net of accumulated
amortization of $587 in 1996 and $460
in 1995 41 168
Patent and trade secret costs, net of
accumulated amortization of $-0- in
1996 and $700 in 1995 38,409 48,358
Other assets 3,250 3,250
----------- -----------
41,700 51,776
----------- -----------
$ 158,560 $ 172,666
=========== ===========
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Line-of-credit $ -- $ 97,000
Accounts payable:
Trade 76,958 160,968
Related party -- 14,001
Notes payable:
Related parties -- 106,000
Other 30,000 25,000
Current portion of long-term debt -- 3,228
Accrued expenses 19,756 20,909
----------- -----------
Total current liabilities 126,714 427,106
----------- -----------
Long-term debt -- 3,947
----------- -----------
Stockholders' equity (deficit):
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, 1,602,401 shares at
December 31, 1996 and 1,065,375
shares at December 31, 1995 16,024 10,654
Paid-in capital 1,431,184 982,526
Accumulated deficit (1,415,362) (1,251,567)
----------- -----------
Total stockholders' equity (deficit) 31,846 (258,387)
----------- -----------
$ 158,560 $ 172,666
=========== ===========
See notes to Financial Statements.
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995
------------- ----------
Sales $ 205,154 $ 112,333
Cost of sales 83,841 53,333
----------- -----------
Gross profit 121,313 59,000
----------- -----------
Expenses:
Administrative expenses 249,277 364,276
Sales and marketing 145,020 103,957
Research and development expenses 41,826 123,541
----------- -----------
436,123 591,774
----------- -----------
Net loss from operations (314,810) (532,774)
Interest expense (41,101) (11,317)
Sale of license rights 150,000 1,141
Other income 42,116 -
----------- -----------
Net loss $ (163,795) $ (542,950)
=========== ===========
Net loss per common share $ (.13) $ (.51)
=========== ===========
Weighted average number of
common shares outstanding 1,286,754 1,062,544
=========== ===========
See Notes to Financial Statements.
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 1,057,500 $ 10,575 $ 943,662 $ (708,617) $ 245,620
Sale of stock for cash 3,125 31 24,969 - 25,000
Exercise of warrants for cash 4,750 48 14,202 - 14,250
Redemption of outstanding warrants - - (307) - (307)
Net loss - - - (542,950) (542,950)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995 1,065,375 10,654 982,526 (1,251,567) (258,387)
Issuance of stock to former warrant holders 123,334 1,233 (1,233) - -
Debt conversion to equity 123,077 1,231 158,769 - 160,000
Sale of stock for cash 284,615 2,846 337,154 - 340,000
Offering costs - - (52,472) - (52,472)
Issuance of stock in exchange for accounts
payable 6,000 60 6,440 - 6,500
Net loss - - - (163,795) (163,795)
----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1996 1,602,401 $ 16,024 $ 1,431,184 $(1,415,362) $ 31,846
=========== =========== =========== =========== ===========
</TABLE>
See Note to Financial Statements.
NORTECH FOREST TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
YEARS ENDED DECEMBER 31,
-----------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net loss $(163,795) $(542,950)
Adjustments to reconcile net loss
to net cash flows from operating activities:
Depreciation 14,237 14,237
Amortization 127 825
Accounts receivable 3,104 (3,104)
Inventories (11,224) 30,345
Accounts payable (77,510) 126,550
Accrued expenses (1,153) (1,064)
Prepaid expenses 1,572 1,748
--------- ---------
Net cash flows from operating activities (234,642) (373,413)
--------- ---------
Cash flows from investing activities:
Purchase of long-term assets -- (5,314)
Patent and trade secret costs (4,052) (21,711)
Receivable - related party -- 16,295
--------- ---------
Net cash flows from investing activities (4,052) (10,730)
--------- ---------
Cash flows from financing activities:
Sale of stock/exercise of warrants for cash 340,000 39,250
Warrant redemption -- (307)
Offering costs (52,472) --
Line-of-credit (97,000) 97,000
Advances from related parties/others 226,000 131,000
Proceeds from long-term debt -- 9,600
Payments of long-term debt (174,175) (2,425)
--------- ---------
Net cash flows from financing activities 242,353 274,118
--------- ---------
Net increase (decrease) in cash 3,659 (110,025)
Cash, beginning of year 30,919 140,944
--------- ---------
Cash, end of year $ 34,578 $ 30,919
========= =========
See notes to Financial Statements.
NORTECH FOREST TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Nortech Forest Technologies, Inc. (the Company), manufacturers and
markets Tree Guard(R) brand deer repellent, and is engaged in the
development of products designed to protect plants, trees and
landscaping from damage by animals and certain acts of nature. In
addition to Tree Guard, the Company sells a deer repellent to Voluntary
Purchasing Groups (VPG) of Bonham, Texas, under a private label
agreement. Under this agreement, the Tree Guard formulation is sold in
bulk tanker truck loads, for repacking under the Ferti-lome "This 1
Works" brand name owned by VPG. The Company is currently in the
preliminary stages of developing two new products that are each derived
from the proprietary technology of Tree Guard. Management believes such
technology can serve as the foundation for additional products in the
future.
On January 30, 1996, the Company received federal registration from the
U.S. Environmental Protection Agency (EPA) for its product, Tree Guard.
The issuance of such federal registration for Tree Guard by the EPA
permits the Company to expand its sales efforts nationally. Although
such federal registration has been granted for Tree Guard, the Company
must comply with all requirements of the EPA on an ongoing basis. If the
Company fails to comply with federal EPA regulations, it may be
penalized, fined, or may have its EPA registration revoked. Prior to
January 30, 1996, the Company had received approval under Special Local
Needs (SLN) registrations to sell Tree Guard in 13 states. As a result,
the Company was able to establish limited sales through a small group of
distributors.
Pervasiveness 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 sales and expenses
during the reporting period. Actual results could differ from those
estimates.
Merger
Effective October 17, 1995, the Company merged the operations of its
sole wholly-owned subsidiary, Nortech Forest Products, Inc., a Minnesota
corporation, with and into Nortech Forest Technologies, Inc. This merger
was effected to simplify record keeping and accounting matters.
Reverse Stock Split
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, which is reflected in the audited financial statements.
Stock-Based Compensation
In October, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation. The Company currently accounts for its
stock-based compensation plans using the accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees (see Note 8). Since the Company is not required to adopt
the fair value based recognition provisions prescribed under SFAS No.
123, it has elected only to comply with the disclosure requirements set
forth in the statement, which includes disclosing pro forma net income
as if the fair value based method of accounting had been applied (see
Note 8).
Advertising
The Company expenses advertising costs as incurred. Advertising costs
charged to operations were $11,958 in 1996 and $19,721 in 1995.
Inventories
Inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market.
Equipment
Equipment is stated at cost. Depreciation is provided for on a
straight-line basis over the assets' estimated useful lives of five
years. Depreciation expense was $14,237 in 1996 and 1995.
Patent and Trade Secret Costs
The costs associated with the patent application process were
capitalized with the intent of amortizing them on a straight-line basis
over the life of the patent, once the patent was obtained. Subsequent to
year end, the Company received notification that it's patent application
was denied. These costs associated with the patent application will be
written off during the first quarter of 1997. The proprietary rights
have been capitalized and were being amortized on a straight-line basis
over a 10 year life; the rights were written off during 1996, and the
related gain was recorded as income.
Organization Costs
Organization costs are being amortized on a straight-line basis over a
60-month period.
Net Loss Per Common Share
Net loss per common share is computed by dividing the net loss by the
weighted average number of common shares outstanding. Fully diluted and
primary earnings per common share are the same amounts for each of the
periods presented. In loss periods, dilutive common equivalent shares
are excluded as the effect would be anti-dilutive.
Income Taxes
The Company has implemented Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes".
2. INVENTORIES
Inventories at December 31 consisted of the following:
1996 1995
----------- ----------
Raw materials $ 32,178 $ 18,670
Finished goods 4,771 7,055
----------- ----------
$ 36,949 $ 25.725
=========== ==========
3. LINE-OF-CREDIT
Effective March 10, 1995, the Company secured a $100,000 revolving
line-of-credit with Norwest Bank. This line-of-credit was secured by the
Company's accounts receivable, inventories and, substantially all assets
of the Company. The line-of-credit was also personally guaranteed by the
chairman of the Company. This line-of-credit accrued interest at 5% over
the prime rate and interest was payable monthly. The Company repaid the
entire balance of its obligations to Norwest Bank under this line of
credit on October 21, 1996, and Norwest released its security interest
in the Company's assets.
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consisted of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
12% unsecured convertible subordinated notes
payable issued to stockholders/directors $ - $106,000
12% unsecured convertible subordinated notes
payable issued to outside investors 30,000 25,000
-------- --------
$ 30,000 $131,000
======== ========
Long-term debt consisted of the following:
1996 1995
-------- --------
Note payable to bank, in monthly installments
of $269, plus interest at 1.5% over the prime
lending rate through February 1, 1998,
secured by equipment $ - $ 7,175
Less current portion - (3,228)
-------- --------
$ - $ 3,947
======== ========
</TABLE>
The Company repaid the entire balance of its obligation under this
equipment note to Norwest Bank on October 21, 1996.
5. INCOME TAXES
At December 31, 1996, the Company has operating loss carryforwards for
tax purposes of approximately $1,394,200 which expire through 2011. In
addition, for tax purposes, the Company has elected to defer and
amortize in future periods certain patent costs amounting to
approximately $38,400 at December 31, 1996. The Company has fully
reserved the tax benefit of the operating loss carryforwards and the
temporary difference related to deferred costs, amounting to
approximately $557,700, because the likelihood of realization of the
benefit cannot be established.
The Internal Revenue Code contains provisions which may limit the
operating loss carryforwards available if significant changes in
stockholder ownership of the Company occur.
6. RELATED PARTY TRANSACTIONS
Effective June 30, 1995, the Company acquired from Nordic National Group
("Nordic") all of the assets and proprietary rights with respect to
three product formulas and product lines for $14,001. Nordic is
controlled by the Chairman of the Company. As of December 31, 1996, the
Company sold back the proprietary rights to Nordic National for the
original purchase price.
During October, 1996, holders of convertible promissory notes converted
$160,000 of the debt to common stock at a conversion price of $1.30 per
share, including $100,000 owed to stockholders and directors of the
Company.
7. LEASE
Effective January 1, 1994, the Company entered into a non-cancelable
lease agreement for office space at $3,250 per month through September
30, 1996. The current lease expires September 30, 1997, and is a
one-year renewal of the initial lease that commenced January 1, 1994.
Under the current lease, gross monthly rent is $1,950 plus utilities and
a prorated portion of operating expenses and property taxes. Rent
expense was $35,100 in 1996 and $39,000 in 1995.
8. EQUITY
Stock Options and Warrants
On June 20, 1995, the Company issued a Notice of Redemption to redeem
all outstanding warrants to acquire 326,000 shares of the Company's
common stock. On August 4, 1995, the Company redeemed warrants to
acquire 307,000 shares of common stock at a cost to the Company of $307
or $.001 per share. Prior to such redemption, five warrant holders
elected to exercise their warrants to purchase 19,000 shares of the
Company's common stock for gross proceeds to the Company of $14,250.
On December 11, 1995, directors/stockholders of the Company and outside
investors were issued five-year warrants to acquire 13,000 shares at a
price of $1 per share of the Company's common stock in connection with
the unsecured debt financing.
During 1996, an outside investor was issued three-year warrants to
acquire 100,000 shares at a price of $1.30 per share of the Company's
common stock in connection with the initial closing on the Company's
$1.5 million pending private placement. In addition, a
director/stockholder was issued five-year warrants to acquire 3,750
shares of common stock at an exercise price of $4.00 per share in
connection with the unsecured debt financing in Note 6.
During 1996, the Company issued options to outside directors to purchase
7,500 shares of common stock at $4 per share, through the year 2006, all
of which are currently exercisable. In addition, the Company issued
options to directors/employees of the Company to purchase 88,750 shares
of common stock at $1.60 per share, through the year 2006, of which
44,375 are currently exercisable.
Following is a summary of transactions:
<TABLE>
<CAPTION>
Options Warrants
------------------------------- ------------------------------
1996 1995 1996 1995
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of year - - 3,250 81,500
Issued during the year 96,250 - 103,750 3,250
Redeemed during the year - - - (76,750)
Exercised during the year - - - (4,750)
-------------- ------------- ------------- -------------
Outstanding, end of year 96,250 - 107,000 3,250
============== ============= ============= =============
</TABLE>
Stock Option Plan
The Company's stock option plan authorizes the granting of options to
its qualified and unqualified employees, investors, and outside
directors for up to 100,000 shares of common stock. Under the plan, the
exercise price of each option equals the market price of the Company's
stock on the grant date, and an option's maximum term is ten years.
Options are granted on January 1 and vest at the end of the third year.
The fair value of each option is estimated on the grant date using an
option-pricing model with the following weighted-average assumptions
used for grants in 1996: dividend yield of 0%, volatility rate of 9%,
risk free interest rate of 8%, and expected lives of 10 years for the
options.
A summary of the status of the Company's stock option plan as of
December 31, 1996, and the changes during the year ending December 31,
1996 is as follows:
Weighted-Average
Fixed Options Shares Exercise Price
------------- ------ ----------------
January 1, 1996 - $ -
Granted 96,250 1.79
Exercised - -
Forfeited - -
------ -----
December 31, 1996 96,250 1.79
------ -----
Exercisable at December 31, 1996 51.875
Weighted-average fair value of
options granted during the year $ 1.79
The following table summarizes information about fixed options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
----------------------------------------------------- ---------------------------------
Range of Number of Weighted-Average Weighted-Average Number Weighted-Average
Exercise Outstanding Remaining Exercise Exercisable Exercise
Prices at 12/31/96 Contractual Life Price at 12/31/96 Price
-------- ----------- ----------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 1.60 to 4.00 96,250 9.5 1.79 44,375 1.95
============ ===========
</TABLE>
The Company applies APB Opinion 25 in accounting for its fixed stock
compensation plan. Accordingly, no compensation cost has been recognized
for the fixed plan in 1996 or 1995. Had compensation cost been
determined on the basis of fair value pursuant to FASB Statement No.
123, net loss and loss per share would have been increased as follows:
1996
----
Net loss
-----------
As reported $ (163,795)
============
Pro forma $ (241,007)
============
Primary earnings per share
--------------------------
As reported $ (.13)
============
Pro forma $ (.19)
============
9. MANUFACTURING AND PACKAGING AGREEMENT
On April 5, 1994, the Company entered into a manufacturing and packaging
agreement with Dyno Polymer, Inc. (Dyno). The agreement had an initial
five-year term with provisions for annual renewals. Under the agreement,
Dyno had exclusive manufacturing and packaging rights for the
geographical area covering the United States, Canada and Mexico. During
January 1996, the Company requested release from the manufacturing and
packaging agreement when Dyno was sold to Georgia-Pacific. Management of
Georgia-Pacific has verbally agreed to release the Company from the
agreement. The Company is currently using the services of Imperial, inc.
to formulate and package Tree Guard, and to perform shipping and limited
warehousing and fulfillment services.
10. MANAGEMENT AGREEMENT
During 1996, an agreement was signed with Red Oak Management which
requires the payment of commissions in the amount of 10% of any funds
collected by Nortech, through a private placement, plus expenses.
11. MACFARLAN SMITH AGREEMENTS
European License Agreements
During November, 1996, the Company completed negotiations with a U. K.
based entity, Macfarlan Smith Limited (Macfarlan) in connection with the
grant of a ten-year distribution and manufacturing license agreement for
the Company's Tree Guard product in Europe. Terms of the agreement
include a lump-sum payment of $150,000 that has been paid to the
Company, as well as a 7% royalty on European sales of the Tree Guard
product. Because sales of Tree Guard in Europe cannot commence until the
appropriate regulatory approvals have been obtained, the Company does
not anticipate royalty revenue from this agreement for several years.
Supply Agreement
In connection with the license agreement, a supply agreement was also
entered into between the Company and Macfarlan. The agreement is for a
term of five years and covers the Company's supply of denotonium
benzoate, as sold under Macfarlan's trademark "Bitrex" for the United
States and Canada. Under this agreement, Macfarlan has become the
Company's exclusive supplier of denotonium benzoate. The agreement also
grants from Macfarlan to the Company, the right to use the "Bitrex"
trademarks in connection with purchases of "Bitrex" under the Supply
Agreement. The agreement contains no minimum purchase provision.
12. DISTRIBUTION AND REPACKAGING AGREEMENT
During 1996, the Company entered into a three-year commercial
distribution agreement with LESCO, Inc., a manufacturer and marketer of
supplies and equipment for the commercial segment of the green industry.
The Company also entered into a three-year sub-registration and
repackaging agreement with Voluntary Purchasing Groups (VPG). The
agreement contains no minimum purchase provision.
13. FEDERAL REGISTRATION
During 1996, the Company received federal registration from the U.S.
Environmental Protection Agency (EPA) for its product, Tree Guard. The
issuance of such federal registration for Tree Guard by the EPA permits
the Company to expand its sales efforts nationally. Although such
federal registration has been granted for Tree Guard, the Company must
comply with all requirements of the EPA on an ongoing basis. If the
Company fails to comply with federal EPA regulations, it may be
penalized, fined, or may have its EPA registration revoked.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at
December 31, 1996 and 1995, and the methods and assumptions used to
estimate such fair values, are as follows:
Cash and Accounts Receivable
The Fair values of cash and accounts receivable approximate the carrying
amounts because of the short maturity of those financial instruments.
Notes Payable
The fair values of the notes payable approximate the carrying amounts,
as the variable interest rates on these notes approximate the current
interest rates.
15. 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 for orders in certain distribution channels.
16. GOING CONCERN
The accompanying financial statements have been prepared on a going
concern basis which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The
Company has incurred losses of $163,795 in 1996 and $542,950 in 1995 and
has incurred losses since inception of $1,394,200.
The continuation of the Company as a going concern is dependent upon a
variety of factors including, but not limited to, increasing sales,
obtaining profitable operations and raising significant short and
long-term working capital. Management intends to continue to pursue
various short and long-term financing arrangements, and the procuring of
working capital through the private or public placement of the Company's
debt or equity securities. No assurance can be given, however, that any
such funds will be available to the Company when needed or will be
available on terms and conditions favorable or acceptable to the
Company. The financial statements do not include any adjustments related
to the recoverability or reclassification of assets or the amounts of
liabilities that might result should the Company be unable to continue
as a going concern.
17. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1996 1995
-------- --------
Cash payments for interest $ 42,259 $ 10,160
======== ========
Non-cash investing and financing activities:
Conversion of 12% unsecured convertible
subordinated promissory notes to equity $160,000 $ -
======== ========
Issuance of stock in exchange for services $ 6,500 $ -
======== ========
Write-off of trade secret costs $ 14,001 $ -
======== ========
18. SUBSEQUENT EVENTS
During January, 1997, the Company completed a second closing on its
pending private equity placement, receiving cash proceeds of $200,000 in
exchange for 125,000 shares of its common stock.
During January and February, 1997, holders of convertible promissory
notes converted a total of $30,000 in principal from debt to common
stock at a conversion price of $1.30 per share.
Subsequent to year end, warrants to purchase 100,000 shares of common
stock at an exercise price of $1.00 per share and 40,000 shares at an
exercise price of $1.60 per share were issued.
NORWEST BANKS GUARANTY
City: Bloomington State: MN 55431-2208 Date: March 8, 1996
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and to induce Norwest Bank Minnesota, National Association
(herein, with its participants, successors and assigns, called the "Bank"), at
its option, at any time or from time to time to make loans or extend other
accommodations to or for the account of Nortech Forest Technologies, Inc.
(herein called "Borrower") or to engage in any other transactions with Borrower,
the undersigned hereby absolutely and unconditionally guarantee(s) to the Bank
the full and prompt payment when due, whether at maturity or earlier by reason
of acceleration or otherwise, of the debts, liabilities and obligations
described as follows:
A. If this [x] is checked, the undersigned guarantee(s) to Bank the
payment and performance of each and every debt, liability and
obligation of every type and description which Borrower may now or at
any time hereafter owe to Bank (whether such debt, liability or
obligation now exists or is hereafter created or incurred, and whether
it is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint,
several or joint and several; all such debts, liabilities and
obligations being hereinafter collectively referred to as the
"Indebtedness").
B. If this [ ] is checked, the undersigned guarantee(s) to Bank the
payment and performance of the debt, liability or obligation of
Borrower to Bank evidenced by or arising out of the following:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
and any extensions, renewals or replacements thereof (hereinafter
referred to as the "Indebtedness").
The undersigned further acknowledge(s) and agree(s) with Bank that:
1. No act or thing need occur to establish the liability of the undersigned
hereunder, and no act or thing, except full payment and discharge of all
Indebtedness, shall in any way exonerate the undersigned or modify, reduce,
limit or release the liability of the undersigned hereunder.
2. If paragraph A is checked, this is an absolute, unconditional and
continuing guaranty of payment of the Indebtedness and shall continue to be
in force and be binding upon the undersigned, whether or not all
Indebtedness is paid in full, until this guaranty is revoked prospectively
as to future transactions, by written notice actually received by the Bank,
and such revocation shall not be effective as to Indebtedness existing or
committed for at the time of actual receipt of such notice by the Bank, or
as to any renewals, extensions and refinancings thereof. If there be more
than one undersigned, such revocation shall be effective only as to the one
so revoking. The death or incompetence of the undersigned shall not revoke
this guaranty, except upon actual receipt of written notice thereof by the
Bank and then only as to the decedent or the incompetent and only
prospectively, as to future transactions, as herein set forth.
3. If the undersigned shall be dissolved, shall die, or shall be or become
insolvent (however defined) then the Bank shall have the right to declare
immediately due and payable, and the undersigned will forthwith pay to the
Bank, the full amount of all Indebtedness, whether due and payable or
unmatured. If the undersigned voluntarily commences or there is commenced
involuntarily against the undersigned a case under the United States
Bankruptcy Code, the full amount of all Indebtedness, whether due and
payable or unmatured, shall be immediately due and payable without demand
or notice thereof.
4. The liability of the undersigned hereunder shall be limited to a principal
amount of $78.466.72 (if unlimited or if no amount is stated, the
undersigned shall be liable for all Indebtedness, without any limitation as
to amount), plus accrued interest thereon and all attorneys' fees,
collection costs and enforcement expenses referable thereto. Indebtedness
may be created and continued in any amount, whether or not in excess of
such principal amount, without affecting or impairing the liability of the
undersigned hereunder. The Bank may apply any sums received by or available
to the Bank on account of the Indebtedness from Borrower or any other
person (except the undersigned), from their properties, out of any
collateral security or from any other source to payment of the excess. Such
application of receipts shall not reduce, affect or impair the liability of
the undersigned hereunder. If the liability of the undersigned is limited
to a stated amount pursuant to this paragraph 4, any payment made by the
undersigned under this guaranty shall be effective to reduce or discharge
such liability only if accompanied by a written transmittal document,
received by the Bank, advising the Bank that such payment is made under
this guaranty for such purpose.
5. The undersigned will not exercise or enforce any right of contribution,
reimbursement, recourse or subrogation available to the undersigned against
any person liable for payment of the Indebtedness, or as to any collateral
security therefor, unless and until all of the Indebtedness shall have been
fully paid and discharged.
6. The undersigned will pay or reimburse the Bank for all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by the
Bank in connection with the protection, defense or enforcement of this
guaranty in any litigation or bankruptcy or insolvency proceedings.
7. Whether or not any existing relationship between the undersigned and
Borrower has been changed or ended and whether or not this guaranty has
been revoked, the Bank may, but shall not be obligated to, enter into
transactions resulting in the creation or continuance of Indebtedness,
without any consent or approval by the undersigned and without any notice
to the undersigned. The liability of the undersigned shall not be affected
or impaired by any of the following acts or things (which the Bank is
expressly authorized to do, omit or suffer from time to time, both before
and after revocation of this guaranty, without notice to or approval by the
undersigned): (i) any acceptance of collateral security, guarantors,
accommodation parties or sureties for any or all Indebtedness; (ii) any one
or more extensions or renewals of Indebtedness (whether or not for longer
than the original period) or any modification of the interest rates,
maturities or other contractual terms applicable to any Indebtedness; (iii)
any waiver or indulgence granted to Borrower, any delay or lack of
diligence in the enforcement of Indebtedness, or any failure to institute
proceedings, file a claim, give any required notices or otherwise protect
any Indebtedness; (iv) any full or partial release of, settlement with, or
agreement not to sue, Borrower or any other guarantor or other person
liable in respect of any Indebtedness; (v) any discharge of any evidence of
Indebtedness or the acceptance of any instrument in renewal thereof of
substitution therefor; (vi) any failure to obtain collateral security
(including rights of setoff) for Indebtedness, or to see to the proper or
sufficient creation and perfection thereof, or to establish the priority
thereof, or to protect, insure, or enforce any collateral security; or any
modification, substitution, discharge, impairment, or loss of any
collateral security; (vii) any foreclosure or enforcement of any collateral
security; (viii) any transfer of any Indebtedness or any evidence thereof;
(ix) any order of application of any payments or credits upon Indebtedness;
(x) any election by the Bank underss.1111(b)(2) of the United States
Bankruptcy Code.
8. The undersigned waive(s) any and all defenses, claims and discharges of
Borrower, or any other obligor, pertaining to Indebtedness, except the
defense of discharge by payment in full. Without limiting the generality of
the foregoing, the undersigned will not assert, plead or enforce against
the Bank any defense of waiver, release, discharge in bankruptcy, statute
of limitations, res judicata, statute of frauds, anti-deficiency statute,
fraud, incapacity, minority, usury, illegality or unenforceability which
may be available to Borrower or any other person liable in respect of any
Indebtedness, or any setoff available against the Bank to Borrower or any
such other person, whether or not on account of a related transaction. The
undersigned expressly agree(s) that the undersigned shall be and remain
liable for any deficiency remaining after foreclosure of any mortgage or
security interest securing Indebtedness, whether or not the liability of
Borrower or any other obligor for such deficiency is discharged pursuant to
statute or judicial decision.
9. The undersigned waive(s) presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing
Indebtedness. The Bank shall not be required first to resort for payment of
the Indebtedness to borrower or other person or their properties, or first
to enforce, realize upon or exhaust any collateral security for
Indebtedness, before enforcing this guaranty.
10. If any payment applied by the Bank to Indebtedness is thereafter set aside,
recovered, rescinded or required to be returned for any reason (including,
without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued
in existence, notwithstanding such application, and this guaranty shall be
enforceable as to such Indebtedness as fully as if such application had
never been made.
11. The liability of the undersigned under this guaranty is in addition to and
shall be cumulative with all other liabilities of the undersigned to the
Bank as guarantor or otherwise, without any limitation as to amount, unless
the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.
12. This guaranty shall be enforceable against each person signing this
guaranty, even if only one person signs and regardless of any failure of
other person to sign this guaranty. If there be more than one signer, all
agreements and promises herein shall be construed to be, and are hereby
declared to be, joint and several in each of every particular and shall be
fully binding upon and enforceable against either, any or all the
undersigned. This guaranty shall be effective upon delivery to the Bank,
without further act, condition or acceptance by the Bank, shall be binding
upon the undersigned and the heirs, representatives, successors and assigns
of the undersigned and shall inure to the benefit of the Bank and its
participants, successors and assigns. Any invalidity or of any provision or
application of this guaranty shall not affect other lawful provisions and
application hereof, and to this end the provisions of this guaranty are
declared to be severable. This guaranty may not waived, modified, amended,
terminated, released or otherwise changed except by a writing signed by the
undersigned and the Bank. This guaranty is issued in the state set forth
above and shall be governed by its laws. The undersigned waive(s) notice of
the Bank's acceptance hereof and waive(s) the right to a trial by jury in
any action based on or pertaining to this guaranty.
This guaranty is [ ] unsecured; [x] secured by a mortgage or security
agreement dated March 8, 1996;
[ ] secured by ____________________________.
IN WITNESS WHEREOF, this guaranty has been duly executed by the undersigned the
day and year first above written.
______________________________
Robert Gilbertson
______________________________
______________________________
______________________________
NORWEST BANKS INSTALLMENT PROMISSORY NOTE
COMMERCIAL - NO DISCLOSURES
Nortech Forest Technologies, Inc. Date: Dollars ($)
March 8, 1996 ----------------------------
Due Date
- -------------------------------------------------------------------------------
For value received, the undersigned (if more Initial rate %
than one, jointly and severally) to pay to ----------------------------
the order of Norwest Bank Minnesota, National Collateral code
Association (the "Bank") at 7900 Xerxes ----------------------------
Avenue South Bloomington, MN 55431-2206 or at Disbursement
any other place designated at any time by the ----------------------------
holder hereof, in lawful money of the United
States of America, the principal sum of
Seventy-Two Thousand and 00/100 Dollars ($72,000.00), together with interest
(calculated on the basis of actual days elapsed in a 360 day year) on the unpaid
balance hereof from the date hereof until this Note is fully paid, at the
following rate:
[ ] an annual rate of ___________% (herein the "Note Rate");
[x] an annual rate equal to 5.00% in excess of the Base Rate from time
to time in effect, each change in the interest rate hereon to become
effective on the day the corresponding change in the Base Rate becomes
effective (the resulting rate is herein referred to as the "Note
Rate");
[ ] an annual rate which, for any particular month, shall be _____________%
in excess of the Base Rate in effect on the ____________________ day of
the immediately preceding month (the resulting rate is herein referred
to as the "Note Rate")'
[ ] an annual rate ________________________________________________________
_______________________________________________________________________
provided that, if this Note has a variable rate of interest, the annual rate (I)
shall at no time be less than ______________%, (ii) shall at no time exceed an
annual rate, if one be specified, [ ] of _____________% [ ] that is
__________________% above the discount rate on 90-day commercial paper in effect
from time to time at the Federal Reserve Bank of ___________________ and (iii)
if the Bank is located in the State of Minnesota and the original principal
amount of this Note is less than $100,000, or if the Bank is located in the
State of North Dakota, shall be the same rate after the due date hereof (whether
it be the stated maturity date or such earlier date by reason of acceleration or
demand for payment) as was in effect on such due date. Unless clause (iii) above
applies, the unpaid principal and interest due on this Note at maturity (whether
it be the stated maturity date or such earlier date by reason of acceleration or
demand for payment) shall bear interest until paid at the rate of ____________%
in excess of the Note Rate.
As used herein, "Base Rate" means the rate of interest established by the Bank
from time to time as its "base" or "prime" rate.
The undersigned promises to pay the principal and interest hereof a follows:
[ ] Principal and interest shall be paid together in ______________ consecutive
__________________ installments of $_______________________ each, beginning
_______________________, and on the same day of each ______________________
hereafter until ___________________________, plus irregular installments as
follows: $___________________ on ___________________; $____________________
on ________________________________; and $______________________________ on
________________________________.
On ____________________________________, the entire unpaid principal and
accrued and unpaid interest hereon shall become due and payable. Each such
installment, when paid, shall be applied first in payment of interest, as
billed, and the balance thereof shall be applied in reduction of principal.
[x] Principal only shall be paid as follows:
[x] in 2 consecutive monthly installments of $1000.00 each, beginning
April 1, 1996, and on the same day of each month thereafter until May
1, 1996, plus a final payment on May 31, 1996, when the entire unpaid
principal shall become due and payable;
on [ ] $_____________ on ________________; $_____________ on ________________;
$_____________ on ________________; $_____________ on ________________;
$_____________ on ________________; $_____________ on ________________;
and in addition, interest is payable monthly, beginning April 1, 1996,
The undersigned may, at any time and from time to time, prepay the principal
amount outstanding in whole or in part, without penalty or premium. Any partial
prepayment shall be applied against the principal portion of the installments
due hereunder in inverse order of maturity.
[ ] Each time any installment of principal or interest hereunder is not paid
when due or within _______________ days thereafter, the undersigned agrees
to pay a late charge of $_________________ upon demand by the Bank.
If any installment of principal and/or interest hereunder is not paid when due,
or if any other indebtedness of the undersigned to the Bank is not paid when
due, or if any event of default shall occur under any mortgage, security
agreement or other instrument securing this Note, or if a garnishment summons or
a writ of attachment is issued against or served upon the Bank for the
attachment of any property of the undersigned in the Bank's possession or any
indebtedness owing to the undersigned, or if the holder hereof shall at any time
in good faith believe that the prospect of due and punctual payment of this Note
is impaired, then, in any such event, the holder hereof may, at its option,
declare this Note to be immediately due and payable and thereupon this Note
shall be immediately due and payable, together with all unpaid interest accrue
d
hereon, without notice or demand. Upon the occurrence of an event of default,
the Bank shall also have the right to set off the indebtedness evidenced by this
Note against any indebtedness of Bank to the undersigned. This Note shall also
become automatically due and payable (including unpaid interest accrued thereon)
without notice or demand should the undersigned die (an individual) or should a
petition be filed by or against the undersigned under the United States
Bankruptcy Code.
Unless prohibited by law, the undersigned agree(s) to pay all costs of
collection, including reasonable attorney's fees and legal expenses, incurred by
the holder hereof in the event this Note is not duly paid. The holder hereof may
change any terms of payment of this Note, including extensions of time and
renewals, and release any security for, or any party to, this Note without
notifying or releasing any accommodation maker, endorser or guarantor from
liability on this Note. Presentment or other demand for payment, notice of
dishonor and protest are hereby waived by the undersigned and each endorser or
guarantor. The undersigned agree(s) that each provision whose box is checked is
part of this Note and that this Note may not be changed orally, but only by an
agreement in writing and signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought. This Note shall be governed
by the substantive laws of the state named as part of the Bank's address above.
[x] This Note is secured. [ ] This Note is unsecured
- --------------------------------------------------------------------------------
Purpose of loan
Refinance Note #31395 Nortech Forest Technologies, Inc.
- --------------------------------------------------------------------------------
Address
7600 West 27th Street By
Robert Gilbertson
- --------------------------------------------------------------------------------
City, State and Zip
St. Louis Park, MN 55426
- --------------------------------------------------------------------------------
NORWEST BANKS SECURITY
AGREEMENT
Date: June 28, 1996
Debtor Secured party
Nortech forest Technologies, Inc. Norwest Bank Minnesota, National Association
- --------------------------------------------------------------------------------
Business or residence address Address
7600 West 27th Street 7900 Xerxes Avenue South
- --------------------------------------------------------------------------------
City, state & zip code City, state & zip code
St. Louis Park, MN 55426 Bloomington, MN 55431-2206
- --------------------------------------------------------------------------------
1. SECURITY INTEREST AND COLLATERAL. To secure the payment and performance of
each and every debt, liability and obligation of every type ad description which
Debtor may now or at any time hereafter owe to Secured Party (whether such debt,
liability or obligation now exists or is hereafter created or incurred, whether
it is currently contemplated by the Debtor and Secured Party, whether any
documents evidencing it refer to this Security Agreement, whether it arises with
or without any documents (e.g., obligations to Secured Party created by checking
overdrafts), and whether it is or may be direct or indirect, due or to become
due, absolute or contingent, primary or secondary, liquidated or unliquidated,
or joint, several or joint and several; all such debts, liabilities and
obligations being herein collectively referred to as the "Obligations"), Debtor
hereby grants Secured Party a security interest (herein called the "Security
Interest") in the following property (therein called the "Collateral") (check
applicable boxes and complete information ):
(a) INVENTORY
[x] All inventory of Debtor, whether now owned or hereafter acquired
and wherever located;
(b) EQUIPMENT, FARM PRODUCTS AND CONSUMER GOODS:
[x] All equipment of Debtor, whether now owned or hereafter acquired,
including but not limited to all preseNt and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, farm
machinery and equipment, shop equipment, office and recordkeeping
equipment, parts and tools, and the goods described in any
equipment schedule or list herewith or hereafter furnished to
Secured Party by Debtor (but no such schedule or list need be
furnished in order for the security interest granted herein to be
valid as to all of Debtor's equipment).
[ ] All farm products of Debtor, whether now owned or hereafter
acquired, including but not limited to (i) aLl poultry and
livestock and their young, products thereof and produce thereof,
(ii) all crops, whether annual or perennial, and the products
thereof, and (iii) all feed, seed, fertilizer, medicines and other
supplies used or produced by Debtor in farming operations, and
(iv) any crop insurance payments and any government farm support
payments, including any diversion or deficiency payments. The real
estate concerned with the above described crops growing or to
grown is:
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
and the name of the record owner is:______________________________
[ ] The following goods or types of goods:
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
(c) ACCOUNTS AND OTHER RIGHTS TO PAYMENT:
[x] Each and every right of Debtor to the payment of money, whether
such right to payment now exists or hereafter arises, whether such
right to payment arises out of a sale, lease or other disposition
of goods or other property by Debtor, out of a rendering of
services by Debtor, out of a loan by Debtor, out of the
overpayment of taxes or other liabilities of Debtor, or otherwise
arises under any contract or agreement, whether such right to
payment is or is not already earned by performance, and howsoever
such right to payment may be evidenced, together with all other
rights and interests (including all liens and security interests)
which Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such payment
or against any of the property of such account debtor or other
obligor; all including but not limited to all present and future
debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds.
[ ] __________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
(d) GENERAL INTANGIBLES:
[x] All general intangibles of Debtor, whether now owned or hereafter
acquired, including, but not limited to, applications for patents,
patents, copyrights, trademarks, trade secrets, good will,
tradenames, customers' lists, permits and franchises, and the
right to use Debtor's name.
together with all substitutions and replacements for and products of any of the
foregoing property not constituting consumer goods and together with proceeds of
any and all of the foregoing property and, in the case of all tangible
Collateral, together with all accessions and, except in the case of consumer
goods, together with (i) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
such goods, and (ii) all warehouse receipts, bills of lading and other documents
of title now or hereafter covering such goods.
2. Representations, Warranties and Agreements. Debtor represents, warrants and
agrees that:
(a) Debtor is [ ] an individual, [ ] a partnership, [x] a corporation and,
if Debtor is an individual, the Debtor's residence is at the address of
Debtor shown at the beginning of this Agreement.
(b) The Collateral will be used primarily for [ ] personal, family or
household purposes [ ] farming operations [x] business purposes.
(c) [ ] If any part or all of the tangible Collateral will become so
related to particular real estate as to become a fixture, the real
estate concerned is:
______________________________________________________________________
______________________________________________________________________
and the name of the record owner is:__________________________________
(d) Debtor's chief executive office is located at _________________________
or, if left blank, at the address Debtor shown at the beginning of this
Agreement.
THIS AGREEMENT CONTAINS ADDITIONAL PROVISIONS SET FORTH ON
PAGES 1 AND 2 HEREOF, ALL OF WHICH ARE MADE A PART HEREOF.
Norwest Bank Minnesota, National Nortech Forest Technologies, Inc.
Association
____________________________________________ _________________________________
Secured party's name Debtor's name
By _________________________________________ By _____________________________
Title: Tod Jelinski-Assistant Vice President Title: Thomas J. dePetra - CEO
_____________________________________ _______________________
By _____________________________
Title: _________________________
NORWEST BANKS INSTALLMENT PROMISSORY NOTE
COMMERCIAL - NO DISCLOSURES
Nortech Forest Technologies, Inc. Date: Dollars ($) 69,000.00
----------------------
June 28, 1996 Due Date 8-31-96
- --------------------------------------------------------------------------------
For value received, the undersigned (if more than one, Note number
jointly and severally) to pay to the order of Norwest ----------------------
Bank Minnesota, National Association (the "Bank") at Division 420
7900 Xerxes Avenue South Bloomington, MN 55431-2206 or ----------------------
at any other place designated at any time by the holder Initial rate Base rate
hereof, in lawful money of the United States of +5.00 floating %
America, the principal sum of ----------------------
Collateral code
----------------------
Disbursement
----------------------
Sixty-Nine Thousand and 00/100 Dollars ($69,000.00), together with interest
(calculated on the basis of actual days elapsed in a 360 day year) on the unpaid
balance hereof from the date hereof until this Note is fully paid, at the
following rate:
[ ] an annual rate of __________________% (herein the "Note Rate");
[x] an annual rate equal to 5.00% in excess of the Base Rate from time
to time in effect, each change in the interest rate hereon to become
effective on the day the corresponding change in the Base Rate becomes
effective (the resulting rate is herein referred to as the "Note
Rate");
[ ] an annual rate which, for any particular month, shall be ___________%
in excess of the Base Rate in effect on the ________________ day of the
immediately preceding month (the resulting rate is herein referred to
as the "Note Rate")'
[ ] an annual rate ________________________________________________________
_______________________________________________________________________
provided that, if this Note has a variable rate of interest, the annual rate (I)
shall at no time be less than _________%, (ii) shall at no time exceed an annual
rate, if one be specified, [ ] of _________________% [ ] that is
_______________% above the discount rate on 90-day commercial paper in effect
from time to time at the Federal Reserve Bank of ______________________________
and (iii) if the Bank is located in the State of Minnesota and the original
principal amount of this Note is less than $100,000, or if the Bank is located
in the State of North Dakota, shall be the same rate after the due date hereof
(whether it be the stated maturity date or such earlier date by reason of
acceleration or demand for payment) as was in effect on such due date. Unless
clause (iii) above applies, the unpaid principal and interest due on this Note
at maturity (whether it be the stated maturity date or such earlier date by
reason of acceleration or demand for payment) shall bear interest until paid at
the rate of _______________% in excess of the Note Rate.
As used herein, "Base Rate" means the rate of interest established by the Bank
from time to time as its "base" or "prime" rate.
The undersigned promises to pay the principal and interest hereof a follows:
[ ] Principal and interest shall be paid together in ______________________
consecutive ______________________ installments of $______________________
each, beginning _______________, and on the same day of each_______________
hereafter until _____________________________, plus irregular installments
as follows: $____________________________ on ____________________________;
$________________________________ on _______________________________; and
$___________________________ on _________________________________.
On ____________________________________, the entire unpaid principal and
accrued and unpaid interest hereon shall become due and payable. Each such
installment, when paid, shall be applied first in payment of interest, as
billed, and the balance thereof shall be applied in reduction of principal.
[x] Principal only shall be paid as follows:
[x] in 1 consecutive monthly installments of $2000.00 each, beginning
July 1, 1996, and on the same day of each month thereafter until July
31, 1996, plus a final payment on August 31, 1996, when the entire
unpaid principal shall become due and payable;
on [ ] $_____________ on ________________; $_____________ on ________________;
$_____________ on ________________; $_____________ on ________________;
$_____________ on ________________; $_____________ on ________________;
and in addition, interest is payable monthly, beginning ______________,
The undersigned may, at any time and from time to time, prepay the principal
amount outstanding in whole or in part, without penalty or premium. Any partial
prepayment shall be applied against the principal portion of the installments
due hereunder in inverse order of maturity.
[ ] Each time any installment of principal or interest hereunder is not paid
when due or within ___________________ days thereafter, the undersigned
agrees to pay a late charge of $______________________ upon demand by the
Bank.
If any installment of principal and/or interest hereunder is not paid when due,
or if any other indebtedness of the undersigned to the Bank is not paid when
due, or if any event of default shall occur under any mortgage, security
agreement or other instrument securing this Note, or if a garnishment summons or
a writ of attachment is issued against or served upon the Bank for the
attachment of any property of the undersigned in the Bank's possession or any
indebtedness owing to the undersigned, or if the holder hereof shall at any time
in good faith believe that the prospect of due and punctual payment of this Note
is impaired, then, in any such event, the holder hereof may, at its option,
declare this Note to be immediately due and payable and thereupon this Note
shall be immediately due and payable, together with all unpaid interest accrued
hereon, without notice or demand. Upon the occurrence of an event of default,
the Bank shall also have the right to set off the indebtedness evidenced by this
Note against any indebtedness of Bank to the undersigned. This Note shall also
become automatically due and payable (including unpaid interest accrued thereon)
without notice or demand should the undersigned die (an individual) or should a
petition be filed by or against the undersigned under the United States
Bankruptcy Code.
Unless prohibited by law, the undersigned agree(s) to pay all costs of
collection, including reasonable attorney's fees and legal expenses, incurred by
the holder hereof in the event this Note is not duly paid. The holder hereof may
change any terms of payment of this Note, including extensions of time and
renewals, and release any security for, or any party to, this Note without
notifying or releasing any accommodation maker, endorser or guarantor from
liability on this Note. Presentment or other demand for payment, notice of
dishonor and protest are hereby waived by the undersigned and each endorser or
guarantor. The undersigned agree(s) that each provision whose box is checked is
part of this Note and that this Note may not be changed orally, but only by an
agreement in writing and signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought. This Note shall be governed
by the substantive laws of the state named as part of the Bank's address above.
[xx] This Note is secured. [ ] This Note is unsecured
Disputes arising from the obligations evidenced by this note are subject
to arbitration per the terms of a signed arbitration agreement.
- --------------------------------------------------------------------------------
Purpose of loan
finance accounts receivable and inventory NORTECH FOREST TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
Address
7600 West 27th Street By
Thomas J. dePetra, CEO
- --------------------------------------------------------------------------------
Thomas J. dePetra
City, State and Zip
St. Louis Park, MN 55426
- --------------------------------------------------------------------------------
REPACKAGING AGREEMENT
Agreement, made this day of July 3 1996 by and between Nortech Forest
Technologies (hereinafter referred to as "Registrant") a Delaware corporation
having as its principal place of business at St Louis Park Minnesota, and
Voluntary Purchasing Groups, Inc. (hereinafter referred to as "VPG'), a Texas
corporation, having its principal place of business in Bonham, Texas.
WITNESSETH:
WHEREAS, VPG is prepared to make available its facilities in Bonham,
Texas, which facilities have been duly registered with the Environmental
Protection Agency, for the purpose of repackaging the Registrant's product (the
"Product") described in Exhibit A, as attached.
NOW, THEREFORE, in consideration of the mutual promises and obligations of the
parties set forth herein, it is agreed as follows:
1. The term of this Agreement shall be Three (3) years from the
date of this Agreement.
2. VPG agrees to the repackage the Product at its plant at
Bonham, Texas. VPG shall issue to the Registrant, by mail or
by facsimile machine, a written purchase order thirty days in
advance of its required shipment date.
3. VPG agrees to furnish all labor, equipment, utilities, labels,
containers, outer containers and supplies necessary to
repackage and load into trucks the Product to be repackaged by
it hereunder.
4. VPG agrees to indemnify the Registrant against any and all
loss, liability, damage and expense of every character
whatsoever resulting from personal injury (including death) or
property damage, or otherwise sustained by any person, firm,
or corporation whatsoever (including VPG and Registrant and
employees of either of them) caused by, arising out of, or in
any way connected with acts or omissions of VPG (including its
officers, agents, servants or employees) in connection with
the receiving, handling, storage, repackaging, and delivery at
(its) Bonham plant of the Product repackaged by VPG hereunder.
VPG agrees to ensure its aforesaid liability hereunder, as set
forth, and will maintain and pay for blanket contractual
liability insurance.
6. The Registrant agrees to deliver to VPG title to all materials
at the liquid formulation facility chosen by the Registrant.
The Registrant agrees to furnish to VPG sufficient quantities
of the Product necessary for VPG to satisfy its patrons who
are independent distributors and independent retail
establishments. The Registrant shall provide to VPG a written
acknowledgment of VPG's purchase order, with respect to said
purchase order instructions, terms, prices and other details.
8. The Registrant shall conduct such tests and analyses necessary
to ensure that the Product furnished pursuant to Section 3
hereof shall meet the specifications of the Product's label.
The Registrant specifically warrants that the Product
delivered to VPG hereunder shall be free of contaminants.
9. Any failure of the Registrant to deliver the Product to VPG as
herein provided, which by exercise of reasonable diligence the
defaulting party is unable to prevent, if occasioned by any
contingency beyond such party's reasonable control (including
act of God or the public, enemy, fire, explosion, earthquake,
storm, flood, malicious mischief, rebellion, insurrection,
war, riot, sabotage, accident, interruption or delay in
transportation, inadequacy, or, or failure of supply
materials or equipment, breakdown, labor trouble, compliance
with any binding order or action of any governmental officer,
department or agency, or any other contingency of like or
different character), shall not be deemed a default hereunder
and shall not subject the party so failing to perform any
liability to the other party; provided, however, that the
requirement of exercise of reasonable diligence shall not
require either party to settle any labor dispute. The affected
party may omit acceptance of deliveries during the period on
continuance of such circumstances.
10. This Agreement shall not be assigned or transferred by either
party without the prior written consent of the other party.
11. This Agreement constitutes the entire agreement between the
parties and there are no understandings, representations, or
warranties of any kind, express or implied, not expressly set
forth herein. No modification of this Agreement shall be of
any force or effect unless such modification is in writing and
signed by the parties bound thereby; and no modification shall
be affected by the acknowledgment or acceptance of receipts or
order forms containing terms or conditions with those set
forth herein.
12. The parties agree that this Agreement shall be deemed to have
been made and executed in the State of Minnesota and that any
dispute arising under this Agreement shall be resolved in
accordance with the laws of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their duly authorized representative.
VOLUNTARY PURCHASING GROUPS, INC.
Date:
By: Raymond H. Smith
Its: Product Manager
Date: 7-3-96
NORTECH FOREST TECHNOLOGIES, INC.
By: Thomas J. dePetra
Its: CEO
Date: 7-8-96
DISTRIBUTION/REPACKAGING AGREEMENT
This Agreement is entered into between NORTECH Forest Technologies,
Inc.("NORTECH") and LESCO, inc. ("LESCO") and is effective as of August 1 , 1996
NORTECH will sell to LESCO, and LESCO will purchase, the Products specified on
the attached Exhibit A (the "Products") in bulk form for repackaging or in
prepackaged, finished form, as mutually agreed to by the parties, in such
quantities as may be agreed upon by the parties from time to time.
NORTECH grants to LESCO certain exclusive rights to distribute and sell the
Products as defined in Exhibit B ("Marketing Rights"), and to use the registered
trademark Tree Guard, under NORTECH's United States Environmental Protection
Agency (EPA) registered label(s) for the term of this Agreement.
NORTECH grants to LESCO only that authority necessary to allow LESCO to perform
its responsibilities under this Agreement. NORTECH specifically does not grant
to LESCO the authority to endorse NORTECH's name on any commercial paper,
contracts, advertisements, or instruments of any nature; to collect any debt; or
to enter into any obligation or warranty, express or implied, written or oral,
binding NORTECH to pay any money or otherwise obligating NORTECH in any way.
This is not, nor is it to be construed as, a franchise agreement.
I. TERMS OF SALE/PURCHASE. Price, freight, minimum purchase quantities,
terms of payment, advertising allowance, and rebates for the period from
the effective date of this Agreement through December 31, 1997 ("Period"),
shall be as specified in the attached Exhibit C, and for future calendar
years will be as mutually agreed to by NORTECH and LESCO no later than
sixty (60) days prior to such future calendar years. Price will always be
linked to a negotiated discount from NORTECH's distributor price list for
the Products. ln negotiating the price for Products after the Period,
parties will rely on i) price developments in the market for the Products,
and ii) cost developments in the manufacturing of Products, including raw
materials.
TAXES. If NORTECH is required to pay any sales, use, value-added or other
taxes based on transactions subject to this Agreement (other than taxes
based on NORTECH's income), such taxes shall be billed to and paid by
LESCO.
FINANCIAL CONDITION. NORTECH may defer shipments, alter payment terms, or
terminate this Agreement if LESCO fails to pay any invoice in accordance
with the terms of this Agreement. If LESCO's financial condition becomes
reasonably unsatisfactory to NORTECH, in addition to remedies provided
elsewhere herein, NORTECH may require cash payments or satisfactory
security for future deliveries. LESCO shall supply to NORTECH such
financial statements as NORTECH may reasonably request from time to time.
WARRANTY. NORTECH warrants that in the performance of this Agreement, it
will comply with all applicable federal, state, and local laws and
regulations; NORTECH warrants that the Products shipped hereunder shall
conform to the specifications therefore and to the chemical description on
the label and such label conforms to the EPA registered label therefor;
that good title, free from any lawful encumbrance shall be transferred by
NORTECH hereunder; that the Products sold by NORTECH to LESCO will not
infringe any United States patent; and that the Products sold to LESCO
hereunder comply with all governmental regulations. This is a guaranty
under ss. 12(b)(1) of Federal insecticide, Fungicide and Rodenticide Act
("FIFRA"), 7 U.S.C. ss. 136(l.)(b)(1). LESCO warrants that in the
performance of this Agreement, it will comply with all applicable federal,
state and local laws and regulations. NORTECH MAKES NO OTHER WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE, NOR IS THERE ANY OTHER
EXPRESS OR IMPLIED WARRANTY ON PRODUCTS SUBJECT HERETO. NORTECH SHALL NOT
BE LIABLE FOR CONSEQUENTIAL DAMAGES EXCEPT FOR ACTS OF GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT.
INDEMNIFICATION. NORTECH shall indemnify LESCO against all claims for
property damage, personal injury, costs and expenses (including reasonable
attorneys, fees) suffered by third persons caused by, or any action taken
or brought by the U.S. EPA or other governmental authority/agency against
LESCO arising out of, Products supplied to LESCO hereunder whether arising
in warranty, negligence or otherwise, except to the extent such claims
arise out of LESCO's negligence.
LESCO shall indemnify NORTECH against all claims for property damage,
personal injury, costs and expenses (including reasonable attorneys, fees)
arising out of LESCO's negligence in its storage, transportation and
distribution of the Products it purchases including sales practices not in
compliance with NORTECH's label specifications, except to the extent such
claims arise out of NORTECH's negligence.
TITLE AND RISK OF LOSS. Title and risk of loss of the Products shall pass
to LESCO upon NORTECH's delivery to carrier.
PRODUCT DISCONTINUANCE. Upon sixty (60) days prior written notice to LESCO,
NORTECH shall have the right to terminate its obligation to provide
Products in the event that NORTECH decides to discontinue selling such
Products. In the event of such termination, NORTECH will have the right to
allocate any remaining inventory of Products in a fair and reasonable
manner.
FORCE MAJEURE. Deliveries may be suspended by either party in the event of
war, fire, flood, labor trouble, breakage of equipment, accident, riot, act
of governmental authority (including but not limited to the U.S.
Environmental Protection Agency ["EPA"] or similar state agencies), acts of
God, or contingencies beyond the reasonable control of such party,
interfering with the production, supply, transportation, or sale of any of
the Products covered by this Agreement, or in the event of inability to
obtain on terms deemed by NORTECH to be practicable any raw material
(including energy). Quantities so affected shall be eliminated from this
Agreement without liability, or if by the mutual written agreement of both
parties, may be deferred, but this Agreement shall otherwise remain
unaffected.
SHORTAGE. In the event of inability for any reason to supply the total
demand for Products, NORTECH may allocate its supply of such Products in a
fair and reasonable manner, without liability for failure of performance.
II. LESCO EFFORTS
PRODUCT STEWARDSHIP. LESCO will ensure that each facility that stocks,
handles and ships Products shall be properly equipped to do so safely, in
compliance with federal, state, and local regulations.
CONTAINER APPROVAL. Containers used by LESCO for repackaged Products shall
be approved by NORTECH.
FORMULATION: NORTECH will formulate the Products.
SAMPLE RETENTION. When LESCO shall act as repackager of the Products, it
shall keep samples of each production run, including lot numbers, for a
minimum of two years. Samples shall be a minimum of four fluid ounces or
one half pound for dry formulations and shall be kept in stoppered
containers labeled with the appropriate lot number. LESCO shall make these
retainer samples available to NORTECH upon reasonable request.
III. NORTECH EFFORTS
REGISTRATION. NORTECH shall exercise its best efforts to maintain EPA
registration number 66676-1 for the Products under FIFRA.
IV. OTHER PROVISIONS
TERM. This Agreement is effective as of the date specified above and shall
continue in effect through December 31, 1999 ("Initial Term") and renew
thereafter for successive one year periods ("Renewal Periods"), until
terminated as provided below or until superseded.
TERMINATION. Either party may terminate this Agreement upon the other
party's continuing breach of this Agreement after written notice by the non
breaching party to the breaching party and a thirty (30) day opportunity to
cure. Either party may terminate this Agreement, without cause, by giving
written notice to the other party no later than 180 days prior to the end
of the Initial Term or any of the Renewal Periods, of its intent to
terminate at the end of the initial Term or a Renewal Period, as the case
may be.
Paragraphs of this Agreement regarding warranties and indemnification will
survive the termination under all circumstances.
EPA CANCELLATION. ln the event that any Product is suspended and later
canceled by EPA under Section 6 (7 U.S.C. ss. 136d) of the FIFRA, NORTECH
hereby agrees to accept return of LESCO's inventory of the canceled Product
and to credit LESCO with the net invoice price of such inventory.
REJECTED PRODUCTS. Any rejection of shipments and all claims for
nonconforming Products, damaged Products or shortages must be made by LESCO
not later than thirty (30) days of LESCO's earliest discovery of
information giving rise to the rejection or claim. NORTECH shall be
responsible for and bear the cost of disposition of the nonconforming or
damaged Products.
NON-ASSIGNABILITY. The rights and duties of either party under this
Agreement are not assignable or transferable to any other party, other than
to a party controlling, controlled by, or under common control with such
party, without the prior written consent of the other party hereto, which
consent shall not be unreasonably withheld.
NON-WAIVER. Failure of either party to exercise any right under this
Agreement on any occasion shall not in any way waive or reduce its right to
exercise any right on any other occasion.
AMENDMENTS. The terms and conditions herein may only be modified or added
to by an amendment, expressly identified as such, signed by authorized
representatives of both parties.
GOVERNING LAW. The parties agree that this Agreement shall be deemed to
have been made and executed in the State of Ohio. However, both parties
agree that any disputes arising out of the performance of this Agreement
will be resolved under the Uniform Arbitration Act.
MISCELLANEOUS. NORTECH agrees to comply with LESCO's Supplier Service
Standards as currently defined in Exhibit D attached hereto, and as
reasonably modified from time to time by LESCO and presented to NORTECH.
NORTECH agrees to participate in LESCO's annual Vendor Trade Show at
NORTECH's expense. ln connection with such, LESCO shall provide NORTECH all
reasonable details, schedules and expense estimates with no less than 90
days notice.
NORTECH will give LESCO first refusal for distribution of new products or
improved formulations for existing products.
ENTIRETY. This Agreement, with the attached Exhibits A, B, C and D
constitutes the entire understanding between NORTECH and LESCO regarding
the Products. It supersedes all previous agreements and understanding and
therefore represents the total current relationship.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate by their duly authorized representatives as of the day and year first
above written.
NORTECH Forest Technologies, Inc. LESCO, Inc.
By: /s/ Tom dePetra By: /s/ Patricia W. Pribisko
Name: Tom dePetra Name: Patricia W. Pribisko
Title: CEO Title: Vice President, General Counsel/
Corporate Secretary
Date: 8-21-96
Date: September 3, 1996
EXHIBIT A
THE PRODUCTS
TREE GUARD(R) TECHNICAL INFORMATION*
The purpose of this bulletin is to give distributors, dealers, users and
researchers information that is unavailable on the Tree Guard label.
Tree Guard is an anti-browsing pesticide formulated to solve a need for
longlasting deterrence.
The active ingredient and all components of the formula are listed on the
comprehensive LIST OF PESTICIDE PRODUCT INERT INGREDIENTS published by the
Environmental Protection Agency.
ACTIVE INGREDIENT: Bitrex(TM)
COMMON NAME: Denatonium Benzoate
CAS REGISTRY NUMBER: 3734-33-6
CHEMICAL NAME: Benzenemethanaminium
N-[2-(2,6-dimethylphenyl)amino]
2oxoethyl] -N,N-diethyl-,benzoate
2,000 parts per million of Bitrex(TM) is in the
formulated product.
INERT INGREDIENT: The inert ingredients are a proprietary mix
of latex emulsion. See an MSDS for more
information on hazards and handling
characteristics. Handle Tree Guard as you
would a high quality paint product.
- - DO NOT ALLOW PRODUCT TO FREEZE -
*This is not a Material Safety Data Sheet (MSDS).
MSDSs are available upon request.
NORTECH FOREST TECHNOLOGIES, INC.
7600 West 27th Street, Suite B11, St. Louis Park, Minnesota 55426 USA
(612) 922-2520; FAX: (612) 922-3865
EXHIBIT B
MARKETING RIGHTS
A. ELIGIBLE LESCO MARKETS:
1. Lawn Care Operators.
2. Lawn Maintenance Companies and Golf Courses.
3. Theme parks, resort and recreational complexes, athletic
facilities, schools and universities, military installations,
industrial complexes and cemeteries.
B. ELIGIBLE LESCO TERRITORY:
The territory shall include regions served by 196 established LESCO Service
Centers in operation as of December 31, 1995, as well as 68 Stores-on-Wheels
operating primarily in the eastern United States.
EXHIBIT C
TERMS OF SALE -1996-1997
IN CONSIDERATION FOR THE RIGHTS GRANTED UNDER EXHIBIT B ("MARKETING RIGHTS"),
THE FOLLOWING PRICE PROGRAM IS PREDICATED ON MINIMUM AGGREGATE PURCHASES
TOTALING (Confidential Treatment Requested) GALLONS PRIOR TO DECEMBER 31, 1997.
A. COMMERCIAL DISTRIBUTOR PRICING - Truckload price (in gallons):
Pre-packaged 55-gallon drum/gallon: (Confidential Treatment Requested)
Pre-packaged 23/2.5 gallon bottle/gallon (Confidential Treatment Requested)
Bulk truckload (4,000-5000 gallons)/gallon (Confidential Treatment Requested)
B. TERMS:
Net thirty (30) days from date of shipment of prepackaged Products.
Net sixty (60) days from date of shipment of bulk load purchases.
C. ORDERS AND ORDER ACKNOWLEDGEMENT:
Orders for Products shall be placed by LESCO in writing to NORTECH by mail or
by facsimile machine not later than thirty (30) days in advance of expected
delivery date at LESCO's receiving point. NORTECH shall provide written
acknowledgment of such orders within 48 hours of order.
D. QUALIFYING ORDERS:
(Confidential Treatment Requested)
E. FREIGHT:
LESCO's traffic department provides shipping instructions; LESCO pays all
freight expense from NORTECH's formulation facility in Shenandoah, Iowa
51601-0098.
F. ADVERTISING ALLOWANCE:
Nortech will provide LESCO a Three Percent (3%) co-op advertising allowance,
computed on total sales between January 1, 1996 and December 31, 1996,
subject to proof of performance. 1-quart trigger sprayer bottle (Confidential
Treatment Requested) will qualify under advertising allowance.
EXHIBIT D
Exhibit 7:
Acknowledgment Form
This acknowledges receipt of
LESCO SUPPLIER SERVICE STANDARDS
in (1) Copies
BY:
Company Name NORTECH FOREST TECHNOLOGIES, INC.
Your Name THOMAS G. WOZNIAK
Your Title NATIONAL SALES MANAGER
Date AUGUST 6, 1996
Please return this completed form to LESCO at:
LESCO, Inc.
Purchasing Department
20005 Lake Rd.
Rocky River, OH 44116
LESCO Supplier Service Standards * 01/07/95 * Page 46
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate by their duly authorized representatives as of the day and year first
above written.
NORTECH Forest Technologies, Inc. LESCO, Inc.
By: /s/ Tom dePetra /s/ Patricia W. Pribisko
Name: Tom dePetra Name: Patricia W. Pribisko
Title: CEO Title: Vice President, General Counsel/
Corporate Secretary
Date: 8-21-96 Date: September 3, 1996
TECHNOLOGY LICENCE AGREEMENT
Between
NORTECH FOREST TECHNOLOGIES INC.
and
MACFARLAN SMITH LIMITED
MCGRIGOR DONALD
Solicitors
Erskine House
68-73 Queen Street
Edinburgh
EH2 4NF
TECHNOLOGY LICENCE AGREEMENT
Between
NORTECH FOREST TECHNOLOGIES INC., incorporated under the laws of the State of
Delaware and having its office at 7600 West 27th Street, Suite B 11, St. Louis
Park, MN 55426, USA ("the Licensor")
and
MACFARLAN SMITH LIMITED, a Company incorporated in Scotland and having its
Registered Office at 10 Wheatfield Road, Edinburgh EH11 2QA, Scotland
(hereinafter referred to as "the Licensee")
WHEREAS:
(A) The Licensor is the owner of certain valuable know-how and intellectual
property rights relating to a product known as "Tree Guard".
(B) The Licensor has agreed to grant a licence of such know-how an intellectual
property to the Licensee on the terms and conditions of this Agreement.
NOW IT IS HEREBY MUTUALLY AGREED as follows:
1 DEFINITIONS
1.1 In this Agreement the following terms shall unless the context
otherwise requires have the following meanings:
"Commencement Date"
shall mean the last date of execution of this Agreement;
"First Sale Date"
shall mean the date the Licensee first places a Product on the market within
that part of the Territory comprising the European Union from time to time;
"Force Majeure"
shall mean in relation to either party any circumstances beyond the reasonable
control of the party, including, without limitation to the generality of the
foregoing, any industrial action including strike, lock-out or boycott (except
of that party's workforce) national emergency, war or prohibitive government
regulations, act of God, flood, fire, earthquake or natural disaster, imposition
of judgement order, sanction or embargo;
"Intellectual Property Rights"
shall mean the Know-How and the copyright, design rights and all other
intellectual property rights of any nature in the Know-How and/or the Products;
"Improvements"
shall mean all improvements or modifications or adaptations to any part of the
Intellectual Property Rights which may be made or acquired by either party
during the continuance of this Agreement;
" Know-How "
shall mean specifications, procedures, processes, manuals, instructions, quality
control procedures, physical and chemical properties, formulae, methods of
synthesis, analyses, environmental control information, regulatory control
information and all other technical data or information whatsoever relating to
or used in connection with the formulation, specification or manufacture of the
Products or relating to research into the Products or obtaining approval for
the Products that is in the possession or control of the Licensor including,
without prejudice to the generality of the foregoing, the information and
documentation set out in part 1 of the Schedule;
'Licensee's Premises"
shall mean the premises of the Licensee in Edinburgh;
the Lump Sum Payment
shall mean the sum of USD150,000 payable pursuant to Clause 4. 1;
"Net Sales Income"
shall mean the invoiced ex-works price for the sale of the Products less:
(a) normal trade discounts and commissions actually granted other than
discounts for prompt payment;
(b) the costs of packaging, excluding the original containers for the
Product, insurance, carriage and freight; and
(c) sales taxes, but excluding taxes on profits or any other government
or statutory taxes or levies imposed upon such sales;
"Product"
shall mean the range of Products manufactured and sold by the Licensee at the
Commencement Date under the name "Tree Guard" a general description of which
products is set out in part II of the Schedule;
"Quarter"
shall mean each successive period of 3 months with the first Quarter commencing
on the First Sale Date;
"Restricted Information"
shall mean, in respect of information to be held confidential by the Licensee
pursuant to Clause 10, the Know How and any other technical documentation or
information relating to the Product and any information relating to the
Licensor's business disclosed by the Licensor to the Licensee or acquired by the
Licensee pursuant to or in connection with this Agreement and in respect to
information to be kept confidential by the Licensor pursuant to Clause 1 O, any
information relating to the Licensee's finances, customers, potential customers,
products, prices or otherwise relating to its business and any other information
disclosed by the Licensee to the Licensor or acquired by the Licensor pursuant
to this Agreement;
"Royalties"
shall mean the royalties payable by the Licensee to the Licensor pursuant to
Clause 5.2;
" Services"
shall mean the services to be provided by the Licensor to the Licensee pursuant
to Clause 3.2;
"Sub-Licensee"
shall mean a third party to whom the Licensee has sub-licenced the rights
granted to it hereunder pursuant to Clause 14 but shall not include, for the
avoidance of doubt, a third party to whom only rights to manufacture the Product
on behalf of the Licensee as a sub-contractor are given;
"the Territory"
shall mean the European Union as constituted at the Commencement Date together
with norway, Finland, Switzerland, Poland, Slovakia, Romania, Albania, the
Ukraine, Latvia, Lithuania, Estonia, the Czech Republic, the Russian Federation,
Hungary, Bulgaria, Liechtenstein and Andorra;
"the Trade Mark"
shall mean the name "Tree Guard";
"USD"
shall mean US dollars.
1.2 Any reference to a Clause or Schedule is a reference to a clause of or
schedule to this Agreement.
1.3 Words importing the singular shall include the plural and vice versa.
1.4 Headings to clauses are inserted for convenience only and shall not
affect the interpretation of any clause.
2 GRANT OF LICENCE
2.1 Subject to Clauses 2.4 and 2.5, the Licensor hereby grants to the
Licensee an exclusive licence to use the Intellectual Property Rights
to manufacture, use, distribute and sell the Products under the Trade
Mark in the Territory subject to and on the terms and conditions
contained in this Agreement.
2.2 Subject to Clause 2.4, the Licensor agrees that it will not exploit the
Intellectual Property Rights or the Trade Mark in the Territory and
that it will not licence any third party to exploit the Intellectual
Property or the Trade Mark in the Territory.
2.3 Subject to Clauses 2.4 and 2.5, the Licensee agrees:
2.3.1 not to manufacture the Products using the Intellectual
Property Rights except in the Territory;
2.3.2 not to pursue an active policy of putting the Products on the
market, outside the Territory; and
2.3.3 not to put the Products on the market outwith the Territory in
response to unsolicited orders from outwith the Territory.
2.4 The Licensor's obligations under Clause 2.2 and the Licensee's
obligations under Clauses 2.3.1 and 2.3.2 shall remain in force until
the date 10 years from the First Sale Date or until the Know-How ceases
to be secret, whichever is earlier. Thereafter the Licensor and the
Licensee respectively shall no longer be bound by the said provisions
which shall not be enforceable.
2.5 The Licensee's obligations under Clause 2.3.3 shall remain in force
until the date 5 years from the First Sale Date or until the Know-How
ceases to be secret, whichever is earlier. Thereafter, the Licensee
shall no longer be bound by the said provisions which shall not be
enforceable.
2.6 At the request of the Licensee, the parties shall meet to discuss, in
good faith, an extension of the Licensee's rights under this Agreement
to countries outwith the Territory. The Licensee shall only be entitled
to such extension with the Licensor's prior written consent. On
reaching agreement pursuant to this clause on such extension to any
country or territory, that country or territory shall be deemed to be
part of the "Territory" for the purposes of this Agreement.
3 KNOW-HOW AND TECHNICAL SUPPORT
3.1 Within 7 days of signature of this Agreement, the Licensor will supply
the Licensee with the Know-How.
3.2 The Licensor shall provide such technical assistance to the Licensee as
the Licensee shall reasonably require to enable the Licensee to
familiarise itself with and understand the application of the Know-How,
to use the Know-How to manufacture the Product and to seek registration
of the Product. Such technical assistance shall comprise:-
3.2.1 telephone consultations with competent staff of the Licensor
to deal with questions raised by the Licensee, its employees
and any sub-licensees and sub-contractors regarding the
Know-How including resolution of problems regarding the
application and use of Know-How and registration of the
Product; and
3.2.2 on-site assistance from the Licensor's technical staff at the
Licensee's Premises to train the Licensee's staff in the use
of the Know-How, at times to be requested by the Licensee and
agreed between the parties.
3.3 The technical assistance to be provided in accordance with Clause 3.2
shall be provided by the Licensor's staff who are competent in and
familiar with the Know-How. The Licensor shall make no charge to the
Licensee for such technical assistance and shall bear all costs
connected therewith except for reasonable travelling and accommodation
costs for the Licensor's staff visiting the Licensee's Premises which
shall be borne by the Licensee, providing that the Licensee makes the
arrangements for such travelling and accommodation and pays for such
travelling and accommodation directly.
4 REGISTRATION
4.1 The Licensee shall use its reasonable endeavours to seek regulatory
approval for commercialisation of the Product in each country in the
Territory.
4.2 The Licensee shall be responsible at its sole cost and expense for
making applications to the appropriate bodies for such regulatory
approval in accordance with Clause 4. 1, carrying out any trials or
experiments required and for all other work involved in making such
applications, and seeking registration, provided that the Licensor
shall give the Licensee all reasonable assistance when requested by the
Licensee, at the Licensee's cost.
4.3 Unless the Licensee has obtained regulatory approval for
commercialisation of the Product in at least one country in the
Territory within 5 years from the Commencement Date:
4.3.1 subject to Clause 4.3.2 the Licensor shall be entitled to
terminate this Agreement pursuant to Clause 15.2;
4.3.2 the Licensor shall not be entitled to terminate this Agreement
at the end of the said 5 years if the Licensee has applied for
regulatory approval within the said 5 years but has not
obtained approval because of delays caused by the appropriate
regulatory bodies or their requirements or similar matters
outwith the control of the Licensee. In such event the said 5
years shall be extended by the period of time attributable to
such delays.
PAYMENTS
5.1 In consideration, of the grant of the licence pursuant to clause 2.1,
the Licensee shall pay the Lump Sum Payment to the Licensor promptly
and within 14 days of receipt of the Know-How pursuant to Clause 3.1.
5.2 The Licensee shall pay to the Licensor, in addition to the Lump Sum
Payment and in consideration of the grant of the licence and the
provision of the Services by the Licensor, as royalties:
5.2.1 Subject to Clauses 5.3 and 5.4, 7% of the net Sales Income on
sales of the Product by the Licensee; and
5.2.2 7% of the net Sales Income on sales of the Product by
Sub-Licensees.
5.3 no royalties shall be payable by the Licensee on sales or disposals of
Product by the Licensee where these Products were purchased by the
Licensee from the Licensor.
5.4 Royalties payable pursuant to Clause 5.2 shall be payable for 10 years
from the First Sale Date provided that if during that 10 year period
the Know-How ceases to be secret through no fault on the part of the
Licensee and as a result the sale price of the Products falls, the
Licensee shall be entitled to request a reduction in the royalty rate
payable and the parties shall negotiate a reduced royalty rate which is
reasonable in light of the reduced sale price.
5.5 Royalties due by the Licensee to the Licensor shall be paid in Sterling
within 60 days of the end of each Quarter in respect of sums received
by the Licensee as net Sales Income from sales by it or from its
Sub-Licensees as net Sales Income from sales by them in the preceding
Quarter. The payment of Royalties will be accompanied by the
documentation set out in Clause 6 hereof. Where Products are sold in
currency other than Sterling, the rate of exchange to be used for
converting such other currency into pounds Sterling for the purposes of
calculating Royalties and shall be the rate of exchange set out in the
London Financial Times on the last working day of the Quarter for which
the relevant Royalties are to be paid.
5.6 If any sum due by the Licensee is not paid within the time limit set
out in Clause 5.5, interest shall be payable from the last date for
payment until actual payment (both before and after judgement) at a
rate of 2% per cent per annum above the base rate of the Royal Bank of
Scotland plc from time to time together with all expenses including
legal fees which the Licensor may incur in recovering the sum
outstanding.
5.7 All sums due under this Agreement shall be made in full after deduction
of taxes, charges and other duties that may be imposed provided that
the parties agree to operate in all respects necessary to take
advantage of such double taxation agreements as may be available.
6 KEEPING OF RECORDS AND RENDERING ACCOUNTS
6.1 The Licensee shall keep true and accurate records and books of account
containing all data necessary for the calculation of the Royalties.
Such records and books of account shall be retained by the Licensee for
one year from the end of the period to which they relate.
6.2 The Licensee shall prepare a statement in respect of each Quarter which
shall show for the period in question the total net Sales Income for
the Products sold by it and by any Sub-Licensees together with details
of all sales of the Products and the Royalties due to the Licensor.
Such statement shall be submitted to the Licensor within thirty (30)
days of the end of the Quarter to which it relates. If the Licensor
shall give notice to the Licencee within thirty (30) days of the
receipt of such statement that it does not accept the statement, it
shall be certified by an independent accountant appointed by agreement
between the parties or, in default of agreement within fourteen (14)
days, by the President for the time being of the Institute of Chartered
Accountants of Scotland. In the event that such certification shows
that there is a material error in the original statement, the Licensee
shall bear the cost of such certification. In all other circumstances
the costs of such certification shall be borne by the Licensor. Within
14 days of receipt of such certification, the parties shall make such
payments to each other (if any) as may be required so that the Licensee
has paid to the Licensor in the Quarter covered by such certification,
the royalties payable as set out in such certification.
6.3 On giving reasonable notice to the Licensee, the Licensor shall have
the right to appoint independent auditors to inspect and make copies of
all the Licensee's records and books of account relating to sales of
the Product by it and by Sub-Licensees to verify royalty calculations
and payments and the Licensee shall co-operate fully to enable such
inspection to proceed. In the event that any such inspection
establishes that the Licensee has not complied with its obligations
under this clause in a material respect then the cost of the inspection
will be met by the Licensee. In all other circumstances such costs
shall be met by the Licensor.
6.4 The terms of this clause shall remain in force (notwithstanding
Agreement) until settlement of all claims.
7 PERFORMANCE
Once it has obtained necessary regulatory approval pursuant to Clause
4, the Licensee undertakes to use all reasonable endeavours to sell and
increase sales of the Products in those parts of the Territory where it
has obtained such approvals.
8 TRADE MARKS and PATENTS
8.1 During the continuance of this Agreement, the Licensee shall be
entitled to use the Trade Mark or such other mark or name as it shall
in its sole discretion determine in connection with the sale of the
Products in the Territory. The Licensee shall be entitled to seek
registration of the Trade Mark or such othermark or name as referred to
under paragraph 8.1 with all relevant Trade Mark Registries throughout
the Territory in its own name and at its own cost and expense.
8.3 The Licensee shall be entitled, at its own expense to seek patent
protection and make patent applications in respect of the Know-How or
any part thereof in the Territory or part thereof. The Licensor shall,
if requested by the Licensee, allow the Licensee to use its name in
connection with such patent applications and shall when requested by
the Licensee, sign all such documents and do all such things as may be
necessary to fully vest ownership of the patent applications or patents
granted pursuant thereto, in the Licensee. The Licensor shall have no
rights to the said patent applications or patents. The Licensor shall
lend such assistance to the Licensee as the Licensee may reasonably
request from time to time and at the Licensee's expense, in making or
pursuing such patent applications and in seeking the grant of such
patents.
9 IMPROVEMENTS
9.1 If during the term of this Agreement the Licensor or the Licensee
develops an Improvement then it shall forthwith notify the other in
writing of the Improvement and shall disclose all necessary information
to permit exploitation of the Improvement pursuant to this Agreement.
9.2 Any Improvement developed by the Licensor shall become the absolute
property of the Licensor, the Improvement shall become part of the
Intellectual Property Rights and the Licensee shall be granted a
licence of the Improvement on the terms of this Agreement.
9.3 Any Improvement developed by the Licensee shall become the absolute
property of the Licensee provided that the Licensee grants to the
Licensor a royalty free non-exclusive licence to use such Improvement
in respect of the Products.
10 CONFIDENTIALITY
10.1 Each party shall at all times only use the Restricted Information of
the other for the purposes of furfilling its obligations pursuant to
this Agreement and shall keep the Restricted Information of the other
confidential and shall not disclose it to any person other than
employees (or in the case of the Licensee, subject to clause 14, to
SubLicensees) who may require it to enable it to exercise its rights
and obligations under this Agreement. Each party shall ensure that any
such employees shall have, before disclosure, entered into a
confidentiality undertaking with it in terms no less onerous than that
set out in this Agreement.
10.2 Any Restricted Information will no longer be subject to the
confidentiality obligation under this clause to the extent only that:
10.2.1 it is at the date of this Agreement, or hereafter becomes,
public knowledge through no fault of the receiving party; or
10.2.2 it can be shown by the receiving party, to the reasonable
satisfaction of the disclosing party, to have been known to it
prior to its being disclosed; or
10.2.3 is subsequently disclosed to the receiving party without
obligation of confidence by a third party owing no such
obligations in respect thereof.
10.2.4 a party is required by law or for regulatory purposes to
disclose such Restricted Information.
11 OWNERSHIP OF INTELLECTUAL PROPERTY AND WARRANTIES
11.1 The Licensor warrants to the Licensee that:
11.1.1 it is the owner of the Intellectual Property Rights and has
full right and title to grant the licences granted to the
Licensee pursuant to this Agreement;
11.1.2 subject to the information disclosed in Part III of the
Schedule, it has not granted any licences or rights to call
for licences or charges or securities over the Intellectual
Property Rights or the Trade Mark, it has not entered into any
other agreements or arrangements which would prevent it
entering into or performing its obligations pursuant to this
Agreement and it has obtained written consent to its entering
into this Agreement from all third parties from whom it is
legally obliged (by contract, statute or otherwise) to obtain
such consent;
11.1.3 it has maintained and will maintain the Know-How (except to
the extent that it is already in the public domain or comes
into the public domain without its fault) as secret and
confidential at all times and has not disclosed and will not
disclose the Know-How to any third party except under normal
secrecy obligations or for regulatory purposes;
11.1.4 to the best of its knowledge and belief, having made due
enquiiy, the use by the Licensee of the Intellectual Property
Rights and the Trade Mark in accordance with the terms of this
licence will not infringe any third party intellectual
property rights;
11.1.5 it has received, as at the Commencement Date, no notice of any
claims by any third party that the Intellectual Property
Rights or the Trade Mark are infringing or may be infringing
that third party's rights;
11.1.6 it has received, as at the Commencement Date, no notification
of any challenge to the Trade Mark in countries in which it is
registered and not aware of any reason why the Trade Mark may
be challenged in such countries; and
11.1.7 the Know-How will be sufficient to enable the Licensee to
manufacture the Products.
The Licensor shall indemnify and keep indemnified the Licensee against
any claims, losses, costs, damages and/or expenses (including legal
expenses) made against or incurred by the Licensee as a result of any
breach by the Licensor of the warranties set out in this Clause 1 1.
12 LIABILITY AND INDEMNITY
12.1 The Licensor makes no warranty in respect of the fitness for purpose of
the Products to be manufactured using the Intellectua1 Property Rights.
All conditions, warranties, terms and undertakings express or implied,
statutory or otherwise in respect of the Products are hereby excluded.
12.2 The Licensor shall have no liability to the Licensee or any third party
in respect of any claim regarding the Products.
12.3 The Licensee shall be exclusively responsible for all Products
manufactured, distributed or sold by it and all use of the Products and
the Licensee hereby undertakes and agrees to be solely responsible at
its own cost and expense for dealing with and for any liability arising
from any contractual, delictual, tortious or other claims or
proceedings concerning the Products, their manufacture, distribution,
sale, supply or use and, in particular, product liability claims or
proceedings save where any defect has arisen due to the Licensor's
negligence and has resulted in death or personal iniury.
12.4 The obligations of the Licensee under this Clause shall survive the
termination of this Agreement for whatever reason.
13 INTELLECTUAL PROPERTY - MAINTENANCE, RENEWAL AND PROCEEDINGS
13.1 If during the continuance of this Agreement, either party receives any
notice, claim or proceedings from any third party alleging infringement
of that third party's intellectual property rights by use of the
Intellectual Property Rights or the Trade Mark pursuant to this
Agreement in the Territory, it shall forthwith notify the other party
giving details of the notice, claim or proceeding. If such notice,
claim or proceeding is made against the Licensee, the Licensee shall
make no admission of liability and shall give the Licensor the conduct
of the defence of such notice claim or proceeding. The Licensor shall
deal with such notice, claim or proceedings at its sole cost and
expense, provided that it shall seek and act in accordance with legal
advice in the jurisdiction in which the claim is made. No Royalties
shall be payable BY THE LICENSEE DURING ANY period when it is prevented
by law from using the Intellectual Property Rights or the Trade Mark
pursuant to this Agreement as a result of such notice, claim or
proceedings or the settlement or resolution of such. The Licensee shall
when requested by the Licensor give reasonable assistance to the
Licensor in connection with such notice, claim or proceedings at the
Licensor's expense.
13.2 If during the continuance of this Agreement, either party becomes aware
that a third party is infringing the Intellectual Property Rights in
the Territory, it shall advise the other. The Licensor shall seek legal
advice on action which can be taken to prevent such infringement.
13.2.1 If such legal advice confirms that legal action can be taken
and is likely to be successfull, the Licensor shall take such
action 21 days from receipt of such legal advice at its own
expense. If it fails to do so, the Licensee may take such
action and provided it acts in accordance with legal advice,
the Licensor shall indemnify the Licensee in respect of costs
and expenses incurred in such action and any damages recovered
shall be shared in an equitable manner. Except as provided in
this clause, the Licensee shall have no rights to take action
in respect of such infringement.
13.2.2 If such legal advice confirms that legal action cannot be
taken or is unlikely to be successful, the Licensor shall have
no obligation to raise proceedings against the alleged
infringer.
14 ASSIGNATION, SUBCONTRACTING AND SUBLICENSING
14.1 neither party shall be entitled to assign, charge or transfer the
rights acquired pursuant to this Agreement without the prior written
agreement of the other party, provided that:
14.1.1 the Licensee shall be entitled to sub-contract the manufacture
of the Products on giving notification to the Licensor of the
identity of the contractor; and
14.1.2 the Licensee shall be entitled to sub-licence all the rights
licensed but hereunder provided that it obtains the prior
consent of the Licensor to sub-licence which consent shall not
be unreasonably withheld or delay provided the sub-licensee is
bound by obligations similar to and no less onerous than those
undertaken by the Licensee to the Licensor hereun. The
Licensee shall provide a copy of any proposed sub-licence to
the Licensor. Unless the Licensor indicates to the contrary
within 21 days of receipt of such licence, it shall be deemed
to have consented thereto.
14.1.3 Any sub-contract or sub-licence granted pursuant to this
Clause shall terminate automatically on termination of this
Agreement.
15 TERMINATION
15.1 This Agreement may be terminated by either party forthwith by notice in
writing in the event of the other party:
15.1.1 committing a material breach of this Agreement which in the
case of breach which is capable of remedy shall not have been
remedied within 60 days of the receipt of a notice from the
other party identifiing the breach and requiring its remedy.
15.1.2 filing under Chapters 7 of the US bankruptcy laws or otherwise
entering into compulsory or voluntary liquidation or
compounding with or convening a meeting of its creditors or
having a receiver, administrator or administrative receiver
appointed over all or any substantial part of its assets or
taking or suffering any similar action in consequence of a
debt in any part of the world, or ceasing for any reason to
carry on business.
15.2 This Agreement may be terminated by the Licensor forthwith by notice in
writing in the circumstances set out in Clause 4.3, provided it has
given the Licensee 30 days notice of its intention to do so.
16 CONSEQUENCES OF TERMINATION
16.1 Upon termination of this Agreement:
16.1.1 the Licensee shall remain due to pay to the Licensor any sums
which have accrued, or which subsequently accrue, due
hereunder and shall not be entitled to reimbursement of any
such sums paid or any proportions thereof;
16.1.2 subject to payment of Royalties, the Licensee shall continue
to have the right for a period of three months from the date
of termination to perform contracts for the supply of Products
entered into before that date;
16.1.3 subject to payment of Roya1ties, the Licensee shall continue
to have the right for a period of three months from the date
of termination to perform contracts for the supply of Products
entered into before that date, subject to Clause 16.1.2 and
Clauses and 16.5, any rights accruing to the Licensee and to
the Licensor in terms of this Agreement shall lapse forthwith;
16.1.4 except if Clauses 16.5 apply, the Licensee shall forthwith
return to the Licensor or dispose of as the Licensor may
require, the Know-How and all other documents, papers and
other materials whatsoever in its custody) or control relating
to the Products or the manufacture, marketing or sale thereof
acquired by the Licensee in the course of this Agreement;
16.2 For the avoidance of doubt, upon termination of this Agreement by the
Licensor pursuant to Clause 1 5.2, the Licensor shall have no right
whatsoever to make any claim against the Licensee for damages,
compensation or otherwise.
16.3 On termination of this Agreement by the Licensor pursuant to Clause
15.1 the Licensor shall be entitled to require the Licensee by service
of notice on the Licensee within 7 days of the date of termination to
transfer to the Licensor any trade mark registrations the Licensee has
obtained for the Trade Mark for consideration equivalent to the value
of the registered trade marks as determined by an independent valuer
agreed by the parties together with the costs actually incurred by the
Licensee in obtaining the registrations.
16.4 On termination of this Agreement by the Licensee pursuant to Clause
15.1.1, the Licensor shall give and shall procure that any liquidator,
administrator, receiver or other similar official acting for or on
behalf of the Licensor shall give the Licensee first right of refusal
to obtain a worldwide licence to use the Intellectual Property Rights
to manufacture, market, distribute, use or sell the Products under the
Trade Mark in exchange for a reasonable royalty or other consideration,
taking into account sums already paid by the Licensee to the Licensor
prior to the date of termination, as may be agreed.
16.5 Such Clauses as are capable of continuing in effect following
termination of th Agreement shall continue in force in accordance with
their respective terms.
16.6 Subject as otherwise provided and to any rights and obligations which
have accrued prior to termination, neither party shall have any further
obligations to the other under this Agreement.
17 FORCE MAJEURE
17.1 If either party is affected by an event of Force Majeure it shall
forthwith notify the other party in writing of the nature and extent of
such event.
17.2 neither party shall be deemed to be in breach of this Agreement, or
otherwise be liable to the other, by reason of any delay in
performance, or non-performance, of any of its obligations hereunder to
the extent that such delay or non-performance is due to any event of
Force Majeure and the time for performance of that obligation shall be
extended accordingly provided that that party has notified the other
party and has used and continues to use reasonable endeavours to bring
the event of Force Majeure to an end and/or to minimise its effect.
17.3 notwithstanding the terms of Clause 1 7.2, if an event of Force Majeure
shall continue for a period of 3 months or more the party which is not
affected by the event of Force Majeure shall be entitled to terminate
this Agreement on service of 3 months written notice upon the other
party without penalty.
18 ILLEGALITY
In the event that any provision or term of this Agreement shall become or be
declared illegal, invalid or unenforceable for any reason whatsoever including
without limitation by reason of the provisions of any legislation or laws or by
reason of any decision of any Court or other body or authority having
jurisdiction over the party, such terms or provisions shall be divisible from
this Agreement and shall be deemed to be deleted from this Agreement in the
jurisdiction in question.
19 ENTIRE AGREEMENT/AMENDMENT/WAIVER
19.1 This Agreement embodies the entire Agreement and understanding of the
parties and supersedes all prior oral or written agreements,
understandings or arrangements relating to the subject matter of this
Agreement. neither party shall be entitled to rely on any agreement,
understanding or arrangement which is not expressly set forth in this
Agreement and each party expressly excludes any liability therefor.
19.2 This Agreement shall not be amended, modified, varied or supplemented
except in writing signed by the duly authorised representatives of the
parties.
19.3 No failure or delay on the part of either party hereto to exercise any
right or remedy under this Agreement shall be construed or operated as
a waiver thereof nor shall any single or partial exercise of any right
or remedy under this Agreement preclude the exercise of any other right
or remedy or the further exercise of such right or remedy as the case
may be.
20 PROPER LAW
A1l matters pertaining to the validity, construction and performance of
this Agreement shall be governed in accordance with the law of Scotland
and both parties agree to submit to the exclusive jurisdiction of the
Scottish courts.
21 NOTICES
Any notice required to be given under this Agreement shall be deemed to
be given if it is in writing and sent by facsimile or by registered
mail in an envelope, in either case addressed to the party to whom it
is being given, to its facsimile or to its address as shown below or to
such other facsimile or address duly notified to the other party.
If given to the Licensor to:
Nortech Forest Products Inc.
7600 West 27th Street
Suite B11
St. Louis Park, MN 55426
USA
For the attention of: Tom de Petra, C.E.O.
Facsimile number: 001 612 922 3865
If given to the Licensee, to:
MACFARLAN SMITH LIMITED
Wheatfie1d Road
Edinburgh EH11 2QA
Facsimile number: 0131 337 9813
For the attention of: The Managing Director
All notices shall be deemed to have been received, if given by facsimile on the
day of despatch provided that a confirmation of facsimile is available and, if
given by mail, two (2) days after despatch.
IN WITNESS WHEREOF these presents and the preceding 21 pages together with the
Schedule in 3 parts hereto have been executed as follows:
SUBSCRIBED on behalf of
MACFARLAN SMITH LIMITED at
on
by
and
SUBSCRIBED on behalf of NORTECH FOREST TECHNOLOGIES INC.
On
by
and
SCHEDULE
PART 1
KNOW HOW
1. Details of the formulation of the Product.
2. Details of the manufacturing process for the Product.
3. Details of the ingredients of the Product, including their specification
and their supphers.
4. All stability information.
5. Details of in-process tests.
6. Details of all validated assay procedures.
7. Details of analytical reference standards.
8. Copies of all regulatory packages submitted anywhere in the world relating
to the Products.
9. Details of all experimental protocols relating to the Products and data and
reports on those experiments (except if any such data or reports were
produced by the Licensee).
10. Copies of all correspondence with the regulatory authorities throughout the
world relating to registration of the Product.
SCHEDULE
PART II
THE PRODUCT
The Product "Tree Guard" is the product with EPA Registration number 66676-1 and
is more particularly described in that EPA Registration. In general terms, it is
a premixed, ready to use animal repellant that sprays on milky and clear dries
and contains Bitrex as the active ingredient.
SCHEDULE
PART III
DISCLOSURES
AAM/FMA/@F233903
S U P P L Y A G R E E M E N T
Between
MACFARLAN SMITH LIMITED
and
NORTECH FOREST TECHNOLOGIES INC.
McGrigor Donald
Solicitors
Erskine House
68-73 QueeN Street
EdiNburgh EH2 4NF
FMA:NORTECH- 1.AGR
SUPPLY AGREEMENT
Between
MACFARLAN SMITH LIMITED, a
limited liability company registered in
Scotland under number 35640 whose
registered office is at Wheatfield Road,
Edinburgh EH11 2QA, Scotland ("MS")
and
NORTECH FOREST TECHNOLOGIES
INC., incorporated under the laws of the
State of Delaware and having its office at
7600 West 27th Street, Suite B11, St. Louis Park, MN 55426, U.S.A. ("NFT")
WHEREAS:
(A)MS manufactures and sells the substance Denatonium Benzoate, which it sells
under the trade mark "Bitrex". (B)NFT wishes to purchase supplies of Bitrex and
may use MS' trade mark. (C)MS has agreed to supply NFT, to grant NFT a licence
to use its trade mark, if requested, and to give NFT support with registration,
if requested, upon the terms and conditions set out in this Agreement.
NOW IT IS HEREBY AGREED:-
1.Definitions .
1.1 In this Agreement unless the context otherwise requires the following
expressions shall have the meanings set opposite them below: "the Commencement
Date"the last date of execution of this Agreement; "Delivery" delivery of the
Product by MS or its representatives to NFT in accordance with Clause 5;
"Force Majeure
means, in relation to either party, any circumstances beyond the reasonable
control of that party including, without limitation to the generality of the
foregoing, any industrial action including strike, lockout or boycott (except
for the workforce of that party), national emergency, war or prohibitive
government regulations, act of god, flood, fire, earthquake or natural disaster,
imposition of judgment order, sanction or embargo;
"Intellectual Property Rights"
any patent, registered design or application for any of the same or any
copyright, design right or Know-How owned by or licensed to MS and arising
anywhere in the world whether existing now or in the future in the Product, but
excluding, for the avoidance of doubt, any intellectual property rights of NFT
in products into which the Products are incorporated;
"Know-How"
means all unpatented drawings, designs, specifications, data, processes,
procedures, techniques and any other relevant information which is secret,
substantial and recorded;
"Order"
an order for the Product placed by NFT with MS in accordance with Clause 3;
"the Price"
the price of the Product determined in accordance with Clause 6;
"Product "
Denatonium Benzoate NF Grade 99.5% minimum, as set out in the specification
forming Part III of the Schedule,
"the Trade Marks"
the trade marks short particulars of which are set out in Part I of the
Schedule;
"the Trade Mark Licence"
a trade mark licence on substantially the terms of the licence forming Part II
of the Schedule signed by both parties;
"the Term"
the period of 5 Years commencing on the Commencement Date;
"the Territory"
Canada and the United States of America;
"the US Representative"
MS' representative in the United States of America from time to time, as advised
to NFT;
"USD"
United States Dollars;
"a Year"
the twelve month period commencing on the Commencement Date and each subsequent
period of 12 months commencing on each anniversary of the Commencement Date
during the continuance of this Agreement.
1.2 In this Agreement headings to clauses are inserted for convenience only and
shall not affect the interpretation of the clauses or this Agreement.
1.3 References in this Agreement to Clauses and SCHEDULES ARE TO CLAUSES OF OR
SCHEDULES to this Agreement.
2. Term
This Agreement shall come into force on the Commencement Date and, subject to
earlier termination in accordance with its terms, shall continue in force for
the Term.
3. Supply
3.1 NFT agrees to purchase and MS agrees to supply the Product all on the terms
and conditions of this Agreement.
3.2 NFT shall place Orders from time to time with MS or with the US
Representative for the supply of the Product.
3.3 NFT shall be responsible, in respect of each Order, for specifying:
3.3.1 the quantity of Product to be supplied; and
3.3.2 subject to Clause 3.4, the requested delivery date.
3 4 NFT shall place its Orders for the Product a minimum of two months in
advance of the requested delivery date.
3.5 Upon receipt of each Order, MS shall, as soon as is reasonably practicable,
acknowledge receipt of the Order and inform NFT of the estimated delivery date.
NFT acknowledges that MS may deliver the Product to it through the US
Representative. MS shall use all reasonable endeavours to meet and to have the
US Representative meet the estimated delivery date, but time shall not be of the
essence. Accordingly MS shall have no liability to NFT if, notwithstanding such
endeavours, there is any delay, nor shall NFT be entitled to cancel an Order or
refuse to accept delivery of the Product because of such delay unless such delay
makes the transaction commercially unviable for NFT.
3.6 The terms of this Agreement and MS' Standard Terms and Conditions of Sale
in force from time to time shall apply to all supplies of the Product by MS to
NFT, to the exclusion of any terms and conditions of NFT's. A copy of MS'
current Standard Terms and Conditions of Sale have been supplied to NFT. In the
event of there being any inconsistency between the provisions of this Agreement
and MS' Standard Terms and Conditions of Sale, the terms of this Agreement shall
prevail.
3.7 Each Order shall be deemed to be a separate order to which this Agreement
shall apply. Failure by MS to comply with an Order shall not give NFT the right
to hold MS in breach of this Agreement or terminate this Agreement.
4. FORECASTS OF DEMAND
NFT shall supply to MS, in respect of each Year during the continuance of this
Agreement, a written forecast of its likely requirement for the Product in that
Year. The said forecast shall be provided to MS by 1st December in the Year
preceding the Year to which it relates.
5. DELIVERY
MS shall arrange for delivery of the Product to Minneapolis. The Price includes
the cost of delivery and insurance for delivery.
6. PRICE
The price to be paid for the Product by NFT shall be USD (Confidential Treatment
Requested) per kilo of Product or such other price as may be agreed between the
parties in writing, taking into account changes in market conditions, price of
raw materials, manufacturing or other costs and duties or taxes.
7. PAYMENT
7.1 NFT shall pay the Price for each consignment of the Product within 30 days
of
7.2 All payments for the Product shall be made without set off or counterclaim
and free of all withholdings and charges.
7.3 Payment (Confidential Treatment Requested)
7.4 If NFT fails to pay the Price in accordance with this Clause 7, MS shall be
entitled at its option (without prejudice to any other right or remedy it may
have):
7.4.1 to cancel or suspend any further delivery of Product to NFT under any
Order which is outstanding and unfulfilled at such date; and
7.4.2 to charge NFT interest on the outstanding Price at the rate of 2 per cent
above the base rate from time to time of the Bank of Scotland, from the date the
payment became due until actual payment is made, as well after as before decree
or judgment.
8. RISK AND TITLE
8.1 Risk in the Product shall pass to NFT on Delivery, unless NFT is unwilling
or unable to take delivery of the Product within 21 days of being notified in
writing by MS that it is ready for Delivery in which case risk shall pass to NFT
at the conclusion of the said 21 day period.
8.2 Title in the Product shall not pass to NFT until payment in full for the
Product is received by MS.
9.NFT'S OBLIGATIONS
9.1 Subject to Clause 9.2, NFT shall purchase from MS during the Term its total
requirement of Denatonium Benzoate. If NFT places any orders or purchases any
Denatonium Benzoate from any third party during the Term, except during any
period when MS is affected by an event of Force Majeure notified under Clause
15, or in the circumstances set out in Clause 9.2 or with the prior written
consent of MS, NFT shall be deemed to be in material breach of this Agreement.
9.2 NFT shall be entitled to purchase Denatonium Benzoate from a third party if
there is unreasonable delay, as determined by historic delivery times, by MSL in
the supply of Products to NFT.
10.Registration Review
1 0. 1 MS shall maintain the registration of the Product as a pesticide
throughout the Territory. In consideration of NFT's agreement to purchase the
Product on the terms and conditions of this Agreement, MS agrees that, if during
the Term, the relevant regulatory authorities in the United States of America
should review the whole or any part of the registration of the Product as a
pesticide in the United States of America or part thereof, it shall be
responsible for the costs incurred by NFT in conducting such review subject to
the following:
1 0.1.1 NFT shall immediately notify MS when it becomes aware that such review
is to take place and shall advise MS of the nature of the review;
10.1.2 NFT shall, in conducting such review, act in accordance with guidance and
directions given by MS and without limitation to the foregoing generality, if
particular information is sought by the relevant regulatory authorities shall
seek guidance from MS as to whether it can provide such information or whether
it should seek such information itself;
10.1.3 NFT shall obtain MS's prior written consent to any items of expenditure
incurred in the course of such review; and
10.1.4 NFT shall submit invoices to MS at such times as may be agreed between
the parties.
10.2 MS liability under Clause 10.1 shall be limited to a maximum of 600000
USD. The said sum shall include all sums spent by MS prior to the Commencement
Date in connection with registration of the Product in the United States of
America and Canada.
10.3 Subject to NFT complying with the terms of Clause 10. 1 and subject to the
limit set out in clause 10.2, MSL shall pay invoices submitted by NFT under
Clause 10. 1 .4 within 30 days of receipt.
11. Warranty
11.1 Subject to the provisions of this Agreement, if any Product is found by NFT
not to conform with MS standard written specification, NFT shall notify MS of
such defect within 30 days of Delivery and MS shall replace such Product or
refund the Price of the Product, provided that MS is satisfied as to the
existence of the defect and that it was defective at the time of Delivery.
Provided MS complies with the provisions of this clause 11. 1 MS shall have no
further liability to NFT whatsoever (except for death or personal injury caused
by its negligence for which there is no limit of liability) in respect of
defects or failures of the Products, including, without prejudice to the
generality of the foregoing, any liability for indirect or consequential loss or
loss of profits.
11.2 If NFT does not notify MS within the said period set out in clause 1 1 . 1,
it will have no right to make any claim against MS in respect.of the Products.
11.3 Save as provided in this clause, all conditions, representations and
warranties express or implied and whether under contract, delict or statute or
otherwise (and insofar as permitted under the Unfair Contract Terms Act 1977 as
amended or replaced from time to time) relating to the performance, quality or
standard of the Products are hereby excluded.
12. Indemnity
12.1 NFT shall indemnify MS against all claims, suits, actions and proceedings
against it by third parties and against all damage, loss, costs and expenses
suffered by it as a result including without prejudice to the foregoing
generality product liability claims, arising out of, based on or related to
products produced or sold by NFT incorporating the Product, their manufacture,
distribution, sale or supply except to the extent that such claims, suits,
actions, proceedings, damages, loss, costs or expenses are in respect of death
or personal injury and have been caused by MS' negligence, or relate solely to
the Product itself.
12.2 NFT shall maintain both before and after the termination of this Agreement
adequate public liability and product liability insurance cover for at least USD
2,000,000 for each and every claim with a reliable insurance company to be
approved in writing by MS and NFT shall provide evidence of such insurance cover
to MS within 7 days of a request from MS for such written evidence.
12.3 The obligations under this Clause 12 shall continue in force for two years
after the termination of this Agreement.
13.INTELLECTUAL PROPERTY RIGHTS
All Intellectual Property Rights are and shall remain vested in MS and NFT shall
have no rights to the Intellectual Property Rights whatsoever.
14. ASSIGNATION AND SUB-CONTRACTING
Neither party shall assign, charge or otherwise dispose of its rights or
obligations under this Agreement or sub-contract any of its obligations under it
without the other party's prior written consent.
15. FORCE MAJEURE
15.1 If either party is affected by an event of Force Majeure it shall forthwith
notify the other party of the nature and extent thereof.
15.2 Neither party shall be deemed to be in breach of this Agreement, or
otherwise be liable to the other, by reason of any delay in performance, or
non-performance, of any of its obligations hereunder to the extent that such
delay or non-performance is due to any Force Majeure of which it has notified
the other party; and the time for performance of that obligation shall be
extended accordingly, provided that party takes all reasonable steps available
to it to bring the event of Force Majeure to an end and/or to minimise its
effect.
15.3 If the event of Force Majeure in question prevails for a continuous period
in excess of six months, the parties shall enter into BONA FIDE discussions with
a view to alleviating its effects, or to agreeing upon such alternative
arrangements as may be fair and reasonable. If no agreement can be reached in
one calender month after discussions have commenced, the party not affected by
the event of Force Majeure may terminate the Agreement by written notice to the
other party without penalty.
16. TRADE MARK LICENCE
1 6.1 As soon as reasonably practicable after signature of this Agreement and at
NFT's request, the parties shall forthwith complete and sign a trade mark
licence for the Territory in substantially the form of the licence set out in
Part II of the Schedule.
16.2 NFT shall make no use of the name "Bitrex" or any similar name or any name
or phrase incorporating "Bitrex" whatsoever except in accordance with and on the
terms set out in and after signature of the trade mark licence pursuant to
Clause 1 6. 1 .
17 TERMINATION
17.1 MS shall be entitled to terminate any Order or this Agreement forthwith if
NFT fails to make any payment to MS pursuant to an Order or the terms of this
Agreement upon the due date for payment.
17.2 Without prejudice to the terms of Clause 17.1, either party shall be
entitled forthwith to terminate this Agreement by written notice to the other
if:
17.2.1 that other party commits any material breach of any of the provisions of
this Agreement and, in the case of a breach capable of remedy, fails to remedy
the same within twenty one days after receipt of a written notice giving full
particulars of the breach and requiring it to be remedied;
17.2.2 an encumbrancer takes possession or an administrator, receiver,
administrative receiver, supervisor or similar official is appointed property or
assets or a substantial part thereof of that other part,
17.2.3 that other party makes any voluntary arrangement with its creditors or
becomes subject to an administration order or becomes or is declared bankrupt;
1 7.2.4 that other party goes into liquidation (except for the purpose of
amalgamation or reconstruction and in such manner that the solvent company
resulting therefrom effectively agrees to be bound by or assume the obligations
imposed on that other party under this Agreement);
17.2.5 that other party ceases to carry on business; or
17.2.6 that other party is affected by any event similar or analogous to any of
the events set out in Clauses 17.2.2, 17.2.3 and 17.2.4 in any part of the
world.
17.3 The rights to terminate this Agreement given by this Clause shall be
without prejudice to any other right or remedy of either party in respect of the
breach concerned (if any) or any other breach.
18 EFFECT OF TERMINATION
18.1 Upon termination of this Agreement at the end of the Term, NFT shall be
entitled to complete the purchase of Products for which it has placed Orders
with MS prior to the date of termination, and for that purpose and to that
extent, the provisions of this Agreement shall continue in full force and
effect.
18.2 Upon the termination of this Agreement, except as provided in Clause 18.1,
NFT shall be obliged to complete the purchase of Product for which it has placed
an Order with MS prior to the date of termination, if MS notifies it within 7
days of termination that it wishes to proceed with such supply. If no such
notification is given, no further supply shall be made. If such supply proceeds,
for that purpose and to that extent, the provisions of this Agreement shall
continue in full force and effect.
18.3 Upon the termination of this Agreement, NFT shall remain liable to pay to
MS all sums due at the date of termination together with all sums which become
due uncle Clauses 18.1 and 18.2.
18.4 notwithstanding termination, the provisions of Clauses 11 and 12 shall
continue in force in accordance with their respective terms.
18.5 Subject as otherwise provided herein and to any rights or obligations which
have accrued prior to termination, neither party shall have any further
obligation to the other under this Agreement.
19 ENTIRE AGREEMENT/AMENDMENT/WAIVER
19.1 This Agreement and the Trade Mark Licence embody the entire Agreement and
understanding of the parties relating to the subject matter thereof and
supersede all prior oral or written agreements, understandings or arrangements
relating to the subject matter. neither party shall be entitled to rely on any
representation, warranty agreement, understanding or arrangement relating to the
subject matter of this Agreement which is not expressly set forth in this
Agreement and each party expressly excludes any liability therefor.
19.2 This Agreement shall not be amended, modified, varied or supplemented
except in writing signed by the duly authorised representatives of the parties.
19.3 No failure or delay on the part of either party hereto to exercise any
right or remedy under this Agreement shall be construed or operated as a waiver
thereof nor shall any single or partial exercise of any right or remedy under
this Agreement preclude the exercise of any other right or remedy or the further
exercise of such right or remedy as the case may be.
20 PROPER LAW
This Agreement shall be governed by and construed in accordance with the laws of
Scotland and the parties hereby submit to the exclusive jurisdiction of the
Scottish Courts.
21 NOTICES
21.1 Any notice, communication or demand to be given or made under this
Agreement shall be made in writing by facsimile transmission or by first class
registered delivery mail to the following numbers and addresses:
21.1.1 In the case of MS to:
Wheatfield Road
Edinburgh EH11 2QA
For the attention of the Managing Director;
Facsimile number 0131 337 9813
21. 1.2 In the case of NFT to:
7600 West 27th Street Suite B11 St. Louis Park Mn 55426, U.S.A.
For the attention of the Tom de Petra, C.E.O;
Facsimile Number 001 612 922 3865
or to such other address or facsimile as may be notified by one party to the
other from time to time.
21.2 Any notice if sent by facsimile shall be deemed to have been received on
the date of transmission, subject to availability of a facsimile confirmation
sheet and if sent by registered delivery mail shall be deemed to have been
received 7 days after posting.
22 SEVERABILITY
In the event that any provision or term of this Agreement shall become or be
declared illegal, invalid or unenforceable for any reason whatsoever including
without limitation by reason of the provisions of any legislation or laws or by
reason of any decision of any Court or other body or authority having
jurisdiction over the party such terms or provisions shall be divisible from
this Agreement and shall be deemed to be deleted from this Agreement in the
jurisdiction in question provided always that if any such deletion substantially
affects or alters the commercial basis of this Agreement either party shall have
the right to terminate this Agreement upon giving 30 days written notice of such
termination to the other party.
IN WITNESS WHEREOF these presents consisting of this and the 13 preceding pages
and the Schedule in 3 parts are executed as follows:
SUBSCRIBED for and on behalf of MACFARLAN SMITH LIMITED
at
on the
day of
SIGNED for and on behalf of NORTECH FOREST TECHNOLOGIES INC.
at
Director
/Director/Secretary
S C H E D U L E to Supply Agreement
PART I
Trade Marks
Trade Mark
A USA Registration Application Renewal
Number Date Date
Bitrex (word)738448 2/10/62 2/10/02
Contains Bitrex (logo)1751753 4/12/90 9/2/03
B.Canada
Bitrex (word)1 19348 25/6/59 2/9/05
Contient/contains773457
Bitrex (logo)(application pending) 19/1/95
S C H E D U L E
TO SUPPLY AGREEMENT
PART II
TRADE MARK LICENCE
TRADE MARK LICENCE AGREEMENT
Between
MACFARLAN SMITH LIMITED of Wheatfield Road, Edinburgh EH11 2QA, Scotland
(hereinafter referred to as "MS")
and
NORTECH FOREST TECHNOLOGIES INC., incorporated under the laws of the State of
Delaware and having its office at 7600 West 27th Street, Suite B11 , St. Louis
Park, Mn 55426, U.S.A. (hereinafter referred to as "the Licensee").
WHEREAS:
(A) MS manufactures and sells the substance Denatonium Benzoate and is the owner
of the trade mark "Bitrex" (with which the said substance is associated).
(B) The Licensee wishes to incorporate Denatonium Benzoate in Products (as
hereinafter defined) for sale in the Territory (as hereinafier defined) and to
use the said trade marks in association with the sale of Products.
(C) MS and the Licensee have entered into a Supply Agreement for the supply of
the said substance.
(D) MS is willing to grant a licence to
the Licensee to use the said trade mark in
connection with the Product, in the Territory on the following terms and
conditions.
NOW IT IS HEREBY AGREED as follows:
1.DEFINITIONS
1.1 In this Agreement the following expressions shall have the following
meanings unless otherwise expressly provided or unless the context otherwise
requires:
"Commencement Date" shall mean [].
"the Substance"
shall mean Denatonium Benzoate.
"NFT Products"
shall mean preparations containing the Substance falling within the categories
specified in Part A of the Schedule and such additional categories as the
parties hereto may mutually agree in writing from time to time;
"Force Majeure"
shall mean requisition or interference by any Government or local authority,
war, strike, lock- out, riot, epidemic disease, Act of God, inevitable accident
or any other circumstances whatsoever, whether EIUSDEM GENERIS to the above
causes or not, over which MS or the Licensee (as the case may be) shall have no
control;
"the Supply Agreement"
shall mean the Supply Agreement between MS and NFT dated of even date herewith
relating to the supply of the Substance.
"Territory"
shall mean the countries listed in part B of the Schedule hereto and such
additional countries as the parties hereto may mutually agree in writing from
time to time; and
"Trade Marks"
shall mean the trade mark "Bitrex" details of the registrations of which are set
forth in Part C of the Schedule;
1.2 Where used in this Agreement the singular shall include the plural and vice
versa.
2. GRANT
2.1 In consideration of the Licensee purchasing from MS the Licensee's entire
requirement of the Substance on the terms and conditions of the Supply Agreement
MS hereby grants to the Licensee a licence to use the Trade Marks in the
Territory in relation to the sale of NFT Products containing only Substance
purchased from MS pursuant to the Supply Agreement. Such licence to use the
Trade Marks shall not extend to any NFT Products which contain Substance not so
purchased from MS.
2.2 The Licence granted hereunder shall be non-exclusive, non-divisible,
non-transferable and non-sub-licensable.
3. QUALITY
3.1 The Licensee hereby warrants that any NFT Products that it sells (or are
sold on its behalf) under or by reference to the Trade Marks shall -
(i) only incorporate Substance which has been purchased directly from MS;
(ii) contain at least such quantity of the Substance as MS has previously
notified to the Licensee as being the minimum required to render NFT Products
sufficiently bitter to help to prevent accidental ingestion; and (iii) shall
retain the degree of "sufficient bitterness" referred to in clause 3.1 (ii)
throughout their normal shelf-life.
3.2
The Licensee shall when reasonably requested so to do by MS [which request shall
not normally be made more than once during any period of twelve (12) months]
submit to MS for inspection samples of NFT Products to be sold by or for the
Licensee under or by reference to the Trade Marks and such other evidence of
quality standards as MS may reasonably stipulate.
USE OF TRADE MARKS
The Licensee shall at MS' request join with MS in making application to have the
trade mark licence granted hereunder registered in any country of the Territory
with the appropriate authorities and shall do such further acts and things and
sign such further documents as may be requested by MS in order to register the
said trade mark Licence.
4.2 The Licensee acknowledges MS as owner of the Trade Marks and agrees that it
will do nothing inconsistent with such ownership and that all use of the Trade
Marks by the Licensee shall inure to the benefit of MS. The Licensee agrees that
nothing in this Agreement shall give the Licensee any right, title or interest
in the Trade Marks other than the right to use the Trade Marks in accordance
with this Agreement.
4.3 In making use of the Trade Marks in the promotion or sale of any NFT
Products, the Licensee shall meet and satisfy the labelling and other relevant
laws of the Territory in respect of such use and shall indicate to MS'
satisfaction (which shall be expressed in writing to the Licensee) that the
Trade Marks are trade marks.
4.4 The Licensee undertakes to provide MS with a copy of the artwork that it
intends to use as a basis for the labelling or packaging of each category of NFT
Products that will bear a Trade Mark. MS shall indicate within thirty (30) days
after receipt of such artwork whether or not it is satisfied that the Trade Mark
will be displayed in a manner that is acceptable to MS. The Licensee shall not
utilise any labelling or packaging based on the said artwork until such
acceptance has been conveyed by MS. A failure by MS to respond to the Licensee
by the expiration of the thirty (30) day period aforesaid shall be deemed to
constitute acceptance. Subsequent to MS' acceptance of the original artwork
aforesaid the Licensee shall only be required to submit modifications of that
artwork to MS for approval if such modifications will affect the manner or form
in which the Trade Marks are displayed on labels or packages of NFT Products.
4.5 The Licensee shall at all times and in all circumstances refrain from taking
any action, directly or indirectly, which may endanger, destroy or adversely
affect the validity of the Trade Marks and/or MS' proprietorship thereof.
4.6 If the Licensee learns of or suspects any infringement of MS' and/or the
Licensee's rights upon or derived from the Trade Marks, the Licensee shall
immediately communicate to MS all the details and information available to the
Licensee in resp thereof. The Licensee will not under any circumstances, unless
with the written prior approval of MS, initiate any action against any alleged
infringer of the Trade Marks Any and all actions in this regard shall be taken
by MS at its own cost and expense unless MS expressly authorises the Licensee
otherwise.
5. DURATION
Subject to the provisions of Clause 6 hereof this Agreement shall commence on
the Commencement Date and shall remain in force thereafter unless and until
terminated by either party giving the other six (6) months' notice in writing.
6. TERMINATION
6.1 In addition to any rights to terminate this Agreement provided elsewhere in
this Agreement either party shall be entitled to terminate this Agreement
forthwith on, written notice to the other in the following circumstances:
(i) the other party becomes insolvent or goes into liquidation (other than a
voluntary liquidation for the purpose of amalgamation or reconstruction) or
enters into any arrangement or composition with creditors or has a receiver,
administrative receiver or administrator appointed over the whole or a
substantial part of its assets or takes or suffers any similar or analogous
action in consequence of a debt in any part of the world; or
(ii) if the other party shall commit or allow to be committed (other than by
reason of Force Majeure) a breach of any of the provisions on its part to be
observed, PROVIDED HOWEVER that, in the case of a breach capable of being made
good, the other party has failed to make good the said breach within thirty (30)
days after the a notice shall have been given, specifying the breach and
requiring its remedy.
6.2 This Agreement automatically shall terminate on termination of the Supply
Agreement.
7. CONSEQUENCES OF TERMINATION
On termination of this Agreement the Licensee shall cease all use whatsoever of
the Trade Marks except in relation to any NFT Products in which it incorporates
the Substance purchased pursuant to the Supply Agreement.
8. CANCELLATION
Upon termination of this Agreement the Licensee shall join with MS in any
application which may be necessary to cancel the registration of the Licensee as
the Licensee in the Territory for the Trade Marks.
9. DENIAL OF RIGHTS
Nothing herein contained shall be interpreted as granting or be deemed to grant
the Licensee any right or title to the Trade Marks or any licence to use the
Trade Marks outside the Territory.
10. ON-WAIVER OF RIGHTS
The failure on the part of MS or the Licensee to exercise or enforce any rights
conferred upon it hereunder shall not be deemed to be a waiver of any such
rights or operate to bar the exercise or enforcement thereof at any time or
times thereafter.
TRANSFER OF RIGHTS
The Licensee shall not assign, transfer, mortgage, charge or part with any of
its rights or obligations under this Agreement without the previous written
consent of MS PROVIDED THAT in the event that any products bearing the Trade
Marks shall be manufactured or distributed for the Licensee by independent third
parties the authority given to the Licensee hereunder to apply the Trade Marks
to labels and packages of Products and to sell Products under the Trade Marks
shall be deemed to extend to such third parties on condition that the Licensee
shall remain fully liable and accountable to MS for any activities of such third
parties that may affect the Trade Marks.
NOTICES
Any notice or consent required to be given by either party hereunder shall be by
certified mail, return, receipt requested, to the party for whom it is intended
at the address set forth in the preamble to this Agreement or at such other
address as such party may designate in writing.
13. FORCE MAJEURE
If either party is unable to perform any of its obligations under this Agreement
by reason of Force Majeure such obligations shall be excused to the extent and
for the period required by such Force Majeure.
14. MINISTERIAL APPROVALS
This Agreement is conditional upon all Ministerial and any other approvals or
consents necessary in the Territory being obtained within a period of six (6)
months of the date of this Agreement.]
15. AMENDMENT
No amendment or variation of this Agreement shall be effective unless it is
contained in a written document duly executed on behalf of the parties hereto.
16. APPLICABLE LAW
The construction, validity and performance of this Agreement shall be governed
in all respects by the laws of Scotland and the parties prorogate the exclusive
jurisdiction of the Scottish courts.
IN WITNESS WHEREOF these presents consisting of this the Schedules attached
hereto are executed as follows:
SIGNED for and on behalf of MACFARLAN SMITH LIMITED
at
on the day of 1996
by
and
SIGNED for and on behalf of NORTECH FOREST
TECHNOLOGIES INC
and the preceding six pages and
Director
Director/Secretary
S C H E D U L E
TO TRADE MARK LICENCE
PART A
Products
The above term as used in the Agreement shall [as recorded in sub-clause 1(a)
hereof] denote preparations falling within the following categories:
INVESTMENT AGREEMENT
October 9, 1996
Investment in Nortech Forest Technologies, Inc.
The undersigned Investor hereby agrees to purchase an investment unit in Nortech
Forest Technologies, Inc. 7600 West 27th Street, St. Louis Park, Minnesota 55426
("Nortech" or "Company") and to purchase shares from an Existing Shareholder on
the following terms.
<TABLE>
<CAPTION>
<S> <C>
Investment unit consisting of Purchase unit consisting of 284,615 newly issued
shares and warrants common shares of Nortech at $1.30 per share, plus
a three-year warrant to purchase 100,000 common
shares at $1.30 per share. Price for unit: $340,000.
Purchase from Existing Shareholder: Purchase 250,000 common shares from an
Existing Shareholder at $0.01 per share. Price
$2,500. Clean tradable 2-3 days.
Shares outstanding: Nortech represents that as of the date hereof, the
total number of common shares outstanding is
1,065,375.
Convertible notes: Convertible note holders with $190,000
outstanding agree to convert those notes at $1.30
per share for a total of 146,154 shares.
Other shareholder debt: David Clinton, shareholder and former director,
extends his $150,000 note for six months, or until
an additional $500,000 of new equity is obtained
by Nortech.
Registration rights: Nortech agrees to give Investor demand
registration rights upon 90 days notice.
Use of funds: Working capital and operating expenses to
support the Company's growth following the
summary of Use of Funds provided.
Board representation and Nortech agrees that the Investor will have the
inspection rights right to designate one individual to serve on the
Board of Directors. Investor shall have the right
to inspect the Company's premises at times
convenient to both parties and will receive
monthly financial statements, usually prepared by
the Company.
Closing date: The Investor is prepared to make the investment
pursuant to this Agreement on or before noon of
Monday, October 14, 1996.
</TABLE>
The terms of this Agreement shall remain confidential except to Nortech's
directors, officers and advisors. The terms hereof shall be interpreted
according to the laws of the State of Minnesota.
AGREED AND ACCEPTED
NORTECH FOREST TECHNOLOGIES, INC. INVESTOR
By Signature
-------------------------------------- -------------------------
Thomas de Petra, Chief Executive Officer
Name
Printed Richard Neslund
---------------------------
Date: October 10, 1996 Date 10/10/96
---------------- ------------------------------
EXISTING SHAREHOLDER
- -----------------------------------------
Name printed Robert H. Gilbertson
---------------------------
Date 10/10/96
------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 34,578
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 36,949
<CURRENT-ASSETS> 76,455
<PP&E> 78,155
<DEPRECIATION> 37,750
<TOTAL-ASSETS> 158,560
<CURRENT-LIABILITIES> 126,714
<BONDS> 0
0
0
<COMMON> 16,024
<OTHER-SE> 31,846
<TOTAL-LIABILITY-AND-EQUITY> 158,560
<SALES> 205,154
<TOTAL-REVENUES> 205,154
<CGS> 83,841
<TOTAL-COSTS> 228,861
<OTHER-EXPENSES> 291,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,101
<INCOME-PRETAX> (163,795)
<INCOME-TAX> 0
<INCOME-CONTINUING> (163,795)
<DISCONTINUED> 0
<EXTRAORDINARY> 192,116
<CHANGES> 0
<NET-INCOME> (163,795)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
