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 (FEE REQUIRED)
For the fiscal year ended: April 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number: 0-22736
ENVIRONMENTAL TECHNOLOGIES USA, INC.
(Name of the small business issuer in its charter)
MINNESOTA 41-1704709
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
325 Cedar Avenue South
Minneapolis, Minnesota 55454
(Address of principal executive offices)
The Issuer's telephone number,
including area code: (612) 371-2018
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value
Check whether the Company (1) 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 Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of the Company's knowledge, in the definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The Company's revenues for the fiscal year ended April 30, 1996 were
$1,873,725.
As of July 26, 1996, 23,404,882 shares of Common Stock of the Company
were outstanding, and the aggregate market value of the Common Stock of the
Company as of that date (based upon the last reported sale price of the Common
Stock at that date by the Nasdaq System), excluding outstanding shares
beneficially owned by directors and officers, was approximately $5,674,683. The
Company effected a 1 for 10 reverse stock split effective August 5, 1996.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
PART I
This Form 10-KSB contains certain forward-looking statements. For this purpose,
any statements contained in this Form 10-KSB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
and actual results may differ materially depending on a variety of factors,
including those set forth in the section below entitled "Certain Important
Factors."
ITEM 1. BUSINESS
GENERAL
Environmental Technologies USA, Inc. ("ETI" or the "Company") is a
holding company that acquires innovative technologies for the purpose of
developing, manufacturing, marketing and distributing environmentally friendly
products and services. The Company's two main subsidiaries are engaged in
developing, manufacturing, marketing and distributing degradable and recycled
products. Through these two subsidiaries, the Company currently owns or holds
licenses to eight patents relating to its proprietary technologies.
Through its United Recycling, Inc. ("URI") subsidiary, a development
stage company founded in February 1990 and acquired by the Company in April
1992, the Company is developing and refining proprietary recycling processes for
the conversion of post-consumer (used) carpeting into fibers and resins suitable
for injection molding or extrusion into a wide variety of products or for use as
a feedstock for the non-woven fabrics industry. The Company owns 100% of the
currently outstanding common stock of URI. Fluor Daniel, Inc., a global
engineering, construction and diversified services company ("Fluor Daniel"), has
entered into a strategic relationship with URI and owns 125,000 shares of URI's
Series A Preferred Stock (the "URI Preferred Stock"), which is convertible into
an equal number of shares of URI's common stock.
Through its Clean Green Packing Company of Minnesota, Inc. ("CGP")
subsidiary, founded in January 1991 and acquired by the Company in November
1992, the Company is developing, manufacturing, marketing and distributing,
directly and through distributors in 10 states, an environmentally safe,
degradable, starch-based, foam loose-fill packing material that degrades on
direct contact with water and is a substitute for expanded polystyrene
loose-fill packing peanuts and other cushioning materials.
ETI has been investigating various alternatives for raising capital.
One such alternative is the potential sale of substantially all of the assets of
CGP. Although ETI has entered into negotiations regarding the sale of
substantially all of the assets of CGP, no definitive agreement has been reached
at this time, and there can be no assurance that such an agreement will be
reached. Approximately 75% of the Company's net sales in 1996 were attributable
to CGP. See Note 4 of Notes to Consolidated Financial Statements.
ETI was incorporated in Minnesota in September 1991. ETI's executive
offices are located at 325 Cedar Avenue South, Minneapolis, Minnesota 55454, and
its telephone number is (612) 371-2018.
INDUSTRY BACKGROUND AND MARKETS
UNITED RECYCLING. The Carpet and Rug Institute has estimated that over
3.5 billion pounds of carpet in the United States this year will be deemed to
have reached the end of its useful life and will be removed from residences,
office buildings and other locations. In addition, another several hundred
million pounds of carpet waste will be left over this year from the carpet
manufacturing process. This used carpet and carpet waste, which is estimated
to comprise 1% of the municipal solid waste stream by weight and almost 2% by
volume, will be disposed of primarily in landfills, with a smaller portion going
to incinerators.
Carpet fibers are comprised primarily of nylon, polypropylene,
polyester and other synthetic polymers that do not degrade. Carpet is therefore
an undesirable element in most landfills and has been categorized as a problem
waste material by many states. Legislation regulating or prohibiting the
disposal of used carpet in landfills is under discussion by federal, state and
local governments. At the same time, the polymers that comprise a significant
portion of used carpet are potentially valuable. This is particularly true of
nylon which, depending on its application, sells for between $.60 and $3.00 per
pound.
Nylon Market. Nylon has myriad applications, including use in making
molded thermoplastic products and extrusion into fibers for textiles, carpets
and industrial use. According to PCI-Fibres & Raw Materials, in 1995 over 11
billion pounds of nylon resin and nylon fibers were produced and sold worldwide
at an aggregate price of approximately $15 billion. This organization has
forecast 1996 sales at over 11.5 billion pounds.
In spite of the substantial production capability worldwide, the demand
for nylon resin has exceeded the supply. For example, according to the Society
of Plastics Industries, even though the amount of nylon resins for
thermoplastics production applications increased from 511 million pounds in 1984
to 972 million pounds in 1994, the utilization rate of that capacity increased
from 73.2% in 1990 to 97.0% in 1994.
Recycled Nylon Market. Currently, recycled nylon resins, like those
produced by URI, comprise a small portion of the nylon resin market. Many
companies that manufacture products from nylon resin, however, have indicated a
growing interest in recycled resins. As in the metal, paper and plastic
recycling industries, this growing interest has been fueled not only by economic
considerations, but also by environmental concerns. One example is the market
for thermoplastics (i.e., engineered plastic resins that are used in automotive
and industrial applications). According to the May 1995 issue of Modern
Plastics, automobile manufacturers are committed to increasing the recycled
content of their new models, and URI believes that a significant portion of
automobile components that are currently made from virgin nylon resins are
candidates to be made from recycled nylon resins. A second important market for
recycled nylon is as a feedstock for depolymerization processes that reduce the
nylon to its basic chemical components, that are in turn reused for the
production of virgin nylon. While the current depolymerization techniques for
one type of nylon (nylon 6,6) are generally considered not to be cost effective,
the separate patented processes recently developed by two major chemical
companies for another type of nylon (nylon 6) may well prove to be cost
effective.
Another, and as yet untapped, market for recycled nylon resins is for
use in fiber applications, particularly the fibers used for manufacturing
carpet. To date, the high level of purity required in order to spin nylon resins
into most carpet fibers has presented an obstacle to the use of recycled nylon
resins for this purpose. This market, which utilizes almost 2 billion pounds of
nylon fibers per year, will be achievable only if the Company can achieve the
high level of purity required for effective spinning.
Synthetic Fibers Market. The U.S. Department of Commerce estimates that
approximately 9 billion pounds of fibers, with a value of over $12 billion, were
produced in the United States in 1993 from synthetic materials. Of course, nylon
in resin form is often spun into fiber, and a large portion of the 9 billion
pounds of fibers is nylon fibers. These synthetic fibers, including nylon
fibers, were used in numerous applications, including apparel, home textiles,
industrial and consumer products, and specialty applications such as biological
and industrial filters. The synthetic fibers market consists of two main
submarkets, the woven fabrics market, which includes apparel and other types of
cloth, and the non-woven fabrics market.
Recycled Synthetic Fibers Market. In addition to the 9 billion pounds
of synthetic fibers produced each year, fibers from approximately 4 billion
pounds of textiles and textile scrap are recovered and recycled each year,
according to Scrap Processing and Recycling. Most recycled synthetic fibers are
part of the non-woven fabrics market, which market includes the gray felt and
white felt markets. A recent URI market study indicated that the non-woven
fabrics market is growing at a rate of 5% to 6% per year and that specialization
in this market, in terms of companies producing products to express customer
specifications, is increasing.
In the United States alone, it is estimated that more than 500 million
pounds of gray felt is purchased annually for use in a wide variety of padding
applications. Familiar uses include padding installed under commercial floor
coverings, and sound and vibration deadening insulation in trunk and passenger
compartments of automobiles. Gray felt is also used extensively in mattresses
and upholstered furniture products.
Gray felt has traditionally been produced from waste fabric fibers.
Recently, however, recycled carpet fibers have been introduced as an acceptable
and attractive feedstock for gray felt and have since come to be viewed as a
premium component of gray felt due to the durability of such fibers. At the same
time, the volume of waste from carpet manufacturing, a traditional source of
waste fabric fibers, has been declining due to improvements in the carpet
manufacturing process.
URI has recently discovered, in connection with its market study of the
non-woven fabrics market, two additional markets that it believes can utilize
its products. The first market, the "white felt" market, uses mixed fibers of
higher purity and lighter coloration that those used for gray felt. Typical uses
for these fibers, which command significantly higher prices per pound than those
used in the gray felt market, are in fiberfill applications for clothing and
pillows. The Company believes that the fibers from the polypropylene carpet
backings may be well suited for this market. The second potential additional
market is for use of the Company's product as feedstock in the manufacture of
carpet padding.
CLEAN GREEN PACKING. The shipping and packaging industry is an
approximately $32 billion per year industry. Generally, the industry utilizes
products manufactured from wood and paper source materials or from plastic raw
materials to manufacture a wide variety of shipping and packaging materials
including boxes, containers, void fill and cushioning products. The shipping and
packaging industry can be segmented further into (i) the shipping containers
industry and (ii) the void fill or cushioning materials or "packing" industry.
Void fill or cushioning materials are used inside shipping containers to pack
(fill empty space), protect and cushion the products transported in shipping
containers.
Packing industry products include loose-fill, shredded paper,
polystyrene foam blocks and shapes, a variety of bubble and foam wraps, and
polyurethane foams. The market for loose-fill consists of two segments: small or
medium sized users that purchase by the bag; and large users that purchase in
bulk trailer loads. While approximately 70% of loose-fill customers purchase by
the bag, approximately 60% of loose-fill volume is sold in bulk form to a small
number of heavy users.
Loose-fill as a packing material has grown over the past 25 years into
an estimated market of more than 80 million pounds. The loose-fill market is
served by two basic, largely interchangeable products: expanded polystyrene
loose-fill; and starch-based loose-fill. Starch-based loose-fill, although
offering certain favorable disposal and environmentally friendly features, still
must compete with expanded polystyrene loose-fill on the basis of price and
quality. The expanded polystyrene loose-fill market rose approximately 22% in
the mid 1980s before plateauing, and has declined slightly since that time.
External market and economic forces, including a growing dissatisfaction with
expanded polystyrene loose-fill from an environmental and disposal perspective
prompted shippers to seek alternative packing materials in the late 1980s and
early 1990s. In January 1994, Modern Plastics estimated that approximately 79
million pounds of petroleum-based, expanded polystyrene loose-fill beads were
sold during 1993 at wholesale in the United States. CGP estimates that such
products were converted into approximately 250 million cubic feet of packing
material, representing approximately $100 million in sales.
Shipping and packaging products represent approximately 30% of the
total solid waste stream generated in the United States each year, and the
shipping and packaging industry is one of the country's largest sources of waste
material by virtue of its reliance on throw-away materials such as paper and
polystyrene, including high volume to weight ratio products like expanded
polystyrene loose-fill. Until recently, most packing materials were disposed of
conventionally in a landfill, without regard to long-term environmental
consequences.
While efforts to recycle expanded polystyrene loose-fill have increased
in recent years, CGP believes that most expanded polystyrene loose-fill is still
disposed of in landfills, where it does not degrade. Surveys have shown that
most consumers of packing material would select environmentally safe packing
material, if the product was comparable in quality and price to
non-environmentally safe packing material. The packing material industry has
responded to these developments in the industry by developing starch-based
loose-fill, using more crushed and shredded paper as a packing material, and
designing packing products that use less material for the purpose of source
reduction.
The use of polystyrene for packing material has also begun to face
increased legislative scrutiny. In 1992, Hennepin County, Minnesota, the
location of CGP's current operations, enacted regulations that require all
governmental departments to use starch-based packing material. Similarly, in
1993 the State of Minnesota passed legislation that requires all state
government units to ask vendors to switch to degradable loose-fill packing
material. Many other states and local government entities have enacted or are
debating regulations that would ban or restrict the use of polystyrene packing
materials.
TECHNOLOGY AND PRODUCTS
UNITED RECYCLING. Residential and commercial carpet is constructed of
face fibers that comprise the upward-facing pile upon which people walk, a
primary woven backing onto or through which the face fibers are secured, and a
secondary woven backing to provide stability, which is glued to the primary
backing with a latex adhesive containing calcium carbonate as a filler. The face
fibers of approximately two-thirds of existing carpet are comprised of nylon
face fibers, with the face fibers of the balance of existing carpet comprised of
polypropylene, wool and polyester. The two backings are comprised of either
polypropylene or jute, a natural vegetable fiber.
Before actually processing the carpet, URI first removes any
significant contaminants or foreign objects that may be present. The carpet
pieces are then graded and sorted by type of face fiber and placed in separate
piles for processing. Currently, most of the handling is done manually, and the
testing is time-consuming. URI believes that the handling can be automated and
the efficiency of the testing process improved. URI has recently incorporated
the use of infrared sensing equipment in the testing process.
Following removal of contaminants and grading and sorting, the carpet
is subjected to a mechanical process that extracts the carpet fibers from the
carpet. In the past, URI's old manufacturing technology resulted in inconsistent
purity levels, depending on the type of carpet fiber used in the process, and an
average throughput of only 150 pounds of carpet per hour. URI abandoned its old
manufacturing technology, and before June 1996, was not producing any product.
URI recently purchased and in June 1996 completed partial installation of a
technology that uses technology and equipment developed for the textile industry
that URI has determined is suitable for processing used carpet. This technology,
referred to as the "Traweek Technology," extracts individual fibers from whole
carpet and then opens the fibers while removing most of the calcium carbonate.
The resulting "fluff" is comprised of a mixture of the face fibers and fibers
from the backing material, with trace amounts of calcium carbonate and latex.
URI believes that the Traweek Technology when fully operational will
have a throughput of up to 5,000 pounds per hour, and, more importantly, will
produce products with 10% or less calcium carbonate contamination. The mixed
fibers fluff product, before any further processing, can serve as an attractive
feedstock for the non-woven fabrics industry. Furthermore, although the Traweek
Technology produces output with unavoidable "cross fiber" contamination of the
nylon face fibers by polypropylene from the backings, URI has found that by
adding certain chemical "compatiblizers" to the mixed fiber fluff, URI is able
to produce a product with 80%-85% of the attractive properties of the pure nylon
resins used in certain thermoplastics applications. This chemically treated
mixed fiber fluff still cannot, however, generally be sold for use in industries
that require products with essentially all of the attractive properties of pure
resins, such as the carpet manufacturing industry and certain segments of the
injection molding industry.
In 1994, URI purchased the exclusive license for a patented technology
that URI believes will enable it to produce products with higher purity than the
mixed fiber fluff produced by the Traweek Technology. This technology, referred
to as the "carpet decompiling machine" technology (the "CDM Technology"),
separates the carpet components through (i) a heat and mechanical treatment that
weakens the adhesive that holds the carpet face fibers and backings together,
(ii) the mechanical separation of the secondary backing, (iii) the mechanical
stripping of the face fibers from the primary backing, and (iv) the mechanical
removal of calcium carbonate filler and adhesive from the fibers and backings.
The CDM Technology is projected to result in a throughput of up to 2,500 pounds
of carpet per hour.
In October 1995, URI entered into a series of four complementary
agreements with Fluor Daniel (the "Fluor Daniel Agreements") to define their
strategic relationship. Pursuant to the Fluor Daniel Agreements, Fluor Daniel
has agreed to assist URI in moving the CDM Technology from a laboratory setting
to full-scale commercial production and to provide URI with certain design,
fabrication, testing, engineering, procurement, construction and other services
in connection with establishing full-scale production facilities. The Fluor
Daniel Agreements provide that Fluor Daniel is designated as the exclusive
engineer/contractor for all of URI's planned production facilities in North
America, subject to certain conditions regarding the ability of the parties to
negotiate a satisfactory contract. In April 1996, URI suspended Fluor Daniel's
services under the Fluor Daniel Agreements pending further funding.
The Fluor Daniel Agreements also set forth the terms and conditions
pursuant to which Fluor Daniel acquired its equity interest in URI. Pursuant to
these agreements, Fluor Daniel acquired 125,000 shares of URI's Preferred Stock
in exchange for a $500,000 promissory note, redeemable by URI in the form of
Fluor Daniel's performance of services under the Fluor Daniel Agreements. Each
share of URI Preferred Stock is currently convertible into one share of URI
Common Stock. Each share of URI Preferred Stock is entitled to one vote for each
share of URI Common Stock into which it is convertible.
The Fluor Daniel Agreements provide that either party may terminate the
agreements upon 15 days notice in the event that (i) a party materially breaches
its obligations, (ii) the parties fail to reach agreement, despite their good
faith efforts, on the terms of a contract relating to the engineering,
procurement and construction of the production facilities, or (iii) the parties
jointly agreed-to financial projections for a project indicate that the project
will not meet the required return on investment necessary for investment by
third parties. In the event that any of the Fluor Daniel Agreements are
terminated, all of such agreements will be terminated.
The CDM Technology cleanly separates the face fibers from the backings
with little or no appreciable cross-fiber contamination and less than 10%
calcium carbonate contamination, which URI believes can be nearly eliminated by
post-processing. Although the resulting nylon face fibers will retain
coloration, they will represent essentially pure resins with all of the
production properties or virgin resins. These fibers can then be sold in the
form of fluff, extruded into the pellet form most familiar to resin purchasers,
sold as homogeneous fibers to the textile industry, or used in depolymerization
processes to produce the chemical building blocks of nylon. Because of residual
coloration and trace elements of latex, the CDM Technology produced fibers
currently cannot, however, be used in certain fiber respinning applications,
such as those necessary for the manufacture of carpet.
Although the CDM Technology has been proven by URI in a laboratory
setting, URI has not yet implemented the CDM Technology on a full-scale,
commercial production basis. Pursuant to the Fluor Daniel Agreements, Fluor
Daniel has agreed to assist URI in the design, fabrication and testing that is
necessary to move the CDM Technology from the laboratory setting to full scale,
commercial production. To date, the Fluor Daniel and URI technical team has
completed their analysis and evaluation of the technology related to the CDM
Technology and fabricated the necessary equipment and are currently operating a
test bench with many of the capabilities of the full-scale production equipment.
The ability of the CDM Technology to remove the secondary backing from face
fibers has not been proven on a test bench basis. In April 1996, URI suspended
Fluor Daniel's services under the Fluor Daniel Agreements due to a shortage of
funds. URI projects completion and performance testing of a commercial scale CDM
in the first half of 1997, although this estimate of completion and performance
testing may be adjusted because of the current suspension of Fluor Daniel's
services.
Even if URI is able to implement the CDM Technology on a full-scale,
commercial production basis, the purity levels currently anticipated to result
from the CDM Technology may not be sufficient for sales on more than a limited
basis to the carpet manufacturing industry. As a result, URI is currently
discussing with a large chemical company the joint development of complementary
technologies that will allow URI's manufacturing technology to produce resins
approaching 100% purity without coloration.
CLEAN GREEN PACKING. CGP's proprietary product is a degradable,
starch-based, foam loose- fill packing material that is an alternative to the
more popular polystyrene packing "peanut" commonly used to cushion materials
packaged and shipped in boxes. CGP loose-fill weighs approximately 0.65 lbs. per
cubic foot and is offered in 12 cubic foot boxes or bags, or in bulk. Pricing
varies with the quantity and frequency of purchase. CGP's average sales price
during fiscal 1996 was approximately $0.76 per cubic foot for non-bulk rate
customers and approximately $0.54 per cubic foot for bulk rate customers.
CGP loose-fill solves problems faced by shippers and their customers
concerning the safe disposal, reuse or recycling of expanded polystyrene
loose-fill and other packing materials. CGP loose-fill degrades quickly upon
contact with water into an inert, safe compound, in contrast to polystyrene,
which does not degrade and presents environmental disposal issues. In March
1991, CGP began selling CGP loose-fill as an alternative packing material
similar in size and shape to the expanded polystyrene loose-fill packing peanut.
Because CGP loose-fill uses wheat starch as its basic ingredient, which is
presently less than half the cost of polystyrene resin, expanded polystyrene
loose-fill's basic ingredient, CGP can produce and sell its loose-fill at a
lower cost.
CGP's loose-fill is manufactured pursuant to technology based on seven
patents, two of which are directly owned by CGP, three of which CGP holds an
exclusive license to utilize, and two of which CGP holds a non-exclusive license
to utilize. CGP's patents describe processes and formulas that enable CGP to use
relatively low cost starch material in combination with small percentages of
polyvinyl alcohol, which acts to improve the mechanical properties of CGP's
loose- fill, to increase moisture stabilization and to lower foam densities, and
a wide variety of polyalkylene glycols, polyethylene glycols, borax, sodium or
potassium carbonate and tartaric or malic acid, which also act to produce lower
foam densities and more resilient foams.
A 1995 study by the National Center for Agricultural Utilization
Research examined the starch-based loose-fill products of three of the five
companies actively developing, producing and marketing starch-based loose-fill
products, including CGP, for certain properties, including bulk density and cell
size and structure, which also contributes to bulk density. Generally, bulk
densities of starch-based loose-fill products are about twice those of expanded
polystyrene products. For loose-fill products, low bulk density is desirable
because (i) a lower bulk density provides a higher profit margin for the
loose-fill producer (the lower the bulk density, the less of the actual product
that must be placed in each bag or truckload sold) and (ii) lighter loose-fill
products work better in the traditional bulk delivery systems. Of the three
starch-based loose-fill companies compared, the study found that CGP loose-fill
had the lowest bulk density, the smallest cell size and the most consistent cell
structure.
During fiscal 1994, CGP, in cooperation with Foamlite Texas
Corporation, developed a starch-based resin pellet. This starch-based resin
pellet is intended to be sold in pellet form to other producers of loose-fill
packing material. The pellet would then be processed into its final form as
fully expanded loose-fill. This form of CGP's product would significantly reduce
the shipping costs incurred in selling the product outside CGP's immediate
geographic area. CGP has determined, however, that although shipping costs
decrease with the new pellet, operational costs increase. CGP is currently
analyzing whether full production of this pellet can be implemented cost
effectively.
MANUFACTURING, PRODUCTION AND SUPPLIES
UNITED RECYCLING. During the past four years, URI has developed a
comprehensive program that currently results in the collection of approximately
300,000 pounds of used carpet per month in the Minneapolis/St. Paul metropolitan
area, and it is currently anticipated that this program can be expanded to
600,000 pounds of used carpet per month by the end of 1996 and to 1,000,000
pounds per month by mid 1997. This program is based on a combination of the
Minnesota Carpeting Recycling ("CA-RE") public awareness campaign, contacts with
local businesses, contractors and government agencies, and business arrangements
with area carpet dealers. Although these entities all participate in URI's
efforts to secure used carpet, they are not subject to an exclusive agreement
with URI. Recently, the Company has reached agreements with various government
entities and one waste hauler whereby the Company receives used carpet and bills
the entity involved.
URI's business is dependent upon an adequate supply of used carpeting.
Management does not currently foresee any shortages of such raw material. URI
believes that, assuming equal expense, the carpet industry and consumers would
prefer that used carpet be recycled rather than incinerated or disposed of in
landfills. Although there can be no assurance, URI believes that it can
replicate its success in collecting used carpet in the Minneapolis/St. Paul area
in other metropolitan areas. In anticipation of expanding its carpet collection
activities to other regions, URI is working with national carpet industry groups
that are concerned about the disposal of used carpet, and has developed a carpet
collection manual to be used by Company personnel in other regions.
In addition to the carpet collection efforts discussed above, the
Company is in the process of negotiating cooperative arrangements with certain
leading nylon and carpet manufacturers, pursuant to which these companies would
directly or indirectly supply used carpet to the Company for recycling. As
contemplated by URI, these manufacturers would offer to potential clients the
option, for a certain cost per square yard, of having their removed carpet
recycled when new carpet is installed, with the removed carpet shipped to one of
URI's processing facilities. The price charged to these customers for this
removal and recycling would be designed to cover the cost of shipping the
removed carpet to URI's processing facilities and would also provide for an
acceptance fee to URI. These manufacturers have indicated to URI that they
believe a significant number of large corporate clients would be willing to pay
an extra fee to have removed carpet recycled for environmental and public
relations reasons. An added benefit of these potential arrangements is that URI
would be receiving high quality, homogeneous and presorted carpet, thereby
reducing pre-processing time and expense.
URI and a certain leading nylon fiber manufacturer have a working
arrangement regarding removal of used carpet for one carpet installation project
in place, and have reached an oral agreement to replicate this arrangement on a
nationwide basis. URI expects to memorialize this agreement in the coming
months.
URI has recently signed a lease for a 32,000 square foot facility in
Minneapolis, Minnesota. In June 1996, URI installed and began to operate a
portion of the Traweek Technology equipment at this facility for the production
of mixed fiber products to satisfy an existing sales agreement. When the
remaining portion of the Traweek Technology equipment is installed and
operational, URI believes that it will also be able to produce products for the
non-woven fabrics industry. When fully operational, URI believes that its
Minneapolis facility will have the capacity to process up to 5,000 pounds of
used carpet per hour, which is the full capacity of the Traweek Technology.
URI's strategy is to establish a full-scale combination collection
center and processing facility first in the Chicago metropolitan area, and then
in the New York and Los Angeles metropolitan areas. Each facility will include
the Traweek Technology equipment and when fully implemented, the CDM Technology
equipment, with the three facilities collecting and processing 32 million pounds
of used carpet per month. Significant additional financing will be needed to
complete these projects, which will likely take the form of a combination of
tax-exempt resource recovery bonds, limited recourse debt and complementary
equity. There can be no assurance, however, that such financing will be
available on acceptable terms or at all.
CLEAN GREEN PACKING. CGP's loose-fill product is manufactured at its
production facilities in Golden Valley, Minnesota using twin-screw food
extrusion cooking technology similar to that used in the production of snack
foods, cereals and pet foods. Extrusion cooking is a process whereby food
materials (such as starch) are cooked in an enclosed cylinder, worked while
being heated into a plastic-like dough, forced through a die by virtue of a
corkscrew-type mechanism, expanded by loss of moisture as steam escapes and then
cooled into a rigid structure with a porous texture. Similarly, CGP's
manufacturing operations involve the extrusion of starches that are cooked and
worked into a dough-like material that is then forced through a die and expanded
by the loss of moisture and decrease in pressure. The expanded dough is then cut
into individual loose-fill peanuts.
The extrusion process is performed on machinery that provides CGP with
a low cost of production through high throughput rates and automation. High
pressure screw profile, temperature, moisture content and the interaction
between the temperature and moisture content factors are the operating variables
necessary to control the creation of the dough and its plasticization. CGP
utilizes a self cleaning, co-rotating extruder with very short residence times.
In contrast, expanded polystyrene loose-fill is manufactured by subjecting
polystyrene beads to expansion through the introduction of steam and by then
aging the product for two to three days to allow air to gradually diffuse into
the polystyrene foam's cells. Starch-based loose-fill does not require aging and
can be sold immediately upon manufacture. Accordingly, starch-based loose-fill
does not require the storage space at the manufacturing facility that expanded
polystyrene loose-fill requires.
CGP mixes additives into its loose-fill during production that act to
stabilize the product post-production, including at the customer's site. CGP
loose-fill's quality during the manufacturing process depends primarily on water
content, the degree of mechanical shear in the extruder and machine temperature.
Since CGP loose-fill contains more than 90% starch, like all starches CGP
loose-fill absorbs and gives off moisture in order to reach a steady state with
the surrounding air. CGP uses a form of polyvinyl alcohol to stabilize CGP
loose-fill's moisture content and to maintain resiliency at low surrounding air
temperatures and humidities. CGP's patents and proprietary technology also
address the utilization of other additives to facilitate production and improve
product performance. These additives include polyethylene glycol, malic acid,
citric acid, tartaric acid, and carbonate materials like sodium or potassium
carbonate.
Because loose-fill is lightweight and bulky, it is expensive to ship
loose-fill long distances. Accordingly, loose-fill markets are generally
geographically centered around loose-fill production facilities.
Starch, a principal raw component of CGP loose-fill, is a commodity
product, and its spot market price is subject to periodic fluctuations. CGP
believes that starch and other raw materials are in plentiful supply for the
foreseeable future. In fiscal 1996, CGP experienced raw material cost increases
of approximately 33 percent, which caused overall production costs to increase
approximately nine percent. CGP was able to increase its prices approximately
nine percent in response to the raw material price increases. There can be no
assurance, however, that the price of CGP's raw materials will not increase in
the future or that any such price increases could be similarly passed on to
customers. As a result, there can be no assurance that such a price increase
would not have material adverse effect on CGP's results of operations. CGP is
currently engaged in research designed to provide alternative formulations for
its loose-fill product that could potentially offset a portion of any future raw
material price increases.
Although CGP currently uses a single source for each ingredient in its
loose-fill, CGP management believes that other sources are readily available on
short notice. CGP purchases such materials on a purchase order basis. To date,
CGP has not experienced any difficulty in obtaining these materials for its
product. An interruption of supply of these materials, however, could have a
material adverse effect on CGP's ability to manufacture its loose-fill in a
timely and cost effective manner.
SALES AND MARKETING
UNITED RECYCLING. URI derives revenue from two principal sources: (i)
payments for carpet collection, and (ii) sales of fibers and resins derived from
used carpet. With respect to carpet collection, URI has to date capitalized on
its efforts with the CA-RE public awareness campaign, contacts with local
businesses, contractors and government agencies, business arrangements with area
carpet dealers. In connection with its strategy of expanding its production and
collection efforts into other regions of the United States, URI intends not only
to implement these same types of efforts in these other regions but also to work
with national carpet industry groups and even certain carpet manufacturers.
With respect to sales of fibers and resins derived from used carpet,
URI's strategy is to establish a strong customer base in the recycled nylon
industry and the recycled synthetic fibers industry through the use of contracts
that provide for the purchase of minimum quantities at guaranteed prices so long
as the products meet certain specifications. URI believes that these types of
contracts are needed in order to provide the kind of product demand necessary to
attract the type of financing needed to establish additional production and
collection facilities. Although URI just recently began producing a limited
amount of product, it has such a contract in place for the sale of 100,000
pounds per month of the Company's nylon 6,6 mixed fiber fluff product to a major
recycling company.
Higher purity levels will broaden the market for and increase the
acceptance of URI's products. With the Traweek Technology, URI's products can be
sold to companies in the non- woven fabrics industry as well as in certain
segments of the thermoplastics industry. During 1995, URI estimates that
non-woven fabrics manufacturers paid approximately $0.25 per pound for feedstock
comparable to URI's mixed fibers. With the CDM Technology, URI believes that the
recycled nylon 6,6 and nylon 6 resins which the CDM Technology will extract from
used carpet will be of sufficient purity levels to be satisfactory for use by a
large portion of the recycled nylon resins market, either directly for
thermoplastics applications, or as a feedstock for depolymerization.
Accordingly, URI currently plans to secure long-term contracts for the majority
of its recycled fibers and resins produced by the CDM Technology with one or
more major virgin resin manufacturers for depolymerization feedstock, or resale
as an addition to their current product lines.
The output of the CDM Technology that is not dedicated to long-term
agreements with virgin resin manufacturers will be sold to compounders who will
increase the strength and durability of the resins by adding additional
materials such as fiberglass or talc. URI is currently negotiating with a number
of resin compounders, who are examining using a heavier concentration of
recycled material to replace other resins such as polyester or polypropylene, as
well as nylon.
The Company also believes that its mixed fiber fluff product produced
by the Traweek Technology and its homogeneous CDM Technology produced fiber
product are well suited for the non-woven synthetic fabrics market. Presently,
the Company intends to focus on two parts of the non-woven fabrics market in the
synthetic fibers industry, the gray felt and white felt markets. A recent
Company market study indicated that the non-woven fabrics market is growing at a
rate of 5% to 6% per year and that specialization in this market is increasing.
In June 1996, URI began selling a mixed fiber fluff product upon
completion of the installation of the first portion of the Traweek Technology
equipment. Following full installation of the Traweek Technology, URI believes
that its products will be suitable for padding, including use under commercial
or residential carpeting. Additional uses may include within the automotive
industry for under the hood vibration suppression, and for noise dampening
within machinery, such as household appliances. Going forward, URI intends to
move into the higher value textiles industry within the synthetic fibers market.
CLEAN GREEN PACKING. CGP continually strives to increase the awareness
of loose-fill packing material users to the potential benefits of its
environmentally friendly product. In light of the growing awareness by both
governmental entities and consumers that polystyrene packing materials have long
term consequences, CGP intends to market its products aggressively by increasing
the awareness, at all levels of the distribution chain, that price competitive,
environmentally friendly alternatives exist to the plastic and paper packing
materials used in the past.
Because packing material is lightweight and bulky, shipping of such
material on a nationwide or worldwide basis is not cost effective. Consequently,
the packing material market is largely separated into smaller,
geographically-limited markets, centered around packing material production
facilities. With respect to its direct sales in Minnesota, where CGP's
production facility is located, CGP has utilized targeted mailing lists tailored
to existing users and has also conducted direct mail initiatives that have
introduced potential customers to CGP's products. CGP intends to utilize a
similar approach to increase awareness regarding its products in each market in
which it currently markets or intends to market its products and to begin to
build national awareness through a direct mail and telemarketing campaign that
educates users of packing material about the benefits of degradable loose-fill.
To date, CGP has used distributors primarily in connection with sales
to more distant customers and small quantity customers. CGP works with each
distributor's sales personnel by supplying them with CGP literature, samples and
product training. When necessary, CGP personnel make joint sales calls with a
distributor's sales personnel. Larger customers are generally serviced directly
by CGP personnel who make routine calls on these accounts. These periodic calls
are critical to meet the customer's needs, answer questions and solve any
problems.
Although CGP's primary marketing efforts have been focused on customers
in the Minneapolis/St. Paul metropolitan area, CGP also services customers in
outstate Minnesota and in Wisconsin, Iowa, Illinois, Indiana, South Dakota,
Missouri, Nebraska, Colorado, Kansas and Canada. In fiscal 1996, no single
customer accounted for 10% or more of net sales, and sales to distributors
accounted for approximately $636,071 or 46% of net sales. These
distributors include StoroPack and CPI, expanded polystyrene loose-fill
distributors that have become distributors of CGP loose-fill in order to offer a
degradable alternative.
CGP believes that approximately 60% of the loose-fill market is served
in bulk truckload quantities. In the past, CGP has experienced difficulty
persuading bulk users of expanded polystyrene loose-fill to replace their
existing loose-fill with CGP loose-fill. Because CGP's loose-fill is slightly
heavier than expanded polystyrene loose-fill based on CGP loose-fill's higher
bulk density, it has been necessary for the blower equipment used with bulk
loose-fill to operate at higher power levels, which causes the loose-fill to
collide at higher speeds, creating more dust.
CGP has recently installed a new prototype internal delivery system,
developed by a third-party contract manufacturer, at its existing manufacturing
facility to demonstrate the efficacy of the delivery system. Most bulk use
customers' existing loose-fill delivery systems transport the loose-fill by
blowing air through a tube. CGP's new prototype internal delivery system moves
the loose-fill through the delivery system on a bed of air, which reduces the
amount of dust. Because using the new delivery system will entail changes to a
bulk use customer's delivery system, CGP intends to assist bulk use customers
that wish to install the new delivery system at their facilities by
demonstrating the efficacy of the system and assisting the customer in the
procurement and installation of the system. There can be no assurance that bulk
use customers will be willing to install the new internal delivery system, and
the failure of the system or an equivalent delivery system for the heavier
starch-based loose-fill to gain acceptance will negatively impact CGP's
prospects in the bulk sale market.
COMPETITION
UNITED RECYCLING. In 1994, domestic carpet manufacturers used
approximately two billion pounds of nylon in either pellet or fiber form, and
these manufacturers are actively researching ways to recycle their products. As
in the metal, paper and plastic recycling industries, this growing interest in
recycled resins is being driven not only by economic considerations but also by
environmental concerns, such as the recognition that municipal landfills are
becoming increasingly unwilling to accept carpet. Chemical companies that
produce nylon are also researching ways to recycle their products.
As a result, URI believes that carpet manufacturers and chemical
companies represent potential customers for its products and services. For
example, two chemical companies, Allied Signal, Inc. and BASF have developed
depolymerization processes that reduce recycled nylon 6 to caprolactam. Carpet
manufacturers, through providing used carpet as feedstock to URI or through the
use of recycled nylon resins in the production of new carpet, also represent
potential customers.
Notwithstanding the fact that carpet manufacturers and chemical
companies are potential customers for URI's products and services, these
companies also represent potential competition. For example, Shaw Industries has
been researching uses of shredded carpet in products such as fiber-reinforced
concrete and other applications, BASF is considering stamping its carpet to
facilitate its ability to recycle its own carpet, and Collins & Aikman is
grinding up its used vinyl-backed carpet as a concrete substitute.
In addition to carpet manufacturers, many of the major virgin resin
producers have also embarked upon programs aimed at recycling carpet. The
Monsanto Company ("Monsanto") has been working with the auto industry to develop
and test samples of a plastic-type substance produced by Monsanto from used
carpet that potentially could be used in automobile parts. In addition, E.I. du
Pont de NeMours & Co. ("DuPont") is working on a patented ammonolysis process
for depolymerizing nylon that reduces nylon 6,6 in bulk to its core chemical
components. This process, however, requires that the nylon 6,6 face fibers first
be extracted from the carpet backings and adhesive. Accordingly, DuPont has been
operating a pilot plant that uses a process that grinds used carpet into fine
particles, places them in a slurry and separates the nylon particles from the
polypropylene and other particles on the basis of differing specific gravity.
The DuPont process is able to produce resins with levels of purity approaching
98%. DuPont has recently announced that it is expanding its pilot program, the
"Partnership for Carpet Reclamation" carpet collection program, to the Northeast
United States and Canada.
A number of smaller companies are also attempting to develop various
processes to make various products from used carpet. These companies include
C'Board, Inc. ("C'Board"), which processes used carpet directly into a board
suitable for replacing wood in some applications, and Horizon Pacific Ltd.,
which is developing a process to turn industrial carpet waste into industrial
panel board. DuPont and C'Board recently announced a cooperative agreement under
which C'Board will utilize used carpet collected by DuPont.
URI is aware of no competitor that is working on a technology parallel
to that of the CDM Technology. URI believes that its exclusive license to the
CDM Technology, and its strategic relationship with Fluor Daniel to turn the CDM
Technology's success in the laboratory into success in a full-scale, commercial
production environment, provide URI with certain competitive advantages. In
addition, URI believes that it competes favorably with DuPont and other
competitors in terms of cost. URI believes that neither processes that entail
chopping and grinding carpet into a fine mixture from which the components must
be separated by gravity or air separation nor processes that entail the chemical
recomposition of carpet into its base chemicals are currently cost-effective.
Nevertheless, DuPont and the other large chemical companies and carpet
manufacturers represent significant competition, and most of these competitors
or potential competitors have substantially greater financial, manufacturing,
marketing, distribution and technical resources and experience than URI.
URI also believes that its expertise in collecting used carpet in the
Minneapolis/St. Paul metropolitan area, developed over almost four years,
provides URI with a competitive advantage. Major solid waste disposal firms are
engaged, however, in developing methods for diverting recyclable materials from
increasingly scarce landfill sites. Diversion of the used carpeting stream from
URI, whether because a less costly alternative disposal system or because
another recycling technology is developed, could adversely affect URI's future
prospects.
There are many well established suppliers of virgin nylon resins for
injection molding and extrusion purposes. While currently URI believes that the
CDM Technology will be able to produce nylon resins at a price significantly
lower than the price of virgin resins, no assurance can be given that virgin
resin manufacturers and suppliers will not take steps to make their products
more competitive in terms of price with URI's recycled resins. Moreover, URI's
resins currently have a purity level lower than virgin resins, which render them
unusable by some purchasers of these resins.
It is not possible to predict the extent of the competition that URI
will encounter in the near future as the carpet recycling and recycled resins
industries mature. The ability of URI to compete successfully will depend upon
its success in turning the CDM Technology's success in the laboratory into
success on a full-scale commercial production basis and URI's ability to enter
into long-term contracts with customers to provide the product demand necessary
to attract the type of financing needed to establish additional production and
collection facilities.
CLEAN GREEN PACKING. The packing industry and, in particular, the
market for loose-fill packing materials, is highly competitive. The loose-fill
market consists of two types of products: expanded polystyrene loose-fill; and
starch-based, degradable loose-fill. Although degradable products are new to the
loose-fill market, expanded polystyrene loose-fill has been in existence for
years. Because it is difficult to differentiate one expanded polystyrene
loose-fill product from another, the expanded polystyrene loose-fill market has
generally been price driven.
Expanded polystyrene loose-fill, which is approximately 60% the weight
by volume of CGP's product, is converted from resin beads, which are transported
to local and regional processors who use blowing agents to expand the beads. In
the expanded polystyrene loose-fill market, five companies supply the material
for 90% of this market: Free-Flow Packaging Corporation; Inter- Pac; Ray Pac;
StoroPack; and Ring Can. The principal converters of expanded polystyrene
loose-fill in the Minneapolis/St. Paul area are American Excelsior Company and
SurePak, Inc.
CGP also has several competitors that develop, produce and market
starch-based products. American Excelsior Company, located in Texas, markets a
product under the trade name Eco- Foam(TM), advertised as comprising 100% corn
starch. EnPac, a joint venture of ConAgra Inc. and DuPont, based in Delaware,
markets EnviroFil, Storopack, Inc., based in Cincinnati, Ohio, markets Renature,
and Free-Flow Packing Corporation, a California-based company, markets Flo-Pak
Bio 8, all starch-based loose-fill products. Each of these entities, except
EnPac, also produce or distribute other non-starch based packing products. CGP
also believes that other producers of expanded polystyrene loose-fill packing
material and several large chemical and agricultural companies may be developing
similar products.
Loose-fill's price and product quality from a manufacturing standpoint,
whether expanded polystyrene or starch-based loose-fill, depends in large part
on the product's bulk density. The lower the bulk density of the loose-fill
product, the less of the loose-fill product that must be placed in each
container (bag or bulk truckload) of loose-fill sold. Customers of loose-fill
buy loose-fill based on the volume of product purchased, not on the weight of
product purchased, because the weight of the product is negligible compared to
the items that will ultimately be packed and shipped with the loose-fill.
Conversely, loose-fill producers' production costs are based on the weight of
loose-fill made, and to the extent the product can be made lighter, gross
margins improve. CGP loose-fill, however, is approximately twice as heavy (half
as dense) as expanded polystyrene loose-fill, and consequently, CGP places more
of its material in each container (bag or bulk truckload) of loose-fill sold. A
recent study of three starch-based loose-fill products found CGP loose-fill to
have the lowest bulk density.
CGP believes that it can compete favorably with expanded polystyrene
loose-fill as well as other starch-based loose-fill in terms of both price and
quality. In addition, CGP believes that its product gives it a competitive
advantage over expanded polystyrene loose-fill based on the easy disposability
of CGP loose-fill and the environmentally friendly nature of CGP loose-fill.
CGP's distribution, however, is limited geographically until such time as it is
able to establish production facilities in other geographic areas. In addition,
CGP's ability to increase sales to bulk use customers is dependent on the
acceptance and installation by such customers of its new prototype internal
delivery system or an equivalent delivery system for starch-based loose-fill.
CGP has numerous competitors, however, that manufacture and market packing
material, and many of these competitors have substantially greater financial,
manufacturing, marketing, distribution and technical resources and experience
than CGP.
INTELLECTUAL PROPERTY
UNITED RECYCLING. In September 1994, URI and ETI acquired an exclusive
license in the United States to the patented CDM Technology from Minnmark, Inc.
("Minnmark"). The underlying patent for the CDM Technology was granted in 1993
and expires in 2010. The license runs for the life of the underlying patent. An
initial consulting fee, a combination of cash and ETI common stock, with respect
to this license was paid in 1994, and a final consulting fee, consisting solely
of ETI common stock, was paid in early 1996. The inventors of the CDM Technology
provided consulting services to URI during this period. URI also must pay
royalties of 3% based on the fair market value of recycled materials sold, up to
a maximum aggregate royalty payment of $5,000,000. Minnmark has the option to
terminate the license if URI fails to sell the following minimum annual amounts
of recycled material: fiscal 1998 (3,000,000 pounds); fiscal 1999 (6,000,000
pounds); fiscal 2000 (9,000,000 pounds); and fiscal 2001 and each fiscal year
thereafter until a total of $5,000,000 in royalties has been paid (10,000,000
pounds). URI has the right to sublicense its rights under the license within the
United States, although URI remains responsible for the accounting and payment
of all royalties.
URI believes strongly in protecting its intellectual property and
intends to undertake efforts to obtain patents or licenses to patents, when
available, in connection with its research and development programs. There can
be no assurance, however, that any patents obtained or licensed by URI will be
valid or otherwise of value to URI. As a result, URI also relies on trade
secrets and proprietary know-how and requires its key technical employees and
consultants to agree to keep its proprietary information confidential. Despite
these protections, it may be possible for competitors to copy aspects of URI's
products or technology or to obtain information that URI regards as a trade
secret.
CLEAN GREEN PACKING. CGP believes strongly in protecting its
intellectual property and intends to undertake efforts to obtain patents or
licenses to patents, when available, in connection with its research and
development programs. CGP owns two U.S. patents on its technology for
manufacturing its starch-based packing material. Assuming the payment of
maintenance fees, these two patents will expire in 2010 and 2011. CGP also owns
an exclusive license to three patents from Kansas State University Research
Foundation. These patents will expire at various times in 2010. CGP also holds a
non-exclusive license to two patents from Warner-Lambert Company. There can be
no assurance, however, that these patents or any other patents that may be
obtained or licensed by CGP will be valid or otherwise of value to CGP. As a
result, CGP also relies on trade secrets and proprietary know-how and requires
its key technical employees and consultants to agree to keep its proprietary
information confidential. Despite these protections, it may be possible for
competitors to copy aspects of CGP's products or process or to obtain
information that CGP regards as a trade secret.
In fiscal 1996, Novon International, Inc. purchased U.S. patents on
certain starch extrusion technology from Warner-Lambert Company
("Warner-Lambert"). In September 1991, Warner- Lambert had asserted a patent
infringement action against CGP and sought to halt the manufacture and sale of
CGP's packing product. In response, CGP sought a declaration that the Warner-
Lambert patents were not infringed by CGP, and that such patents were invalid.
On April 19, 1993, CGP settled its litigation and reached an agreement with
Warner-Lambert whereby Warner- Lambert has granted CGP a non-exclusive license
to manufacture loose-fill under the Warner- Lambert patents and to sub-license
its rights to other loose-fill manufacturers under certain conditions. In
addition, Warner-Lambert has licensed two competitors of CGP, National Starch
and EnPac. Warner-Lambert has also recently instituted two lawsuits alleging
patent infringement against Virginia Bio-Foam Company and Paper Direct, Inc. The
license from Warner-Lambert allows CGP to sell product covered by the
Warner-Lambert Patents in the United States and its possessions and territories.
CGP has entered into an agreement with EnPac pursuant to which CGP is permitted
to sell its product under the Warner-Lambert patent into Canada. CGP pays
royalties to Warner-Lambert on a per pound of product sold basis, subject to
annual minimum and maximum royalty payment limits based on the number of plants
operated by CGP.
A licensing agreement with the Kansas State University Research
Foundation ("KSU") was entered into by ETI in March 1995. The agreement grants
exclusive rights world-wide to CGP (through ETI) to three U.S. patents developed
by KSU regarding the production of starch-based, degradable packing loose-fill.
The underlying patents were issued in 1993 and will expire at various times in
2010. The license runs for the life of the patents. CGP has the right to
sublicense its rights under the license, although KSU has the right to approve
all sublicenses. ETI paid KSU an initial royalty fee of $10,000, and also issued
to KSU (i) 65,000 shares of Common Stock, and (ii) a three-year warrant to
purchase 10,000 shares of ETI. CGP has continuing royalty obligations of ten
percent based on (i) the incremental profit to CGP from the application of the
technology underlying the three patents and (ii) any royalties to CGP from CGP's
sublicensees.
Pursuant to the terms of the KSU license, CGP must introduce at least
one product incorporating the technology underlying the patents by March 1997
and must achieve total sales (including the sales of sublicensees) of such
products during the period between March 1997 and March 1998 of $100,000, or KSU
may terminate the license. CGP may, however, request two separate, additional
six month extensions in order to meet this requirement if CGP pays $3,000 for
each extension; provided, however, that no minimum sales requirement exists in
any year in which CGP does not have any sublicensees. CGP does not currently
sell any product incorporating the technology underlying the patents, and has
not sublicensed the technology.
CGP has received a federal trademark registration for the trade name
"Clean Green Packing of Minnesota" and related logo.
GOVERNMENTAL/ENVIRONMENTAL REGULATION
UNITED RECYCLING. United Recycling is currently unaware of any federal,
state or local regulation governing the manufacturing, advertising or
distribution of recycled carpet polymers. URI collects, processes and extrudes
plastic materials made from carpeting. Carpeting is chiefly composed of polymer
fiber (nylon, polypropylene and polyester) glue and a backing - usually
polypropylene or jute. URI also collects carpet pad.
Management believes that URI is in compliance with all environmental
regulations. Dust is the primary agent released by URI's processing procedure.
URI removes dust by means of air cyclones, baghouses and classifiers. The
collected materials are brought to landfill for proper disposal. The principal
ingredient in URI's carpet dust is calcium carbonate, generally know as simple
lime. Following installation of URI's air cyclones and classifiers, the City of
St. Louis Park, Minnesota (where URI was formerly located) inspected the
facility and determined that URI was in compliance with air quality standards
and regulations. Heat exhaust from URI's extruders is scrubbed and filtered,
thus keeping URI within all applicable air quality standards. Waste materials
generated by the scrubbing and filtering process are disposed of as hazardous
waste and are handled in the manner required by the State of Minnesota.
Alternatives to disposing of the calcium carbonate are being explored.
URI is presently processing approximately 50% of collected carpet. It
is expected that the amount processed will increase significantly with the
successful development of the Hume Process. Unprocessed carpet plus unused
components from processed carpet, including dirt, are sent to the landfill.
CLEAN GREEN PACKING. CGP manufactures its loose-fill utilizing wheat
starch, food coloring and an FDA approved polyvinyl alcohol. CGP's waste
material is landfilled or washed away in the waste water system.
CGP's manufacturing facility is in compliance with all local and State
of Minnesota air quality requirements and has not been cited for, or received
any complaints regarding, the discharge of any materials into the air. There are
no aerial discharges from the storage or use of CGP raw materials. Discharge
into the air is limited to venting of steam from the cooking process and some
starch dust which occurs as a natural byproduct of CGP's hopper loading
procedures.
The U.S. Food and Drug Administration ("FDA") generally regulates the
manufacturing and distribution of food products, and the Federal Trade
Commission ("FTC") generally regulates advertising claims made for various
products. Because CGP's packing material is starch-based, the FDA could
determine to regulate the manufacturing and distribution of CGP's packing
material, which could be ingested, although it is not intended for such purpose.
In July 1992, the FTC announced nonbinding product advertising guidelines
defining the term "biodegradable." CGP believes that its loose-fill packing
material satisfies the requirements of the FTC's new guidelines. There can be no
assurance that state authorities will not take their own action to regulate
CGP's operations.
At the storage or pre-manufacturing phase of CGP's process, there are
no discharges into the waste water stream. Water is a major ingredient in the
composition of the final product. Excess water is drained into the city's waste
water system. This outflow contains some starch, polyvinyl alcohol and food
coloring. Such discharges are kept to a minimum. CGP has not been cited for any
violations by any governmental unit for waste water issues. During the warm-up
phase of CGP's manufacturing process, waste material is separated for disposal
at landfill. In addition, some loose-fill pieces may be discharged during
shipment. These loose pieces are degradable and will dissolve upon contact with
water.
RESEARCH AND DEVELOPMENT
ETI. For the fiscal years ended April 30, 1996 and April 30, 1995,
respectively, ETI expended $15,255 and $31,900 on research and development
activities in the area of plastic starch at the University of Minnesota. The
goal of this research has been to create a starch-based plastic that would have
the properties of a smooth, rigid plastic at a cost competitive with
petroleum-based plastic. The primary raw materials for this product would be
corn or wheat starch.
UNITED RECYCLING. For the fiscal years ended April 30, 1996, and April
30, 1995, respectively, URI expended $1,012,864 and $66,150 on research and
development activities. Since its inception in February 1990, URI's business has
been principally devoted to the development of its technology for recycling
carpet, and the majority of its research and development activities during
fiscal 1996 were devoted to increasing the throughput and purity levels of this
technology. Prior to September 1995, most of URI's research and development
activities were conducted by ETI or URI employees. Since September 1995, Fluor
Daniel employees have assisted in such research and development activities
pursuant to the terms of the Fluor Daniel Agreements.
CLEAN GREEN PACKING. For the years ended April 30, 1996, and April 30,
1995, respectively, CGP expended $30,048 and $66,392, on research and
development activities. Virtually all research and development efforts were
directed towards CGP's pellet project.
EMPLOYEES
ETI employs two persons, both on a full-time basis in general
management and administration. URI employs 19 persons on a full-time basis, 10
in manufacturing and 9 in general management and administration. In addition,
URI uses several temporary employees. CGP employs 11 persons on a full-time
basis, five in manufacturing, three in sales and marketing and three in general
management and administration. None of ETI's, URI's or CGP's employees are
represented by a labor union or are subject to any collective bargaining
agreement. None of ETI, URI or CGP have ever experienced a work stoppage and all
believe their employee relations are satisfactory.
CERTAIN IMPORTANT FACTORS
The Company's operations and its ability to achieve its goals and strategies are
dependent upon a number of factors, including the following:
(i) the history of operating losses experienced by the Company since
its inception and the expectation that the Company will continue to incur
additional operating losses and net losses over the next several years;
(ii) the Company's need for additional capital which if not obtained,
could significantly impair the Company's ability to achieve fully its goals and
strategies and could cause the Company to curtail its operations or cease
operations entirely;
(iii) the uncertainty that the Traweek Technology and the CDM
Technology will result in higher throughput rates and will produce products with
higher purity levels and URI's ability to implement and operate the Traweek
Technology and the CDM Technology on a full-scale, commercial production basis;
(iv) the ability to achieve market acceptance of the Company's recycled
products as an alternative to virgin materials; and
(v) the success of URI's strategic relationship with Fluor Daniel.
ITEM 2. PROPERTIES
ETI's corporate headquarters are located at 325 Cedar Avenue South,
Minneapolis, Minnesota, in approximately 1,500 square feet of office space. The
current lease for the Cedar Avenue location expires in January 1999, and the
total monthly rent is $1,575.
URI's principal executive and administrative facilities are located at
8441 Wayzata Boulevard, Minneapolis, Minnesota, and URI's new manufacturing
facilities are located at 3558 Second Street North, Minneapolis, Minnesota
55412. The administrative facility has approximately 5,300 square feet of office
space. The current lease for the administrative facility space expires in
September 2000, and the total monthly rent is $6,541. URI's new manufacturing
facility has approximately 32,000 square feet of improved office and
manufacturing space. URI's lease for its manufacturing facility expires in June
2001, and its total monthly rent is currently $11,305. Although these facilities
are adequate for URI's current operations, as described above, URI's strategy is
to establish a full-scale production facility near Chicago, Illinois that will
house the CDM Technology and the Traweek Technology and initially to establish
two collection facilities to supply this new production facility.
CGP's principal executive offices and manufacturing facility are
located at 720 Florida Avenue, Golden Valley, Minnesota, a Minneapolis suburb.
The principal executive offices and manufacturing facility occupies 27,750
square feet. CGP's lease expires in November of 1999 and its total monthly rent
is $9,860. Although CGP's manufacturing facilities are adequate for its current
operations, CGP's strategy is to expand its production and distribution
capabilities by establishing production facilities in other geographic regions
of the United States.
ITEM 3. LEGAL PROCEEDINGS
The Company reached a litigation settlement with Atlantic Capital
Corporation of Central Florida, Inc. ("Atlantic Capital"), on May 25, 1995.
Pursuant to the terms of the settlement, ETI paid Atlantic Capital $67,000 in
the form of ETI common stock.
The Securities and Exchange Commission (the "SEC") commenced an
informal investigation relating to ETI's initial public offering, which was
completed in October 1992. Since January 1994, ETI has had no correspondence
with the SEC relating to this investigation. To ETI's knowledge, the SEC has not
made any formal findings as a result of its investigation, and to date no claim
has been made against ETI by the SEC or by any shareholder. There can be no
assurance, however, that such formal findings or claims will not be made in the
future, and any such findings or claims could have a material adverse effect on
ETI.
In October 1995, Uni-Star Industries, Ltd., an Iowa corporation
("Uni-Star"), filed suit against ETI, CGP, Evergreen Solutions, Inc., and
certain current and former officers of ETI and CGP in Iowa state district court
under claims of breach of contract, misappropriation of trade secrets,
conversion of trade secrets, equitable fraud, unfair competition, and other
claims related to said defendants' alleged unauthorized use of Uni-Star's
alleged proprietary information and trade secrets concerning a starch-based
plastic technology. The defendants removed the action to federal district court
in the Southern District of Iowa, and Uni-Star subsequently brought a motion to
remand the action to Iowa state district court. Defendants resisted the motion
and the federal district court summarily denied Uni-Star's motion based upon
defendants' resistance. As of August 1, 1996, discovery in this case had not
commenced. ETI and its wholly owned subsidiaries find Uni- Star's claims against
them to be wholly without merit and, consequently, intend to deny all
allegations of wrongdoing and aggressively pursue a dismissal of the action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
The Company's common stock, $.01 par value (the "Common Stock"), is
traded on the national over-the-counter market, as reported by Nasdaq. The
following table reflect the quarterly high and low bid quotations for the Common
Stock for the last two fiscal years. Such information represents prices between
dealers, without retail mark-up, mark-down or commission, and does not
necessarily represent actual transactions. Effective August 5, 1996, the Company
effected a 1 for 10 reverse stock split of its Common Stock (the "Reverse
Split"). The prices listed below reflect the Reverse Split.
Fiscal year ended April 30, 1995
Bid Bid
Quarter High Low
First................................... 13.75 7.50
Second.................................. 11.25 5.00
Third................................... 11.25 6.25
Fourth.................................. 8.13 5.00
Fiscal year ended April 30, 1996
Bid Bid
Quarter High Low
First................................... 17.19 5.63
Second.................................. 18.75 9.38
Third................................... 12.19 6.25
Fourth.................................. 7.81 4.38
HOLDERS
As of July 26, 1995, there were approximately 375 holders of record of
Common Stock.
DIVIDENDS
The Company has never paid cash dividends on the Common Stock, and
management intends to retain any earnings for use in its operations and does not
anticipate paying cash dividends in the future. In October 1994, the Company
declared and paid a 10% stock dividend. This was done through the issuance of
Series U Preferred Stock (the "Series U Preferred"). The Series U Preferred was
recorded at 10% of fair market value of the Company's Common Stock. The Series U
Preferred has no preference rights to the Company's Common Stock. Series U
Preferred shareholders are entitled to receive cash dividends of 10% of annual
URI net income. Such dividends are cumulative only to the extent URI reports
annual net income. Such dividends have preference over any Common Stock
dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations items
as a percentage of net sales for fiscal 1996, 1995 and 1994.
FISCAL YEAR
1996 1995 1994
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Goods Sold 93.7 88.1 100
Gross Profit 6.3 11.9 0
Operating Expenses:
Selling, General and Admin. 183.5 109.2 121.3
Research and Development 56.5 8.0 13.9
Extraordinary gains (losses) 0.0 (4.8) 20.0
Total Operating Income (Loss) (233.6) (100.2) (162.4)
Other Income (Expense) (1.6) (2.3) (7.3)
Pre-tax Income (Expense) (235.2) (102.5) (162.4)
Net Income (Loss) (235.2) (102.5) (162.4)
NET SALES
The following table sets forth net sales by operating subsidiary as a
percentage of total sales.
FISCAL YEAR
1996 1995 1994
---- ---- ----
CGP 74.3% 82.1% 87.2%
URI 25.7% 17.9% 12.8%
------ ------ ------
Total 100.0% 100.0% 100.0%
Net sales decreased by 9.3% from $2.1 million in fiscal 1995 to $1.9
million in fiscal 1996. Revenues at URI increased by 30% due to increased carpet
collections in the Minneapolis/St. Paul area and increased sales of processed
fibers. Revenues at CGP decreased approximately 18% due to management's decision
to phase out sales of non-loosefill products and lower sales of loosefill
products to distributors in markets more than 250 miles away from CGP's
manufacturing plant.
GROSS PROFIT
Gross profit as a percentage of sales declined from 11.9% of sales in
fiscal 1995 to 6.3% of sales in fiscal 1996. Gross profit margins at CGP,
however, improved to 32.7% of sales as a result of an improved product mix
(reduced non-loosefill sales and a concentration on higher margin local users).
URI, which continued to struggle through the year with inefficient equipment and
low throughput rates, took steps in fiscal 1996 to remedy the situation by
acquiring new, higher throughput equipment. URI also moved into a different
manufacturing facility. This move, along with delays in installing equipment,
contributed to sharply higher manufacturing overhead and direct labor costs
resulting in a negative 70% gross profit margin. For the coming year, URI's
management plans to complete installation of the equipment necessary to raise
throughput rates and improve the Company's gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased from $2.3
million in fiscal 1995 to $3.4 million in fiscal 1996. CGP accounted for about
20% of overall selling, general and administrative expenses. Due to a
restructuring of its sales force CGP reported lower selling, general and
administrative expenses for the year. URI underwent its own restructuring and
built a management team in anticipation of national expansion. URI reported
sharply higher selling, general and administrative expenses and accounted for
about 20% of overall selling, general and administrative expenses. URI reported
a 209% increase in selling, general and administrative expenses between fiscal
1995 and fiscal 1996.
RESEARCH AND DEVELOPMENT
Research and development expenses increased sharply from $164,442 in
fiscal 1995 to $1,058,167 in fiscal 1996. The increase is due primarily to
management's decision in early fiscal 1996 to enter into a strategic
relationship with Fluor Daniel to accelerate the design and engineering of URI's
proprietary carpet processing and recycling technology.
NET LOSS
Net loss for the year ended April 30, 1996 was 109% higher than the
prior year's loss. Approximately $2 million of the fiscal 1996 loss was
attributable to an investment in research and development and general and
administrative expenses at URI to develop a technology for carpet recycling, and
to negotiating strategic and marketing relationships with leading companies in
the nylon and carpet industries.
LIQUIDITY AND CAPITAL RESOURCES
The Company used approximately $3.5 million in net cash for operations
in fiscal 1996, up 195% from the prior year's approximately $1.2 million. The
Company used approximately $730,000 to purchase capital equipment and to repay
indebtedness, down from the prior year's $893,390. The net cash provided by
financing activities of $4,101,237 in fiscal 1996 is due primarily to the net
proceeds from the issuance of common and preferred stock. As of April 30, 1996,
cash balances had increased to $134,564 from $247 at April 30, 1995. The Company
will require substantial additional capital to fund ongoing operations and
expansion plans. The Company intends to obtain such capital through a
combination of sources, including sale of equity, additional indebtedness,
corporate joint ventures, funds from operations and the sale of operating assets
and/or technologies. There can be no assurance, however, that additional funds
will be available on acceptable terms or at all. If the Company is unable to
obtain additional funds as needed, the Company may be required to significantly
curtail its business operaitons, or cease operations entirely. See Note 3 of
Notes to Consolidated Financial Statements entitled "Going Concern
Uncertainties."
ITEM 7. FINANCIAL STATEMENTS
The Company's Financial Statements as of April 30, 1996 and April 30,
1995 and for each of the two years ended April 30, 1996 and April 30, 1995 are
included in this Form 10-KSB Report starting at Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Disclosure as required by this Item has been previously reported.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The directors and executive officers of the Company, their ages, and the
office(s) held by each as of July 26, 1996 are as follows:
Name Age Title
---- --- -----
Robin R. Young 43 Chairman of the Board of Directors,
Chief Executive Officer and Treasurer
Charles D. Pyle Jr. 64 Director
C. Henry Traweek 53 Director
H. David Francis 56 Director
Other Information about Directors and Executive Officers
Robin R. Young has served as the Company's Chief Executive Officer and
a director since September 1991, and as its Chairman of the Board since
June 1992. Since January 1991, he has also been a director of CGP.
Between January 1991 and February 1992, Mr. Young was Chief Executive
Officer of CGP, and he also served in such capacity between October
1990 and January 1991. Between February 1986 and July 1991, Mr. Young
was a Vice President of John G. Kinnard & Company, Incorporated, a
Minneapolis, Minnesota securities firm. Between September 1984 and
January 1986, Mr. Young was a Vice President and securities analyst for
Piper, Jaffray & Hopwood Incorporated, a Minneapolis, Minnesota
securities firm. Mr. Young is a founder of the Company and CGP.
Charles D. Pyle, Jr. served as ETI's President from May 1993 until
September 1995. Mr. Pyle has served as a director of ETI since April
1992. The founder of URI, Mr. Pyle served as URI's President between
February 1990 and April 1992, at which time he became President,
Midwest Region of URI. Mr. Pyle also served as President of URI from
May 1993 until October 1995. Mr. Pyle currently serves as the Senior
Vice President - Industry Relations for URI, a position he has held
since October 1995. Since 1965, Mr. Pyle has been an independent
representative for various manufacturers in the floor covering
industry.
C. Henry Traweek has served as a director of ETI since March 1994 and
as Senior Vice President - Operations of URI since December 1995. From
May 1994 to December 1995, Mr. Traweek served as Chief Operating
Officer of URI. Mr. Traweek established and served as General Manager
of United Resources Recovery, Inc., a high density polyethylene plastic
recycler, from April 1989 to April 1994. From October 1986 through
February 1989, Mr. Traweek was Executive Vice President and Principal
of Million Air, Inc., an air cargo service business.
H. David Francis has served as director of the Company since May 1994.
Mr. Francis is currently an independent marketing and communications
consultant and adjunct professor of Advertising Writing at the
University of Minnesota. From 1983 to 1989, Mr. Francis was the
Executive Vice President and Executive Creative Director of
Campbell-Mithun Esty Advertising Agency.
COMPLIANCE WITH SECTION 16(A).
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons
who own more than 10% of the Company's Common Stock, to file with the
Securities and Exchange Commission (the "SEC") initial reports of
ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company convertible into Common Stock.
Executive officers, directors and greater than 10% shareholders are
required by SEC regulations to furnish the Company with copies of all
Section 16(a) reports they file. To the Company's knowledge, based
solely on review of the copies of such reports furnished to the Company
during the period ended April 30, 1996, all Section 16(a) filing
requirements applicable to its executive officers, directors and
greater than 10% shareholders were met.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash and non-cash compensation for
each of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Fiscal ------------
Year Annual Compensation Securities
Ended --------------------- Underlying
Name and Principal Position April 30 Salary ($) Bonus ($) Options (#)
- - --------------------------- -------- ---------- --------- -----------
Robin R. Young 1996 $90,384.37 $32,750.00(1)
Chairman of the Board, 1995 $80,270.00 $ 3,000.00 150,000
Chief Executive Officer 1994 $81,382.00 $ 400.00 0
(1) Mr. Young was awarded 1,000 shares of unregistered Common Stock in
August 1995, which shares fully vested on the date of grant. Upon the
date of grant, the market value of the shares was $750.
OPTION GRANTS. No options were granted during fiscal 1996 to the
executive officer named in the Summary Compensation Table above.
OPTION EXERCISES. No options were exercised by the executive officer
named in the Summary Compensation Table during fiscal 1996. The following table
summarizes the option values held by the executive officer named in the Summary
Compensation Table as of April 30, 1996.
AGGREGATED OPTION EXERCISES
FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-
NUMBER OF UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT APRIL 30, 1996 APRIL 30, 1996(1)
-------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Robin R. Young 0 $0 343,416 0 $0 $0
</TABLE>
(1) Based on the closing bid price for the Company's Common Stock on April
30, 1996 of $.50 per share.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of
the Common Stock of the Company as of July 26, 1996 (before giving effect to the
Reverse Split) unless otherwise noted, by (a) each shareholder who is known by
the Company to own beneficially more than 5% of the outstanding Common Stock,
(b) each director (c) each executive officer named in the Summary Compensation
Table and (d) all executive officers and directors of the Company as a group.
Shares of Common Stock Beneficially Owned(1)
Percent
Name and Address Amount of Class
- - ---------------- ------ --------
Robin R. Young and 683,180 (2) 2.9%
Catherine S. Young, Jt. Ten
325 Cedar Avenue South
Minneapolis, MN 55454
Charles D. Pyle, Jr. 364,600 (3) 1.6%
325 Cedar Avenue South
Minneapolis, MN 55454
C. Henry Traweek 70,000 (4) *
325 Cedar Avenue South
Minneapolis, MN 55454
H. David Francis 34,286 (5) *
448 Mississippi River Blvd No.
St. Paul, MN 55104
All current directors and
executive officers as a
group (4 persons) 1,152,066 (6) 4.8%
* Less than 1%
(1) Shares not outstanding but deemed beneficially owned by virtue of the
right of a person or member of a group to acquire them within 60 days
are treated as outstanding only when determining the amount and percent
owned by such person or group. As of July 26, 1996, the Company had
23,404,882 shares of Common Stock outstanding. Unless otherwise noted,
all shares shown are held by individuals or entities possessing sole
voting and investment power with respect to such shares.
(2) Includes 109,954 shares owned by the Biloine W. Young Trust, of which
Mr. Young is a trustee and 343,416 shares which Mr. Young may acquire
upon the exercise of options.
(3) Includes 42,500 shares which Mr. Pyle may acquire upon the exercise of
options.
(4) Includes 40,000 shares of Common Stock which Mr. Traweek may acquire
upon the exercise of options.
(5) Includes 20,000 shares of Common Stock which Mr. Francis may acquire
upon the exercise of options.
(6) Includes options to purchase 445,916 shares of Common Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1996, the Company loaned Robin R. Young $13,589. As of
August 1, 1996, this loan had not been repaid. This loan bears interest at a
rate of 10% and is due on demand by the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) 1. EXHIBITS
The exhibits to this Report are listed in the Exhibit Index on
pages 31 to 33 below.
A copy of any of the exhibits listed or referred to above will
be furnished at a reasonable cost to any person who is a
shareholder of the Company as of July 26, 1996, upon receipt
from any such person of a written request for any such
exhibit. Such request should be sent to Environmental
Technologies USA, Inc., 325 Cedar Avenue South, Minneapolis,
Minnesota 55454; Attention: Shareholder Relations.
2. MANAGEMENT CONTRACTS
The following is a list of each management contract or
compensatory plan or arrangement required to be filed as an
exhibit to this Annual Report on Form 10- KSB pursuant to Item
13(a):
A. Form of incentive stock option agreement
(incorporated by reference to Exhibit 10.7
to the Company's Registration Statement on
Form S- 1 (File No. 33-50562)).
B. Form of Non-Statutory Stock Option Agreement
(incorporated by reference to Exhibit 10.8
to the Company's Registration Statement on
Form 10-KSB for the fiscal year ended April
30, 1994 (File No.
0-22736)).
C. Form of Restricted Stock Award Agreement
(incorporated by reference to Exhibit 10.9
to the Company's Registration Statement on
Form S-1 (File No. 33-50562)).
D. 1991 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.6
to the Company's Registration Statement on
Form S-1 (File No. 33-50562)).
E. 1993 Stock Plan (incorporated by reference
to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (File No.
33-78762)).
F. 1994 Stock Plan (incorporated by reference
to Exhibit 10.7 to the Company's Annual
Report on Form 10-KSB for fiscal year ended
April 30, 1994 (File No. 0-22736)).
(B) REPORTS ON FORM 8-K
During the fourth quarter of the fiscal year ended April 30,
1996, the Company filed one Current Report on Form 8-K, dated
as of February 23, 1996, as amended by the Company's Current
Report on Form 8-K/A, dated as of February 27, 1996
(collectively, the "February Form 8-K"). The February Form 8-K
contained an Item 4, Change in Registrant's Certifying
Accountants, disclosure. No financial statements were included
in the February Form 8-K.
ENVIRONMENTAL TECHNOLOGIES USA, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED APRIL 30, 1996
C O N T E N T S
PAGE
INDEPENDENT AUDITOR'S REPORT........................................... F1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets....................................... F2
Consolidated Statements of Operations ............................ F3
Consolidated Statements of Stockholders' Equity................... F4
Consolidated Statements of Cash Flows............................. F5
Notes to Consolidated Financial Statements........................ F6
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Environmental Technologies USA, Inc.
Minneapolis, Minnesota
We have audited the consolidated balance sheet of ENVIRONMENTAL TECHNOLOGIES
USA, INC. and subsidiaries as of April 30, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended as listed in Item 7 of the Annual Report on Form 10-KSB of ENVIRONMENTAL
TECHNOLOGIES USA, INC. for the year ended April 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated financial statements as of April 30, 1995, were
audited by Fox, McCue & Company, P.A., who merged with Eide Helmeke PLLP as of
May 1, 1996 whose report dated July 7, 1995, on those consolidated statements
included an explanatory paragraph that described substantial doubt about the
entity's ability to continue as a going concern described in Note 3 to the
consolidated financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ENVIRONMENTAL
TECHNOLOGIES USA, INC. and subsidiaries as of April 30, 1996, and the results of
its operations and cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that ENVIRONMENTAL TECHNOLOGIES USA, INC. and subsidiaries will continue as a
going concern. As discussed in Note 3 to the consolidated financial statements,
the Company's recurring losses from operations and accumulated deficit raise
substantial doubt about the entity's ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 3. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As discussed in Note 4 to the consolidated financial statements, the Company
signed an agreement in principle subject to due diligence on June 25, 1996 to
sell substantially all of the assets and liabilities of its wholly owned
subsidiary, Clean Green Packing Company of Minnesota.
July 25, 1996
Eden Prairie, Minnesota
ENVIRONMENTAL TECHNOLOGIES USA, INC.
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 134,564 $ 247
Accounts Receivable, Less Allowance for Doubtful Accounts
of $7,319 and $41,500, respectively 178,206 184,437
Notes Receivable - Employee 17,055 3,466
Inventories 54,107 78,734
Prepaid Expenses 57,537 38,908
----------- -----------
Total Current Assets 441,469 305,792
----------- -----------
LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold Improvements 119,450 108,876
Equipment 2,428,165 2,075,089
Furniture and Fixtures 143,204 78,306
----------- -----------
2,690,819 2,262,271
Less Accumulated Depreciation and Amortization (Deduction) (1,033,582) (788,890)
----------- -----------
1,657,237 1,473,381
----------- -----------
OTHER ASSETS:
Restricted Cash 15,000 15,000
Patent Rights Less Accumulated Amortization of $41,759
and $33,787, respectively 37,963 51,253
Goodwill and Technology Rights Less Accumulated
Amortization of $8,070,084 and $7,797,672, respectively 420,431 618,079
Investment in Clean Green Polymers, Inc. 69,200 0
Other Assets 40,294 27,411
----------- -----------
582,888 711,743
----------- -----------
TOTAL ASSETS $ 2,681,594 $ 2,490,916
=========== ===========
1996 1995
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable $ 80,651 $ 231,955
Accounts Payable 203,877 375,826
Accrued Expenses 682,555 586,145
Dividends Payable 36,946 0
Deferred Revenue 15,600 0
Current Portion of Long-Term Liabilities 132,845 120,700
------------ ------------
Total Current Liabilities 1,152,474 1,314,626
------------ ------------
LONG-TERM OBLIGATIONS:
Capitalized Lease Obligations 21,168 4,457
Long-Term Debt 404,365 461,375
Less Current Portion (132,845) (120,700)
------------ ------------
292,688 345,132
------------ ------------
DEFERRED REVENUE, SALE OF CLEAN GREEN POLYMERS, INC 171,759 0
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
ETI Common Stock, Par Value $.01 Per Share $ 203,177 $ 133,932
ETI Series U Preferred Stock, Par Value $.01
Per Share; 1,400,000 Shares Authorized 10,755 10,755
ETI Convertible Preferred Stock, Par Value $.01 Per Share 26 0
URI Preferred Stock, No Par Value 500,000 0
Additional Paid-In Capital 21,616,777 16,814,222
Retained Earnings (Deficit) (20,398,043) (15,874,626)
------------ ------------
1,932,692 1,084,283
Less Note Receivable Due from One Capital for ETI
Common Stock (218,125) (253,125)
Less Note Receivable Due from Fluor Daniel, Inc. for URI
Preferred Stock (183,730) 0
Less Notes Receivable from Starch Tech, Inc. for Clean
Green Polymers, Inc. Common Stock (466,164) 0
------------ ------------
1,064,673 831,158
------------ ------------
Total Liabilities and Stockholders' Equity $ 2,681,594 $ 2,490,916
============ ============
</TABLE>
See independent auditor's report and notes to consolidated financial statements.
ENVIRONMENTAL TECHNOLOGIES USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996 AND 1995
1996 1995
------------ ------------
Net Sales $ 1,873,725 $ 2,064,712
Cost of Product Sold 1,755,496 1,819,491
------------ ------------
Gross Profit 118,229 245,221
Research and Product Development Costs 1,058,167 164,442
General, Administrative and Selling 3,437,834 2,255,186
------------ ------------
Operating (Loss) (4,377,772) (2,174,407)
Interest Expense (38,842) (46,559)
Other Income 8,913 106,485
------------ ------------
Net (Loss) $ (4,407,701) $ (2,114,481)
============ ============
Net (Loss) Per Share $ (.26) $ (.19)
============ ============
Weighted Average Common Shares Outstanding 16,653,897 11,034,076
============ ============
See independent auditor's report and notes to consolidated financial statements.
ENVIRONMENTAL TECHNOLOGIES USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
SERIES U CONVERTIBLE
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
------------ --------------- ---------------
NUMBER NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 30, 1994 8,071,440 $ 80,714 0 $ 0 0 $ 0
Common Stock Issued in
Private Placements from
May 1994 to February 1995 4,269,630 42,696
Common Stock Issued for
Technology Rights in
September 1994 40,000 400
Common Stock Issued
Through Exercise of Options
at Various Dates from May
1994 Through October 1994 400,000 4,000
Preferred Stock Issued in
October 1994 as 10%
Common Stock Dividend 1,075,516 10,755
Common Stock Issued for
Services from July 1994
Through February 1995 162,267 1,622
Common Stock Issued in
March 1995 in Exchange
for Promissory Note 450,000 4,500
Net (Loss)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, APRIL 30, 1995 13,393,337 133,932 1,075,516 10,755 0 0
Common Stock Issued in
Private Placements from
May 1995 to November
1995 2,735,098 27,352
Convertible Preferred Stock
Issued in Private Placements
from August 1995 to April
1996 603,738 6,037
Conversion of Convertible
Preferred Stock to Common
Stock from October 1995
to April 1996 3,418,667 34,187 (601,100) (6,011)
Common Stock Warrants and
Options Exercised in May
1995 and January 1996 13,333 133
Common Stock Issued in
Private Placements in March
1996 to AARC and AURI 350,000 3,500
Common Stock Issued as
Employee Compensation or
for Services 142,267 1,423
URI Preferred Stock Issued
to Fluor Daniel, Inc.
Common Stock Issued to
Minnmark, Inc. 200,000 2,000
Common Stock Issued to
Kansas State 65,000 650
Preferred Stock Dividends
Paid and Declared
Net (Loss)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, APRIL 30, 1996 20,317,702 $ 203,177 1,075,516 $ 10,755 2,638 $ 26
========== ========== ========== ========== ========== ==========
</TABLE>
(wide table continued below)
URI
PREFERRED STOCK
----------------------- ADDITIONAL RETAINED
NUMBER PAID-IN EARNINGS
OF SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ---------- ----------- ------------ ----------
0 $ 0 $13,722,278 $(12,886,288) $ 916,704
1,689,955 1,732,651
34,800 35,200
180,375 184,375
863,102 (873,857) 0
75,087 76,709
248,625 253,125
(2,114,481) (2,114,481)
---------- ---------- ----------- ------------ ----------
0 0 16,814,222 $(15,874,626) $1,084,283
796,967 824,319
3,389,720 3,395,757
(28,176) 0
31,117 31,250
346,500 350,000
104,077 105,500
125,000 500,000 500,000
98,000 100,000
64,350 65,000
(115,716) (115,716)
(4,407,701) (4,407,701)
---------- ---------- ----------- ------------ ----------
125,000 $ 500,000 $21,616,777 $(20,398,043) $1,932,692
========== ========== =========== ============ ==========
ENVIRONMENTAL TECHNOLOGIES USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net (Loss) $(4,407,701) $(2,114,481)
Adjustments to Reconcile Net (Loss) to Net Cash (Used In)
Operating Activities:
Fluor Daniel, Inc. Consulting Services Incurred Against
Note Receivable 316,270 0
Settlement (Gain) from Creditor 0 (100,000)
Common Stock Issued for Employee Compensation
or Services 105,500 76,709
Depreciation and Amortization 561,529 760,151
Loss (Gain) on Disposal of Leasehold Improvements and Equipment 52,684 (4,072)
Changes in Operating Assets and Liabilities
Accounts and Notes Receivable (7,358) 117,680
Inventories 24,627 (3,879)
Prepaid Expenses (18,629) (25,057)
Accounts Payable (171,949) 67,306
Accrued Expenses 96,410 71,056
Deferred Revenue 0 (12,500)
----------- -----------
Net Cash Provided by (Used In) Operating Activities (3,448,617) (1,167,087)
----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Additions to Leasehold Improvements and Equipment (562,129) (235,398)
Purchase of Intangible Assets (9,766) (90,070)
Proceeds of Equipment Sold 66,475 5,350
Decrease (Increase) in Other Assets (12,883) (21,474)
----------- -----------
Net Cash (Used In) Investing Activities (518,303) (341,592)
----------- -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Repayments of Short-Term Debt (51,304) (324,402)
Net Proceeds from Issuance of Common and Preferred Stock 4,601,326 1,917,026
Collection on One Capital and Starchtech, Inc. Notes Receivable 36,995 0
Contributions to Capital of Clean Green Polymers, Inc. (350,000) 0
Preferred Stock Dividends Paid (78,770) 0
Proceeds from Issuance of Long-Term Liabilities 60,000 108,032
Repayment of Long-Term Liabilities (117,010) (333,590)
----------- -----------
Net Cash Provided by Financing Activities 4,101,237 1,367,066
----------- -----------
Net Increase (Decrease) in Cash 134,317 (141,613)
----------- -----------
Cash at Beginning of Year 247 141,860
----------- -----------
Cash at End of Year $ 134,564 $ 247
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Year for Interest $ 40,203 $ 47,454
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Conversion of Note Payable to Common Stock $ 100,000 $ 0
Common Stock Issued for Employee Compensation or Services 105,500 76,709
Common Stock Issued for Technology Rights 65,000 35,200
Preferred Stock Dividend Payable 36,946 0
Preferred and Common Stock Issued for Notes Receivable 969,500 253,125
Equipment Acquired Through Capital Lease 16,711 0
=========== ===========
</TABLE>
See independent auditor's report and notes to consolidated financial statements.
ENVIRONMENTAL TECHNOLOGIES USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 1996 AND 1995
NOTE 1 - NATURE OF BUSINESS
These consolidated financial statements include the parent company,
Environmental Technologies USA, Inc. (ETI) and subsidiaries, United Recycling,
Inc. (URI) and Clean Green Packing Company of Minnesota, Inc. (CGP). All
intercompany accounts and transactions have been eliminated in the consolidated
financial statements.
URI has developed a recycling process for the conversion of post-consumer
carpeting into industrial materials.
CGP manufacturers and markets directly a biodegradable starch-based foam
loose-fill packing material which degrades on direct contact with water and is a
substitute for expandable polystyrene loose-fill packing peanuts and other
cushioning materials. The Company has a manufacturing facility in Minneapolis,
Minnesota and sells within the upper Midwest-area.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Business Segment Information: The Company considers itself to be engaged in
principally one business segment which is the recycling of used carpeting into
industrial materials and the production of recyclable loose-fill packing
material.
Cash and Cash Equivalents: All investments with a maturity of three months or
less at the time of purchase are considered cash equivalents.
Inventories: Inventories consist of CGP and URI raw materials and finished goods
which are valued at the lower of cost (first-in, first-out basis) or market.
Intangibles: Intangibles consist of patent costs; technology rights and
goodwill; these assets are being amortized ratably over the following economic
years:
Patent rights 10 years
Technology rights 5 years
Goodwill 3 years
Leasehold Improvements and Equipment: These assets are recorded at cost.
Expenditures for repairs, maintenance and minor renewals which neither
materially add to the value of the asset nor appreciably prolong its life are
charged to expense as incurred.
When equipment is retired or otherwise disposed of, the related cost and
accumulated depreciation and amortization are removed from the respective
accounts and any gain or loss on disposition is included in operations.
Depreciation and amortization are provided using the straight line method over
the following estimated useful lives:
Years
------------
Leasehold improvements 2.5 - 7
Equipment 2 - 10
Furniture and fixtures 3 - 7
Restricted Cash: Restricted cash represents collateral held by a bank for an
operating lease which expires in May 1996.
Concentrations of Credit Risk: Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of accounts
receivable. Such receivables are generally unsecured; however this credit risk
is limited due to the large number of customers.
Revenue Recognition: Both URI and CGP recognize revenue for sales in the normal
course of business at the time of shipment. URI also recognizes revenue for
carpet collection services upon providing such services.
Deferred Revenues: This revenue resulted from the Polymers sale (See Note 5) and
is recognized as collections on the notes receivable occur.
Income Taxes: Income taxes are provided for the tax effects of transactions
reported in the consolidated financial statements and consist of taxes currently
due plus deferred taxes. Deferred taxes are recognized for differences between
the basis of assets and liabilities for consolidated financial statement and
income tax purposes. The differences relate primarily to depreciable assets (use
of different depreciation methods and lives for consolidated financial statement
and income tax purposes), allowance for doubtful receivables (deductible for
consolidated financial statement purposes but not for income tax purposes) and
net operating loss carryforwards. Deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Fair Value: The carrying amounts reflected in the balance sheet for cash,
restricted cash, accounts receivable, and accounts payable approximate the
respective fair values due to the short maturities of those instruments. The
carrying values for notes payable approximate the fair value since interest
rates are generally at competitive market rates.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period.
Loss Per Share: Loss per share is computed based upon the weighted average
number of common shares outstanding during the respective years.
Reclassifications: Certain reclassifications have been made in the 1995
consolidated financial statements to conform to the 1996 presentation.
NOTE 3 - GOING CONCERN UNCERTAINTIES
The Company's consolidated financial statements have been prepared on a going
concern basis which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. The Company has
incurred net losses of $4,407,701 and $2,114,481 for the years ended April 30,
1996 and 1995, respectively. The Company has an accumulated retained earnings
deficit of $20,398,043 and a working capital deficit of $711,005 at April 30,
1996. The Company ultimately is dependent upon additional equity or debt
financing as well as positive cash flows from operating activities to continue
operations. Management is continuing its efforts to obtain additional equity
and/or debt financing while restructuring operations to reduce costs and achieve
positive cash flows from operations.
NOTE 4 - POTENTIAL SALE OF CLEAN GREEN PACKING COMPANY OF MINNESOTA, INC.
In June 1996, ETI entered into negotiations with International Absorbents, Inc.
regarding the sale of substantially all of the assets and liabilities of CGP.
The buyer would pay $500,000 in cash for all assets and liabilities, excluding
the advances due parent company and issue warrants for the purchase of up to
400,000 shares of its Common Stock at market price as of the close date.
International Absorbents, Inc. is a leading manufacturer and marketer of
absorbent products made from waste wood pulp.
A condensed CGP balance sheet as of April 30, 1996 follows:
ASSETS
Current assets $ 216,149
Leasehold improvements and equipment, less accumulated
depreciation and amortization 663,759
Other assets 49,446
------------
TOTAL ASSETS $ 929,354
============
LIABILITIES
Advance due ETI $ 2,444,668
Other current liabilities 338,722
------------
Total Current Liabilities 2,783,390
Long-term liabilities 252,059
STOCKHOLDER'S EQUITY (DEFICIENCY IN ASSETS) (2,106,095)
------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
(DEFICIENCY IN ASSETS) $ 929,354
============
A condensed statement of operations for the fiscal year ended April 30, 1996
follows:
Net sales $ 1,392,893
Cost of product sold 937,259
------------
Gross Profit 455,634
ETI interest and other charges 179,858
Research and product development costs 30,048
General, administrative and selling 493,848
Other interest expense 33,139
----------
736,893
----------
Net (Loss) $ (281,259)
==========
NOTE 5 - INVESTMENT IN CLEAN GREEN POLYMERS, INC.
The Company is a 20% owner of Clean Green Polymers, Inc.. In January 1996 the
Company sold 80% of its Clean Green Polymers, Inc. (Polymers) Common Stock for
$469,500. The Company received two notes receivable; one is for $269,500 with
both principal and interest (8%) payable at January 31, 2001; the second note is
for $200,000 and is payable over five years in monthly installments including
interest at 11%.
Polymers was an inactive subsidiary with no assets or operations. As part of the
transactions the U.S. Department of Agriculture, Alternative Agricultural
Research and Commercialization Center (AARC) and the State of Minnesota
Agricultural Utilization Research Institute (AURI) purchased 350,000 units of
ETI for $350,000. Each unit consisted of one share of Common Stock and a warrant
for the purchase of an additional share of Common Stock at approximately market
price. ETI was required to contribute this $350,000 to Polymers as a capital
contribution before the sale was consummated.
The notes receivable at April 30, 1996 have been recorded as a reduction of
stockholders' equity. The gain on sale of this 80% Common Stock interest has
been recognized on an installment basis as collections on the notes receivable
occur. The recorded deferred revenue amounts represent the gain to be recorded
over the five year loan terms.
Polymers has had no operations through April 30, 1996.
NOTE 6 - NOTES PAYABLE AND SETTLEMENT LOSS INCURRED WITH SECURED CREDITOR
Notes payable consist of the following:
<TABLE>
<CAPTION>
April 30,
--------------------------
1996 1995
---------- -----------
<S> <C> <C>
Note payable to Riverside Bank secured with a first position on all ETI assets;
payable in monthly installments of $4,609 including interest
at prime plus 2% $ 80,651 $ 124,521
Note payable to Minnmark, Inc.; see Note 10 0 100,000
Note payable to Frommelt & Eide, Ltd. for legal services; payable in
monthly installments of $1,601 including interest at 8% 0 7,434
---------- -----------
$ 80,651 $ 231,955
========== ===========
</TABLE>
The Riverside note contains several financial and other covenants. The Company
is not in compliance with these covenants and the entire note balance has been
classified as a current liability. The bank has not demanded payment of the note
balance.
The Company had a previous note obligation to a secured creditor that was
settled during the year ended April 30, 1995 and resulted in a $100,000 recorded
gain, which was included in other income.
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
April 30,
------------------------
1996 1995
---------- ---------
<S> <C> <C>
Note payable to Small Business Administration secured by all CGP Company assets;
due in monthly installments of $3,263 including interest and fees at
at 7% through January 2020; guaranteed by major stockholder/officer $ 176,103 $ 200,749
Obligation under a License Agreement; obligation payable in minimum annual
installments of $100,000; balance due September 1995 0 69,302
Obligation under Partnership Agreement with Agricultural Utilization Research
Institute (AURI); due in monthly installments of $1,305 including interest at
6% through March 2005 107,749 116,699
Note payable to Minnesota Office of Waste Management in quarterly payments of
$3,513 including interest at 4% through January 2001; secured by specific
equipment 60,513 74,625
Note payable to Riverside Bank secured by various computer and office equipment;
payable in monthly installments of $1,277 including interest at 2% through
April 1998 30,000 0
Note payable to Riverside Bank secured by various computer and office equipment;
payable in monthly installments of $1,376 including interest at 9.25% through
April 1998 30,000 0
---------- ---------
404,365 461,375
Less current portion (125,485) (117,011)
---------- ---------
Total $ 278,880 $ 344,364
========== =========
</TABLE>
Late payments have occurred on the Minnesota Office of Waste Management note.
The entire note balance has been classified as a current liability. The
Minnesota Office of Waste Management has brought a suit against the Company
seeking payment of the note balance.
Maturities of long-term debt are as follows:
Year Ended April 30, Amount
-------------------- ------
1997 $ 125,485
1998 69,108
1999 40,853
2000 43,615
2001 46,588
Thereafter 78,716
---------
$ 404,365
=========
The License Agreement was the result of a litigation settlement reached in April
1993. The agreement requires the Company to make royalty payments over the life
of the applicable licensed patents. The Company is obligated to make additional
royalty payments based upon cumulative CGP manufactured product sales. The
Company recorded royalty expense of $140,781 and $138,733 for the years ended
April 30, 1996 and 1995 respectively, in accordance with the Agreement.
NOTE 8 - LEASES
Company purchases under noncancellable capital lease arrangements totaled
$52,261 and $41,461 at April 30, 1996 and 1995, respectively. Accumulated
amortization was $28,581 and $21,187 at April 30, 1996 and 1995, respectively.
Amortization of assets recorded under capital lease is included with
depreciation expense.
The Company has several operating leases for office production facilities and
various equipment. The Company is responsible for maintenance, insurance and
taxes under these leases. Total rent expense was $263,492 and $205,716 for the
years ended April 30, 1996 and 1995, respectively.
Future minimum rentals to be received under noncancelable subleases total $8,050
as of April 30, 1996.
Future minimum payments required under capital lease as of April 30, 1996 are as
follows:
Year ended April 30, Amount
-------------------- ------
1997 $ 10,085
1998 9,085
1999 5,153
2000 1,652
2001 413
---------
Total minimum lease payments 26,388
Less amounts representing interest (5,220)
---------
Present Value of Future
Minimum Lease Payments $ 21,168
=========
Future commitments under operating leases as of April 30, 1996 are as follows:
Year Ended April 30, Amount
-------------------- ------
1997 $ 377,260
1998 373,802
1999 359,730
2000 285,895
2001 175,767
Thereafter 23,940
----------
Total $1,596,394
==========
NOTE 9 - INCOME TAXES
There is no provision for federal or state income taxes due to the operating
losses incurred. Deferred income tax assets are recorded for temporary
differences, net operating loss carryforwards and tax credit carryforwards. The
Company's deferred tax assets primarily result from net operating loss
carryforwards. The amounts of tax loss carryforwards are substantially less than
financial statement loss amounts, due to differences in assets basis, as a
result of statutory mergers in earlier years. These deferred tax assets have
been reduced by a valuation account equal to the asset due to the uncertainty of
utilization. These deferred assets were recorded as follows:
April 30,
--------------------------
1996 1995
----------- ----------
Deferred tax asset $ 4,600,000 $3,100,000
Less valuation account (4,600,000) (3,100,000)
----------- ----------
Net Deferred Tax Asset $ 0 $ 0
=========== ==========
The tax benefits of the operating losses incurred for the years ended April 30,
1996 and 1995 have not been recognized due to the uncertainty of ultimate
utilization of such losses. At April 30, 1996, the Company has a net operating
tax loss carryforward of approximately $13 million which expires periodically
through April 30, 2011. This carryforward amount may be restricted under Section
382 of the Internal Revenue Code as to both the ultimate and annual amount that
may be utilized, due to ownership changes within the Company during the year
ended April 30, 1993. These restricted amounts have not been determined.
NOTE 10 - STOCKHOLDERS' EQUITY
The Company's capital structure includes 50 million of $.01 par value Capital
Stock. URI has 250,000 shares of Preferred Stock authorized of which 125,000
shares are outstanding (all owned by Fluor Daniel, Inc.). On July 23, 1996 the
Company's Directors approved a 1 for 10 reverse stock split of the Company's
Common Stock to be effective as of August 2, 1996. None of the Common Stock or
per share amounts have been adjusted in these April 30, 1996 consolidated
financial statements to reflect this reverse split.
In September 1993, the Company entered into an agreement with One Capital
Corporation wherein One Capital agreed to provide general business and financial
advisory services. In return One Capital received an initial engagement fee of
options to purchase up to 950,000 shares of the Company's Common Stock at a
price of 50% of the prior day's closing bid price per share. The agreement was
later amended to provide for additional services for additional options under
the same conversion terms. During the year ended April 30, 1995, One Capital
exercised options for the purchase of 400,000 shares of the Company's Common
Stock. A separate agreement contains additional provisions providing certain
payments to the One Capital based upon future equity or debt financing.
In February 1995, the Company issued One Capital an option to purchase 450,000
shares of Common Stock at an exercise price of 50% of the market price at date
of issuance. One Capital exercised its option in March 1995. The Company issued
450,000 shares of its Common Stock in exchange for a promissory note for
$253,125. The note was due one year from the later of the filing of a
Registration Statement with the Securities and Exchange Commission registering
these share or the delivery date of the shares to One Capital.
The Company issued 2,685,098 and 4,269,630 restricted shares of Common Stock
during the years ended April 30, 1996 and 1995, respectively, pursuant to
Regulation S as exempt from the registration provisions under the 1933
Securities Act.
The Common Stock issued for services rendered during the years ended April 30,
1996 and 1995 were recorded at fair market value as of the respective dates of
services performed.
In September 1994, the Company issued its note payable for $100,000 and 40,000
shares of its Common Stock to Minnmark, Inc. for the proprietary rights to a
carpet reclaimer patent. The agreement also required the issuance of an
additional 100,000 shares of its Common Stock upon the earlier of the completion
of a successfully operating carpet recycling machine or January 1, 1996. The
Company had the option of issuing an additional 100,000 shares of its Common
Stock and foregoing the payment of the $100,000 recorded note payable. In
February 1996 the Company issued 200,000 shares of its' Common Stock and
eliminated the previously recorded $100,000 note payable. The Company is also
obligated to pay a royalty of 3% of revenue realized from the utilization of
this technology up to a maximum amount of $5 million.
In October 1994, the Company declared and paid a 10% stock dividend. This was
done through the issuance of Series U Preferred Stock. The Preferred Stock was
recorded at 10% of the fair market value of the Company's Common Stock. This
Preferred Stock has no preference to the Company's Common Stock. ETI Preferred
Stockholders are entitled to receive cash dividends of 10% of annual URI net
income (limited to the % applicable to ETI ownership). Such dividends are
cumulative only to the extent URI reports annual net income and that income is
declared as a dividend. Such dividends will be in preference to any Common Stock
dividends.
In March 1995, the Company entered into a licensing agreement with Kansas State
University Research Foundation involving a starch-based biodegradable packaging
filler material. The Company paid $10,000 and agreed to issue 10,000 warrants
for the purchase of 10,000 shares of the Company's Common Stock at $1 per share.
The Company also issued 65,000 shares of its Common Stock to the Foundation
during the fiscal year ended April 30, 1996. The Company also agreed to pay a
royalty based upon incremental gross profit gain achieved through the use of the
applicable technology. This royalty is 10% of such incremental profit over a
three year period and may be extended upon mutual agreement.
The Company issued 603,738 shares of convertible Series A, II, III and V
Preferred Stock during the fiscal year ended April 30, 1996. The Preferred
Stockholders converted 601,100 of these shares into 3,418,667 shares of Common
Stock during the fiscal year ended April 30, 1996. The remaining 2,638 shares
are convertible into Common Stock based upon the market price of the Common
Stock. Each share of Preferred Stock is valued at $1,000 and is convertible to
the number of Common Shares computed, using 65% of market price (1,100 shares of
Preferred Stock) or 100% of market price (1,538 shares).
This Preferred Stock has certain preferential voting and liquidation features.
In addition cash dividends of approximately 9% are to be paid quarterly.
Dividends of $115,716 were paid or declared payable during the fiscal year ended
April 30, 1996.
URI issued 125,000 shares of Preferred Stock in October 1995 to Fluor Daniel,
Inc. for an approximate 11% interest in URI; this stock is convertible into an
equal number of shares of URI Common Stock. The Preferred Stock was valued at $4
per share and exchanged for a note receivable of $500,000. Fluor Daniel, Inc. is
providing development assistance to URI in carpet recycling technology
implementation, construction and consulting services; such services upon billing
to URI are reflected as a reduction of the note receivable. The note receivable
of $183,730 at April 30, 1996 represents services not yet provided and is
recorded as a reduction of Stockholders' Equity.
In January 1996 the Company sold 80% (800 shares) of an inactive subsidiary,
Clean Green Polymers, Inc. for $469,500. The buyer, Starch Tech, Inc. is a
private company in which the President is a former employee of ETI. The buyer
issued notes aggregating $469,500 in exchange for the Common Stock. See Note 5.
Because of the related nature of these transactions, the notes receivable from
Starch Tech, Inc. of $466,164 have been recorded as a reduction of Stockholders'
Equity.
NOTE 11 - STOCK OPTION AND WARRANTS
The Company has an incentive stock option plan which allows for the granting of
Common Stock (1,200,000 shares) to key employees of the Company. Options may be
granted at prices not less than fair market value of the Common Stock at date of
grant (not less than 110% of fair market value for more than 10% owners) and are
generally exercisable up to 10 years (5 years for more than 10% owners) from the
grant date. All options granted were exercisable at April 30, 1996. Incentive
stock option activity follows:
Number of Price
Shares Per Share
----------- -------------
Balance at April 30, 1994 260,275 $ 1.20 - 3.50
Granted 110,000 0.88
Cancelled (58,853) 1.20 - 3.50
----------- -------------
Balance at April 30, 1995 311,422 .88 - 3.50
Granted 0 -
Cancelled (2,377) 1.83 - 3.50
----------- -------------
Balance at April 30, 1996 309,045 $ .88 - 3.50
=========== =============
The Company has also granted 701,880 nonqualified options to various
individuals. These options are exercisable at $.75 to $5.00 per share and expire
at various dates through June 2000.
In addition at April 30, 1996, the Company has a total of 2,346,281 warrants
outstanding. These warrants expire at various dates through July 2000 at prices
ranging from $.70 to $5.00 per share.
NOTE 12 - OTHER COMMITMENTS AND CONTINGENCIES
In March 1992, ETI entered into a license agreement with the University of
Minnesota (University) relating to a University technology for the manufacture
of a biodegradable plastic made with protein and starch. This agreement expires
in March 2007 and requires the Company to pay a 3% royalty on net sales of
products which use this technology. There have been no sales resulting from this
technology through April 30, 1996. The Company has the right to first refusal to
license new technology under this agreement.
The Company entered into a $15,000 letter of credit in October, 1991 as
collateral for an URI operating lease. This agreement expires in May, 1996.
The Company has entered into employment agreements with certain officers and
employees of the Company. The agreements, among other things, provide for
initial base salaries, benefits, and termination conditions and payments. These
agreements expire at various times through 1997.
The Company had been obligated to pay a royalty of 3% of CGP net sales through
February 2001 up to a maximum amount of $1,000,000 to Alpha International, a
partnership consisting of certain former CGP stockholders. In May 1994, the
Company reached an agreement wherein the previous agreement was retroactively
canceled. The Company agreed to pay a total of $37,000 in monthly payments over
an eighteen month period without interest. The Company was also obligated to
issue 30,000 shares of its Common Stock to Alpha International upon completion
of the cash payment obligation. The Company accrued $51,491 at April 30, 1995
for these obligations as part of accrued expenses. The Company issued the 30,000
shares of Common Stock during the year ended April 30, 1996.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ENVIRONMENTAL TECHNOLOGIES USA, INC.
Date: August 8, 1996 By /s/ Robin R. Young
-----------------
Robin R. Young
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this Report has
been signed below on August 8, 1996 by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature and Title
By /s/ Robin R. Young
Robin R. Young, Chairman of the
Board of Directors and Chief
Executive Officer (principal
executive, financial and
accounting officer)
By /s/ Charles D. Pyle, Jr.
Charles D. Pyle, Jr., Director
By /s/ H. David Francis
H. David Francis, Director
By /s/ C. Henry Traweek
C. Henry Traweek, Director
ENVIRONMENTAL TECHNOLOGIES USA, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB
For Fiscal Year Ended April 30, 1996
<TABLE>
<CAPTION>
Item No. Item Method of Filing
- - -------- ---- ----------------
<S> <C> <C>
3.1 Articles of Incorporation, as amended to date. Filed herewith.
3.2 Bylaws, as amended to date. Incorporated by reference to
Exhibit 3.2 to the Company's
Registration Statement on Form
S-1 (File No. 33-50562).
4.1 Specimen Form of the Company's Filed herewith.
Common Stock Certificate
4.2 Certificate of Designation of the Included in Exhibit 3.1 filed herewith.
Company's Series II Preferred Stock
4.3 Certificate of Designation of the Included in Exhibit 3.1 filed herewith.
Company's Series III Preferred Stock
4.4 Certificate of Designation of the Included in Exhibit 3.1 filed herewith.
Company's Series V Preferred Stock
4.5 Certificate of Designation of the Included in Exhibit 3.1 filed herewith.
Company's Series U Preferred Stock
10.1 Lease Agreement dated October 30, 1991, Incorporated by reference to
between URI and St. Louis Park Exhibit 10.2 to the Company's
Investment Company. Registration Statement on Form
S-1 (File No. 33-50562).
10.2 Lease Agreement dated June 3, 1991, Incorporated by reference to
between CGP and Second MBT Trust. Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (File No. 33-50562).
10.3 License Agreement dated March 25, 1992, Incorporated by reference to
between the Company and the University Exhibit 10.4 to the Company's
of Minnesota. Registration Statement on Form S-1
(File No. 33-50562).
10.4 Research Agreement dated June 1, 1992, Incorporated by reference to
between the Company and the University of Exhibit 10.5 to the Company's
Minnesota. Registration Statement on Form S-1
(File No. 33-50562).
10.5 1991 Incentive Stock Option Plan of the Incorporated by reference to
Company. Exhibit 10.6 to the Company's
Registration Statement on Form
S-1 (File No. 33-50562).
10.6 Form of Incentive Stock Option Incorporated by reference to
Agreement. Exhibit 10.7 to the Company's
Registration Statement on Form
S-1 (File No. 33-50562).
10.7 1994 Stock Plan Incorporated by reference to
Exhibit 10.7 to the Company's
Annual Report on Form 10-KSB for
fiscal year ended April 30, 1994
(File No. 0-22736).
10.8 Form of Non-Statutory Stock Option Agreement Incorporated by reference to
Exhibit 10.8 to the Company's
Annual Report on Form 10-KSB for
fiscal year ended April 30, 1994
(File No. 0-22736).
10.9 Form of Restricted Stock Award Incorporated by reference to
Agreement Exhibit 10.9 to the Company's
Registration Statement on Form
S-1 (File No. 33-50562).
10.10 Loan Agreement (and Note and Debenture) Incorporated by reference to
dated December 3, 1991, between CGP, the Exhibit 10.17 to the Company's
Company and the Coon Rapids Development Company. Registration Statement on Form S-1
(File No. 33-50562).
10.11 License Agreement dated as of April 19, Incorporated by reference to
1993 between CGP, the Company and Exhibit 10.14 to the Company's Annual
Warner-Lambert Company. Report on Form 10-KSB for the fiscal year
ended April 30, 1993 (File No. 0-22736).
10.12 Settlement Agreement and Release dated Incorporated by reference to
October 11, 1993 between Clean Green Exhibit 10.15 to the Company's
Packing and International Grain and Annual Report on Form 10-KSB
Milling Company. for the fiscal year ended April 30,
1993 (File No. 0-22736).
10.13 Merger, Acquisition and Financing Incorporated by reference to
Agreement dated October 7, 1993 between Exhibit 10.16 to the Company's
the Company and One Capital Annual Report on Form 10-KSB
Corporation. for the fiscal year ended April 30,
1993 (File No. 0-22736).
10.14 Financial Advisory Services Agreement dated Incorporated by reference to
October 7, 1993 between the Company Exhibit 10.17 to the Company's Annual
and One Capital Corporation. Report on Form 10-KSB for the fiscal
year ended April 30, 1993 (File No. 0-22736).
10.15 Technology Transfer Agreement, dated Incorporated by reference to
January 31, 1994 between the Company and Exhibit 10.15 to the Company's Annual
FoamLite Texas Corporation. Report on Form 10-KSB for the fiscal
year ended April 30, 1994 (File No. 0-22736).
10.16 Lease Agreement, dated March 12, 1996 Filed herewith.
between Kokette Properties Inc. and URI.
10.17 Sublease, dated March 20, 1996 between Filed herewith.
Berkley Administrators and URI.
10.18 License Agreement, dated March 1, 1995, Filed herewith.
between the Company and KSU Research
Foundation.
10.19 Office/Warehouse Lease, dated October Filed herewith.
21, 1994, by and between Crown Packaging
Corp. and CGP.
21.1 Subsidiaries of the Company. Filed herewith.
23.1 Consent of Eide Helmeke PLLP Filed herewith.
27.1 Financial Data Schedule Filed herewith.
</TABLE>
ARTICLES OF INCORPORATION
OF
ENVIRONMENTAL TECHNOLOGIES USA, INC.
The undersigned incorporator, being a natural person of full age, in
order to form a corporation under Minnesota Statutes, Chapter 302A, hereby
adopts the following Articles of Incorporation:
ARTICLE I
The name of this Corporation is: Environmental Technologies USA, Inc.
ARTICLE II
The registered office of this Corporation is located at 550 - 39th
Avenue N.E., Minneapolis, Minnesota 55421.
ARTICLE III
3.01 The aggregate number of shares of stock which this Corporation
shall have the authority to issue is 5,000,000 shares of stock, having par value
of $.01 each.
3.02 The Board of Directors may, from time to time, establish by
resolution difference classes or series of shares and may fix the relative
rights and preferences of said shares in any class or series.
3.03 The Board of Directors shall have the authority to issue shares of
a class or series to holders of shares of another class or series to effectuate
share dividends, splits, or conversion of its outstanding shares.
3.04 No shareholder of the Corporation shall have any pre-emptive
rights.
3.05 No shareholder shall be entitled to any cumulative voting rights.
3.06 The shareholders shall take action by the affirmative vote of the
holders of a majority of the voting power of all voting shares represented at a
duly held meeting of the shareholders, except where a larger proportion is
required by law, these Articles, or a shareholder control agreement.
ARTICLE IV
Except as to those matters requiring shareholder approval, any action
required or permitted to be taken by the Board of Directors of this Corporation
may be taken by written action signed by a majority of the Directors then
holding office.
ARTICLE V
Minnesota Statutes Sections 302A.449, subd. 7, and 302A.671 (all as may
be amended from time to time) concerning Control Share Acquisitions and Section
302A.673 (as it may be amended from time to time) concerning Business
Combinations, shall not apply to the Corporation.
ARTICLE VI
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for (i) liability based on a breach of the duty of
loyalty to the Corporation or the shareholders; (ii) liability for acts or
omissions not in good faith or that involved intentional misconduct or a knowing
violation of law; (iii) liability based on an improper distribution under
Minnesota Statutes Section 302A.559 or on violations of state securities laws
under Minnesota Statutes Section 80A.23; (iv) liability for any transaction from
which the director derived an improper personal benefit; or (v) liability for
any act or omission occurring prior to the date this Article becomes effective.
If Minnesota Statutes Chapter 302A hereafter is amended to authorize the further
elimination or limitation of the liability of directors or officers, then the
liability of a director or officer of the Corporation, in addition to the
limitation on personal liability provided herein for directors, shall be limited
to the fullest extent permitted by such amendment. Any repeal or modification of
this Article by the shareholders of the Corporation shall be prospective only
and shall not adversely affect any limitation on the personal liability of a
director or officer of the Corporation existing at the time of such repeal or
modification.
ARTICLE VII
The name and address of the incorporator is Jeffrey C. Robbins, 100
South Fifth Street, Suite 1100, Minneapolis, Minnesota 55402.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of
September, 1991.
/s/ Jeffrey C. Robbins
Jeffrey C. Robbins
CERTIFICATE OF DESIGNATION
OF
SERIES U PREFERRED STOCK
($0.01 Par Value)
OF
ENVIRONMENTAL TECHNOLOGIES USA, INC.
---------------------
Pursuant to Section 302A.401 of the
Minnesota Business Corporation Act
---------------------
ENVIRONMENTAL TECHNOLOGIES USA, INC., a corporation organized and
existing under the Minnesota Business Corporation Act (the "Corporation"),
HEREBY CERTIFIES that the following resolution was duly adopted on October 25,
1994 by the Board of Directors of the Corporation pursuant to the authority
conferred upon the Board of Directors of the Corporation by the Articles of
Incorporation, as amended, of the Corporation and by the Minnesota Business
Corporation Act, which resolution remains in full force and effect as of the
date hereof:
RESOLVED, that the Board of Directors of the Corporation (the "Board of
Directors"), pursuant to authority conferred upon the Board of Directors by the
provisions of the Articles of Incorporation of the Corporation, as amended (the
"Articles of Incorporation"), which authorize the issuance of up to 15,000,000
shares of stock, no par value, does hereby create and provide for the issuance
of a new series of Series U Preferred Stock, and does hereby fix and determine
the voting powers, designations, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions, of such new series of preferred stock to the extent that the
foregoing are not stated and expressed in the Articles of Incorporation as
follows:
1. Designation and Number. The designation of such series of preferred
stock shall be Series U Preferred Stock, (the "Series U Preferred") and the
number of shares constituting such series shall be 1,400,000 (one million four
hundred thousand). Shares of Series U Preferred shall have no preference to the
corporation's Common Stock, par value $0.01 per share (the "Common Stock") upon
liquidation, dissolution or winding up of the Corporation. The number of
authorized shares of Series U Preferred may be reduced by further resolution
duly adopted by the Board of Directors (provided that the authorized number
shall not be decreased below the number of then outstanding shares) but the
authorized number of shares of Series U Preferred shall not be increased, except
for the purpose of issuing shares upon the conversion of options or warrants to
purchase common stock outstanding as of October 8, 1994.
2. Dividends.
(a) Holders of outstanding shares of Series U Preferred shall
be entitled to receive, when declared by the Board of Directors, out of funds of
the Corporation legally available therefor, annual cash dividends equal to 10%
of the net income of United Recycling, Inc. ("URI"). Dividends shall be
cumulative only to the extent that URI reports net income and the Corporation
does not declare an annual dividend on the Series U Preferred. In no case shall
dividends accrue or accumulate for any year that URI does not report net income.
On a per share basis, such dividends shall be equal to 10% of the net income of
United Recycling divided by the total number of shares of Series U Preferred
Stock on the record date of the dividend. Such dividends shall be in preference
to and in priority over any dividends with respect to Common Stock.
(b) Dividends on the outstanding shares of Series U Preferred,
if declared, shall be payable on or before October 31 of each year (the
"Dividend Payment Date"), commencing October 31, 1995. Each such dividend shall
be payable to the holders of record as they appear on the stock books of the
Corporation at the close of business on such record dates, not more than thirty
(30) calendar days and not less than ten (10) calendar days preceding the
Dividend Payment Dates therefor, as are determined by the Board of Directors
(each of such dates a "Record Date"). In any case where the date fixed for any
dividend or other payment or payments with respect to the Series U Preferred
shall not be a Business Day (as defined below), then such payments need not be
made on such date but may be made on the next succeeding Business Day with the
same force and effect as if made on the date fixed therefor, without interest.
The term "Business Day" shall mean any day except a Saturday, a Sunday or a day
on which banking institutions are authorized or required by law to close in
Minneapolis, Minnesota.
(c) Holders of any shares of Series U Preferred shall not be entitled
to any dividends, whether payable in cash, obligations or securities of the
Corporation or other property, in excess of the dividends on shares of Series U
Preferred to be paid as aforesaid with respect to the net income of URI. All
dividends paid with respect to the Series U Preferred shall be paid pro rata to
the holders entitled thereto.
(d) Subject to the foregoing provisions hereof and applicable law, the
Board of Directors (i) may declare and the Corporation may pay or set apart for
payment dividends on any class of stock, (ii) may make any payment on account of
or set apart payment for a sinking fund or other similar fund or agreement for
the purchase or other acquisition, redemption, retirement or other requirement
of' or with respect to, any class of stock or any warrants, rights, calls or
options exercisable or exchangeable for or convertible into any class of stock,
(iii) may make any distribution in respect to any class of stock or any
warrants, rights, calls or options exercisable or exchangeable for or
convertible into any class of stock, whether directly or indirectly, and whether
in cash, obligations or securities of the Corporation or other property and (iv)
may purchase or otherwise acquire, redeem or retire any class of stock or any
warrants, rights, calls or options exercisable or exchangeable for or
convertible into any class of stock, and the holders of the shares of the Series
U Preferred shall not be entitled to share therein.
3. Voting Rights. The holders of Series U Preferred shall have no right
to vote for any purpose, except as required by applicable law.
4. Optional Redemption.
(a) The Series U Preferred shall not be redeemable before
October 1, 1995.
(b) The Series U Preferred shall be redeemable beginning
October 1, 1995, at the option of the Corporation, for cash, in whole or in
part, at any time and from time to time, without interest, to the extent the
Corporation has funds legally available therefor, at the following redemption
price on or after the following dates:
October 1, 1995 $2.00 per share
October 1, 1996 $3.00 per share
October 1, 1997 $4.00 per share
October 1, 1998 $5.00 per share
October 1, 1999 $6.00 per share
(c) The Corporation shall mail written notice of redemption to
each holder of record of Series U Preferred to be redeemed as they appear on the
stock books of the Corporation at the close of business on a date not less than
thirty (30) nor more than sixty (60) calendar days prior to the date fixed for
redemption, as determined by the Board of Directors. Such notice of redemption
shall be sent by first class mail to the holder's address shown on the stock
books of the Corporation; provided, however; that the failure to give such
notice or any defect therein or in the mailing thereof shall not affect the
validity of the proceedings for such redemption, except as to any holder to whom
the Corporation failed to give proper notice or whose notice was defective. Each
such notice shall specify (i) the number of shares to be redeemed from such
holder; (ii) the numbers of the certificates of the shares being redeemed, (iii)
the date fixed for redemption, (iv) the redemption price, (v) the place or
places at which certificates may be surrendered and payment may be obtained and
(vi) that dividends on the shares to be redeemed shall cease to accrue on the
date fixed for such redemption.
(d) In the event that fewer than all of the outstanding shares
of the Series U Preferred are to be redeemed at any time the number of shares to
be redeemed shall be determined by lot, pro rata (subject to rounding to avoid
fractional shares) or by any other method as may be determined by the Board of
Directors to be equitable; provided, however; that the Board of Directors may,
in selecting shares of Series U Preferred to be redeemed, choose to redeem all
shares of Series U Preferred held by holders of a number of such shares not to
exceed one hundred (100), including all shares held by holders who, after giving
effect to the redemption, would hold fewer than one hundred (100) shares of
Series U preferred, as may be specified by the Board of Directors.
(e) Upon due surrender of the certificates for any shares of
Series U Preferred to be redeemed, such shares of Series U Preferred shall be
redeemed by the Corporation at the applicable redemption price. From and after
the date fixed for redemption (unless default shall be made by the Corporation
in providing for the payment of the redemption price) (i) dividends shall cease
to be paid on the shares of the Series U Preferred called for redemption, (ii)
such shares of Series U Preferred shall no longer be deemed to be outstanding
and shall not have the status of Series U Preferred and (iii) all rights of the
holders thereof (except the right to receive the redemption price plus
accumulated and unpaid dividends, without interest) shall cease with respect to
such shares. From and after any date fixed for redemption, shares of the Series
U Preferred redeemed by the Corporation shall, upon compliance with any
applicable provisions of law, be restored to the status of authorized but
unissued shares of Stock, without designation as to series or class until such
shares are once more designated as part of a particular series by the Board of
Directors.
(f) If fewer than all of the shares of Series U Preferred
represented by any certificate are redeemed, the Corporation will deliver to the
holder (without cost to the holder) a new certificate (which shall contain such
legends as were set forth on the surrendered certificate) representing any
shares which were represented by the certificate that was delivered to the
Corporation in connection with such redemption, but which were not redeemed. In
such case, the Corporation will pay any and all stamp, transfer and other
similar taxes that may be payable in respect of the issuance or delivery of such
new certificate or certificates but shall not, however; be required to pay any
tax which may be payable in respect of any transfer involved in the issuance or
delivery of such new certificate or certificates in a name other than that in
which such shares of Series U Preferred were registered immediately prior to
such redemption, and no such issuance or delivery shall be made unless and until
the person requesting such issuance or delivery shall have paid to the
Corporation the amount of any and all such taxes or shall have established to
the satisfaction of the Corporation that such taxes have been paid in full.
5. Redemption upon Sale of URI. In the event of (i) a merger in which
URI is not the surviving corporation, (ii) the sale of all of the outstanding
capital stock of URI or (iii) the sale, transfer or other disposition of all or
substantially all of the assets of URI, each share of Series U Preferred shall
be converted, without any action by the holders of the Series U Preferred or the
Board of Directors of either the Corporation or URI, into that number of shares
of Common Stock that is equal to (x) ten percent (10%) of the purchase price
paid for the stock or assets of URI (or; in the event of a merger of URI into
the Corporation, ten percent of the fair market value of URI), divided by (y)
the number of shares of Series U Preferred outstanding on the date of such
event, in turn divided by (z) the closing bid price of the Common Stock on the
date of such event, provided that, for purposes of this calculation, the price
of the Common Stock shall in no case be less than $.50 per share.
6. No Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation or URI,
the holders of outstanding shares of Series U Preferred shall not be entitled to
receive any distribution out of the assets of the Corporation available for
distribution to stockholders.
7. No Other Rights. The shares of Series U Preferred shall not have any
preferences, voting powers or relative, participating, optional or other special
rights except as set forth above and in the Certificate of Incorporation or as
otherwise required by applicable law.
8. Rules and Regulations. The Board of Directors shall have the right
and authority from time to time to prescribe rules and regulations as it may
determine to be necessary or advisable in its sole discretion for the
administration of the Series U Preferred in accordance with the foregoing
provisions and applicable law.
IN WITNESS WHEREOF, Environmental Technologies USA, Inc. has caused its
corporate seal to be hereunto affixed and this Certificate to be signed by its
Chief Executive Officer; Robin R. Young, and attested by its Assistant
Secretary, Rob Mahabadi, this 14th day of November 1994.
ENVIRONMENTAL TECHNOLOGIES USA, INC.
By/s/ Robin R. Young
Chief Executive Officer
Attest:
/s/ Rob Mahabadi
Assistant Secretary
ENVIRONMENTAL TECHNOLOGIES USA, INC.
(THE "CORPORATION")
RESOLUTION OF THE BOARD OF DIRECTORS
FIXING THE NUMBER AND DESIGNATING THE RIGHTS, PRIVILEGES,
RESTRICTIONS AND CONDITIONS ATTACHING TO THE SERIES II
PREFERRED STOCK
WHEREAS:
A. The Corporation's share capital includes 20,000,000 Shares with a par
value of $.01 per share, which Stock may be issued in one or more
series with the directors of the Corporation (the "Board") being
entitled by resolution to fix the number of shares in each series and
to designate the rights, privileges, restrictions and conditions
attaching to the share of each series; and
B. It is in the best interests of the Corporation for the Board to create
a second series of Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED, THAT:
The second series of the Preferred Stock (the "Series II Stock") of the
corporation shall consist of 5,000 shares and no more and shall be
designated as the Series II Preferred Stock and in addition to the
preferences, rights, privileges, restrictions and conditions attaching
to all the Preferred Stock as a class, the rights, privileges,
restrictions and conditions attaching to the Series II Stock shall be
as follows:
Part 1 - Voting and Pre-emptive Rights.
1.1 Except as otherwise provided herein, the Articles of Incorporation as
amended by the Corporation (the "Articles"), in the By-laws of the Corporation
(the "By-laws") or the business Corporation Act of Minnesota (the "BCA"), the
holders of Series II Stock, by virtue of their ownership thereof, shall be
entitled to cast the number of votes per share thereof on each matter submitted
to the Corporation's shareholders for voting which equals the number of votes
which could be cast by the holders of the number of Common Stock into which such
shares of Series II Stock could be converted pursuant to Part 5 hereof
immediately prior to the taking of such vote. Such vote shall be cast together
with those cast by the holders of Common Stock and other series of Preferred
Stock pursuant to the Articles or in the By-laws or by the BCA. The Series II
Stock shall not have cumulative voting rights.
1.2 The Series II Stock shall not give their holders any pre-emptive rights to
acquire any other securities issued by the Corporation at any time in the
future.
Part 2 - Liquidation Rights.
2.1 If the Corporation shall be voluntarily or involuntarily liquidated,
dissolved or wound up, at any times when any Series II Stock shall be
outstanding, the holders of the then outstanding Series II Stock shall have a
preference in distribution of the Corporation's property available for
distribution to the holders of the Common Stock equal to the $1,000.00 per
Series II Stock, together with an amount equal to all unpaid dividends accrued
thereon, if any, to the date of payment of such distribution, whether or not
declared by the Board: provided, however, that neither the amalgamation of the
Corporation with any Corporation or corporations, nor the sale nor transfer by
the Corporation of all or any part of its property, nor any reduction of the
authorized or issued capital of the Corporation of any class, whether now or
hereafter authorized, shall be deemed to be a liquidation of the Corporation
within the meaning of any of the provisions of this Part 2.
2.2 Subject to the provisions of Part 6 hereof, all amounts to be paid as
preferential distributions to the holders of Series II Stock as provided in this
Part 2 shall be paid or set apart for payment before the payment or setting
apart for payment of any amount for, or the distribution of any of the
Corporation's property to the holders of Common Stock, whether now or hereafter
authorized, in connection with such liquidation, dissolution or winding up.
Part 3 - Market Price.
3.1 For the purposes of this Part 3, Part 4 and Part 5 hereof, "market price"
means the average of the daily closing bid prices of Common Stock for a period
of the last 5 consecutive trading days preceding the date on which any dividend
becomes payable or of any notice of redemption, as the case may be. The closing
price for each trading day shall be (i) for any period during which the Common
Stock shall be listed for trading on a national securities exchange, the last
reported bid price per share of Common Stock as reported by the primary share
exchange, or the Nasdaq Stock Market, if the Common Stock is quoted on the
Nasdaq Stock Market.
Part 4 - Redemption.
4.1 At any time, and from time to time, on and after 45 days from the date of
the issuance of any Series II Stock, if the market price for the Common Stock
shall be in excess of $1.25 for 5 consecutive trading days, the Corporation may,
at its sole option, but shall not be obligated to, redeem, in whole or in part,
the then outstanding Series II Stock at a price per share of $1,000 each (the
"Redemption Price") (such price to be adjusted proportionately in the event of
any change of the Series II Stock into a different number of Shares).
4.2 Not less than thirty (30) days prior to any date stipulated by the
Corporation for the redemption of Series II Stock (the "Redemption Date"),
written (the "Redemption Notice") shall be mailed to each holder of record on
such notice date of the Series II Stock. The Redemption Notice shall state (i)
the Redemption Date of such shares (ii) the number of Series II Stock to be
redeemed from the holder to whom the Redemption Notice is addressed (iii)
instructions for surrender to the Corporation, in the manner and at the place
designated of a stock certificate or stock certificates representing the number
of Series II Stock to be redeemed from such holder and (iv) instructions as to
how to specify to the Corporation the number of Series II Stock to be redeemed
as provided in this Part 4 and the number of shares to be converted into Common
Stock as provided in Part 5 hereof.
4.3 Upon receipt of the Redemption Notice, any Eligible Holder (as defined in
Section 5.2 hereof) shall have the option, at its sole election, to specify what
portion of its Series II Stock called for redemption in the Redemption Notice
shall be redeemed as provided in this Part 4 or converted into Common Stock in
the manner provided in Part 5 hereof except that, notwithstanding any provision
of such Part 5 to the contrary, any Eligible Holder shall have the right to
convert into Common Stock that number of Series II Stock called for redemption
in the Redemption Notice.
4.4 On or before the Redemption Date in respect of any Series II Stock, each
holder of such shares shall surrender the required certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and upon the Redemption Date, the
Redemption Price for such shares shall be made payable, in the manner provided
in Section 5.5 hereof, to the order of the person whose name appears on such
certificate of certificates as the owner thereof, and each surrendered stock
certificate shall be canceled and retired. If a stock certificate is surrendered
and all the shares evidenced thereby are not being redeemed to be registered in
the names of the persons whose names appear as the owners on the respective
surrendered stock certificates and deliver such certificate to such person.
4.5 On the Redemption Date in respect of any Series II Stock or prior thereto,
the Corporation shall deposit with any bank or trust company having a capital
and surplus of at least $50,000,000, as a trust fund, a sum equal to the
aggregate Redemption Price of all such shares called for redemption (less the
aggregate Redemption Price for those Series II Stock in respect of which the
Corporation has received notice from the Eligible Holder thereof of its election
to convert Series II Stock into Common Stock), with irrevocable instructions and
authority to the bank or trust company to pay, on or after the Redemption Date,
the Redemption Price to the respective holders upon the surrender of their stock
certificates. The deposit shall constitute full payment for the shares to their
holders, and from and after the date of the deposit the redeemed shares shall be
deemed to be no longer outstanding, and holders thereof shall cease to be
shareholders with respect to such shares and shall have no rights with respect
thereto except the rights to receive from the bank or trust company payments of
the Redemption Price of the shares, without interest, upon surrender of their
certificates thereof. Any funds so deposited and unclaimed at the end of one
year following the Redemption Date shall be released or repaid to the
Corporation, after which the former holders of shares called for redemption
shall be entitled to receive payment of the Redemption Price in respect to their
shares only from the Corporation.
Part 5 - Conversion.
5.1 For the purpose of conversion, the Series II Stock shall be valued at
$1,000.00 per share ("Value"), and, if converted, the Series II Stock shall be
converted into Common Stock (the "Conversion Stock") at the price per share
equal to the lower of (i) product of .65 multiplied by the average daily closing
bid prices of Common Stock for the period of 5 consecutive trading days
immediately preceding the date of the notice of conversion of the Series II
Stock or (ii) product .65 multiplied by the average daily closing bid prices of
the Common Stock for the period of 5 consecutive trading days immediately
preceding the date of subscription by the holder of Series II Stock (the lower
of (i) or (ii) is hereinafter referred to as the "Conversion Price"). The
closing price for each trading day shall be determined as provided in the last
sentence of Section 3.1.
5.2 Any holder of Series II Stock (an "Eligible Holder") at any time 45 days
after the issuance of any Series II Stock may convert up to 100% of his holdings
of the Series II Stock.
5.3 The conversion right granted by Section 5.2 hereof may be exercised only by
an Eligible Holder of Series II Stock, in whole or in part, by the surrender of
stock certificate or stock certificates representing the Series II Stock to be
converted at the principal office of the Corporation (or at such other place as
the Corporation may designate in a written notice sent to the holder by
first-class mail, postage prepaid, at its address shown on the books of the
Corporation) against delivery of that number of whole Common Stock as shall be
computed by dividing (1) the aggregate Value of the Series II Stock so
surrendered plus any accrued but unpaid dividends thereon, if any, by (2) the
Conversion Price in effect at the time of such surrender. At the time of
conversion of a Series II Stock, the Corporation shall pay in cash to the holder
thereof an amount equal to all unpaid dividends, if any, accrued thereon to the
date of conversion, or, at the Corporation's option, issue that number of whole
Common Stock which is equal to the product of dividing the amount of such unpaid
dividends by the market price whether or not declared by the Board. Each Series
II Stock certificate surrendered for conversion shall be endorsed by its holder.
In the event of any exercise of the conversion right of the Series II Stock
granted herein (i) stock certificates representing the Common Stock purchased by
virtue of such exercise shall be delivered to such holder forthwith, and (ii)
unless the Series II Stock has been fully converted, a new stock certificate
representing the Series II Stock not so converted, if any, shall also be
delivered to such holder forthwith. The stock certificates representing the
Common Stock so purchased shall be dated the date of such surrender and the
holder making such surrender shall be deemed for all purposes to be the holder
of the Common Stock so purchased as of the date of such surrender.
5.4 All Common Stock which may be issued upon conversion of Series II Stock
will, upon issuance, be duly issued, fully paid and nonassessable and free from
all taxes, liens, and charges with respect to the issue thereof. At all times
that any Series II Stock are outstanding, the Corporation shall have authorized,
and shall have reserved for the purpose of issuance upon such conversion, a
sufficient number of Common Stock to provide for the conversion into Common
Stock of all Series II Stock then outstanding at the then effective Conversion
Price. Without limiting the generality of the foregoing, if, at any time, the
Conversion Price is decreased, the number of Common Stock authorized and
reserved for issuance upon the conversion of the Series II Stock shall be
proportionately increased.
5.5 The number of Common Stock issued upon conversion of Series II Stock and the
Conversion Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
5.5.1 In the case of any amendment to the Articles to change the
designation of the Common Stock or the rights, privileges, restrictions
or conditions in respect of the Common Stock or division of the Common
Stock into series the rights of the holders of the Series II Stock
shall be adjusted so as to provide that upon conversion thereof the
holder of the Series II Stock being converted shall procure, in lieu of
each Common Stock theretofore issuable upon such conversion, the kind
and amount of shares, other securities, money and property receivable
upon such conversion had conversion occurred immediately prior to such
designation, change or division. The Series II Stock shall be deemed
thereafter to provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in
this Part 5. The provisions of this subsection 5.5.1. shall apply in
the same manner to successive reclassifications, changes,
consolidations and mergers.
5.5.2 If the Corporation, at any time while any of the Series II Stock
is outstanding, shall amend the Articles so as to change the Common
Stock into a different number of shares, the Conversion Price shall be
proportionately reduced, in case of such change increasing the number
of Common Stock, as of the effective date of such increase, or if the
Corporation shall take a record of holders of its Common Stock for the
purpose of such increase, as of such record date, whichever is earlier,
or the Conversion Price shall be proportionately increased, in the case
of such change decreasing the number of Common Stock, as of the
effective date of such decrease or, if the Corporation shall take a
record of holders of its Common Stock for the purpose of such decrease,
as of such record date, whichever is earlier.
5.5.3 If the Corporation, at any time while any of the Series II Stock
are outstanding, shall pay a dividend payable in Common Stock, the
Conversion Price shall be adjusted, as of the date the Corporation
shall take a record of the holders of its Common Stock for the purpose
of receiving such dividend, (or if no such record is taken, as of the
date of payment of such dividend), to that price determined by
multiplying the Conversion Price therefor in effect by a fraction (1)
the numerator of which shall be the total number of Common Stock
outstanding immediately prior to such dividend, and (2) the denominator
of which shall be the total number of Common Stock outstanding
immediately after such dividend, (plus in the event that the
Corporation paid cash for fractional shares, the number of additional
shares which would have been outstanding had the Corporation issued
fractional shares in connection with said dividend).
5.6 Whenever the Conversion Price shall be adjusted pursuant to Section 5.5
hereof, the Corporation shall make a certificate signed by its President or a
Vice President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary, setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board of
Directors made any determination hereunder), and the Conversion Price after
giving effect to such adjustment, and shall cause copies of such shares to be
mailed (by first-class mail, postage prepaid) to each holder of Series II Stock
at its address shown on the books of the Corporation. The Corporation shall make
such certificate and mail it to each such holder promptly after each adjustment.
5.7 No fractional Common Stock shall be issued in connection with any conversion
of Series II Stock, but in lieu of such fractional shares, the Corporation shall
make a cash payment therefor equal in amount to the product of the applicable
fraction multiplied by the Conversion Price then in effect.
5.8 No Series II Stock which have been converted into Common Stock shall be
reissued by the Corporation; provided, however, that each such share, after
being retired and canceled, shall be restored to the status of an authorized but
unissued Preferred Stock without designation as to series and may thereafter be
issued as a Preferred Stock not designated a Series II Stock.
Part 6 - Parity with Other Shares of Preferred Stock.
6.1 If any cumulative dividends or redemption payment in respect of Series II
Stock are not paid in full, the owners of all series of Preferred Stock shall
participate ratably in any payment of accumulated dividends and redemption
payments.
Part 7 - Amendment.
7.1 In addition to any requirement for a series vote pursuant to the BCA in
respect of any amendment to the rights, privileges, restrictions and conditions
attaching to the Series II Stock, the rights, privileges, restrictions and
conditions attaching to the Series II Stock may be amended only if the
Corporation has obtained the affirmative vote of a majority of the holders of
the Series II Stock then outstanding at a duly called and held meeting of the
holders of the Series II Stock.
ENVIRONMENTAL TECHNOLOGIES USA, INC.
(the "Corporation")
RESOLUTION OF THE BOARD OF DIRECTORS
FIXING THE NUMBER AND DESIGNATING THE RIGHTS, PRIVILEGES,
RESTRICTIONS AND CONDITIONS ATTACHING TO THE SERIES V
PREFERRED STOCK
WHEREAS:
7.2 The Corporation's share capital includes 50,000,000 shares with a par
value of $.01 per share (the "Preferred Stock"), which Preferred Stock
may be issued in one or more series with the directors of the
Corporation (the "Board") being entitled by resolution to fix the
number of shares in each series and to designate the rights,
privileges, restrictions and conditions attaching to the share of each
series; and
7.3 It is in the best interests of the Corporation for the Board to create
a fifth series of Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED, THAT:
The fifth series of the Preferred Stock (the "Series V Shares") of the
Corporation shall consist of 5000 shares and no more and shall be
designated as the Series V Preferred Shares and in addition to the
preferences, rights, privileges, restrictions and conditions attaching
to all the Preferred Stock as a class, the rights, privileges,
restrictions and conditions attaching to the Series V Shares shall be
as follows:
Part 1. Voting and Pre-emptive Rights and Dividends.
1.1. Except as otherwise provided herein, in the Articles of Incorporation as
amended of the Corporation (the "Articles"), in the By-laws of the Corporation
(the "By-laws") or the Minnesota Business Corporations Act (the "MBCA"), the
holders of Series V Shares, by virtue of their ownership thereof, shall be
entitled to cast the number of votes per share thereof on each matter submitted
to the Corporation's shareholders for voting which equals the number of votes
which could be cast by the holders of the number of Common Shares into which
such shares of Series V Shares could be converted pursuant to Part 5 hereof
immediately prior to the taking of such vote. Such vote shall be cast together
with those cast by the holders of Common Shares and other series of Preferred
Shares pursuant to the Articles or in the By-laws or by the MBCA. The Series V
Shares shall not have cumulative voting rights.
1.2. The Series V Shares shall not give their holders any pre-emptive rights to
acquire any other securities issued by the Corporation at any time in the
future.
1.3. The Series V Shares shall bear dividends at the rate of 9% per annum.
Dividends shall be cumulative and paid in cash on the last day of each calendar
quarter.
Part 2. Liquidation Rights.
2.1. If the Corporation shall be voluntarily or involuntarily liquidated,
dissolved or wound up, at any times when any Series V Shares shall be
outstanding, the holders of the then outstanding Series V Shares shall have a
preference in distribution of the Corporation's property available for
distribution to the holders of the Common Shares equal to the $1,000.00 per
Series V Share, together with an amount equal to all unpaid dividends accrued
thereon, if any, to the date of payment of such distribution, whether or not
declared by the Board: provided, however, that neither the amalgamation of the
Corporation with any Corporation or corporations, nor the sale nor transfer by
the Corporation of all or any part of its property, nor any reduction of the
authorized or issued capital of the Corporation of any class, whether now or
hereafter authorized, shall be deemed to be a liquidation of the Corporation
within the meaning of any of the provisions of this Part 2.
2.2. Subject to the provisions of Part 6 hereof, all amounts to be paid as
preferential distributions to the holders of Series V Shares as provided in this
Part 2 shall be paid or set apart for payment before the payment or setting
apart for payment of any amount for, or the distribution of any of the
Corporation's property to the holders of Common Shares, whether now or hereafter
authorized, in connection with such liquidation, dissolution or winding up.
Part 3. Market Price.
3.1. For the purposes of this Part 3, Part 4 and Part 5 hereof, "market price"
means the average of the daily closing bid prices of Common Shares for a period
of the last 5 consecutive trading days preceding the date (i) on which any
dividend becomes payable or (ii) of any notice of redemption or (iii) of any
notice of conversion, as the case may be. The closing price for each trading day
shall be (i) for any period during which the Common Shares shall be listed for
trading on a national securities exchange, the last reported bid price per share
of Common Shares as reported by the primary stock exchange, or (ii) for any
period during which the Common Shares shall be listed on the NASDAQ Stock
Market, the last reported sale price as quoted on the NASDAQ Stock Market.
Part 4. Redemption.
4.1. At any time, and from time to time, on and after the date of the issuance
of any Series V Shares, if the market price for the Common Shares shall be in
excess of $1.50 for 5 consecutive trading days, the Corporation may, at its sole
option, but shall not be obligated to, redeem, in whole or in part the then
outstanding Series V Shares at a price per share of $1,000 each plus accrued and
unpaid dividends (the "Redemption Price") (such price to be adjusted
proportionately in the event of any change of the Series V Shares into a
different number of Shares).
4.2. Not less than thirty (30) days prior to any date stipulated by the
Corporation for the redemption of Series V Shares (the "Redemption Date"),
written notice (the "Redemption Notice") shall be mailed to each holder of
record on such notice date of the Series V Shares. The Redemption Notice shall
state (i) the Redemption Date of such Shares (ii) the number of Series V Shares
to be redeemed from the holder to whom the Redemption Notice is addressed (iii)
instructions for surrender to the Corporation, in the manner and at the place
designated of a share certificate or share certificates representing the number
of Series V Shares to be redeemed from such holder and (iv) instructions as to
how to specify to the Corporation the number of Series V Shares to be redeemed
as provided in this Part 4 and the number of shares to be converted into Common
Shares as provided in Part 5 hereof.
4.3. Upon receipt of the Redemption Notice, any Eligible Holder (as defined in
Section 5.2 hereof) shall have the option, at its sole election, to specify what
portion of its Series V Shares called for redemption in the Redemption Notice
shall be redeemed as provided in this Part 4 or converted into Common Shares in
the manner provided in Part 5 hereof except that, notwithstanding any provision
of such Part 5 to the contrary, any Eligible Holder shall have the right to
convert into Common Shares that number of Series V Shares called for redemption
in the Redemption Notice.
4.4. On or before the Redemption Date in respect of any Series V Shares, each
holder of such shares shall surrender the required certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and upon the Redemption Date, the
Redemption Price for such shares shall be made payable, in the manner provided
in Section 5.5 hereof, to the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered share
certificate shall be canceled and retired. If a share certificate is surrendered
and all the shares evidenced thereby are not being redeemed (as described
below), the Corporation shall cause the Series V Shares which are not being
redeemed to be registered in the names of the persons whose names appear as the
owners on the respective surrendered share certificates and deliver such
certificate to such person.
4.5. On the Redemption Date in respect of any Series V Shares or prior thereto,
the Corporation shall deposit with any bank or trust company having a capital
and surplus of at least $50,000,000, as a trust fund, a sum equal to the
aggregate Redemption Price of all such shares called for redemption (less the
aggregate Redemption Price for those Series V Shares in respect of which the
Corporation has received notice from the Eligible Holder thereof of its election
to convert Series V Shares into Common Shares), with irrevocable instructions
and authority to the bank or trust company to pay, on or after the Redemption
Date, the Redemption Price to the respective holders upon the surrender of their
share certificates. The deposit shall constitute full payment for the shares to
their holders, and from and after the date of the deposit the redeemed shares
shall be deemed to be no longer outstanding, and holders thereof shall cease to
be shareholders with respect to such shares and shall have no rights with
respect thereto except the rights to receive from the bank or trust company
payments of the Redemption Price of the shares, without interest, upon surrender
of their certificates thereof. Any funds so deposited and unclaimed at the end
of one year following the Redemption Date shall be released or repaid to the
Corporation, after which the former holders of shares called for redemption
shall be entitled to receive payment of the Redemption Price in respect of their
shares only from the Corporation.
Part 5. Conversion.
5.1. For the purposes of conversion, the Series V Shares shall be valued at
$1,000.00 per share ("Value"), and, if converted, the Series V Shares shall be
converted into Common Shares (the "Conversion Shares") at the price per share
equal to the lower of the (i) average daily closing bid prices of Common Shares
for the period of 5 consecutive trading days immediately preceding the date of
the notice of conversion delivered via facsimile of the Series V Shares or (ii)
$1.50 (the lower of (i) or (ii) is hereinafter referred to as the "Conversion
Price"). The closing price for each trading day shall be determined as provided
in the last sentence of Section 3.1.
5.2. Any holder of Series V Shares at any time and from time to time beginning
41 days after the issuance of any Series V Shares (an "Eligible Holder") may
convert all or any portion (up to 100%) of his or her holdings of Series V
Shares into shares of Common Stock of the Corporation.
5.3. The conversion right granted by Section 5.2 hereof may be exercised only by
an Eligible Holder of Series V Shares, in whole or in part, by delivery via
facsimile of Notice of Conversion at the principal office of the Corporation (or
at such other place as the Corporation may designate in a written notice sent to
the holder at its address shown on the books of the Corporation) against
delivery of that number of whole Common Shares as shall be computed by dividing
(1) the aggregate Value of the Series V Shares so surrendered by (2) the
Conversion Price in effect at the time of such surrender. At the time of
conversion of a Series V Share, the Corporation shall pay in cash to the holder
thereof an amount equal to all unpaid dividends, if any, accrued thereon to the
date of conversion, or, at the Eligible Holder's option, issue that number of
whole Common Shares which is equal to the product of dividing the amount of such
unpaid dividends by the Conversion Price whether or not declared by the Board.
In the event of any exercise of the conversion right of the Series V Shares
granted herein (i) share certificates representing the Common Shares purchased
by virtue of such exercise shall be delivered to such holder within 2 trading
days, and (ii) the Corporation shall make a bookkeeping entry evidencing the
Series V Shares which have been fully converted, and those that remain
outstanding. Thereafter, upon request of either the Corporation or the Eligible
Holder, the original share certificate representing the Series V Shares may be
delivered to the Corporation for replacement by a new share certificate
evidencing the remaining shares outstanding; provided, however, that no delivery
of such certificate shall be required with the Conversion Notice. The share
certificates representing the Common Shares so purchased shall be dated the date
of delivery of the Conversion Notice and the holder making such surrender shall
be deemed for all purposes to be the holder of the Common Shares so purchased as
of the date of the Conversion Notice.
5.4. All Common Shares which may be issued upon conversion of Series V Shares
will, upon issuance, be duly issued without restrictive legend, fully paid and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof. At all times that any Series V Shares are outstanding, the
Corporation shall have authorized, and shall have reserved for the purpose of
issuance upon such conversion, a sufficient number of Common Shares to provide
for the conversion into Common Shares of all Series V Shares then outstanding at
the then effective Conversion Price. Without limiting the generality of the
foregoing, if, at any time, the Conversion Price is decreased, the number of
Common Shares authorized and reserved for issuance upon the conversion of the
Series V Shares shall be proportionately increased.
5.5. The number of Common Shares issued upon conversion of Series V Shares and
the Conversion Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
5.5.1. In the case of any amendment to the Articles to change the
designation of the Common Shares or the rights, privileges,
restrictions or conditions in respect of the Common Shares or division
of the Common Shares into series, the rights of the holders of the
Series V Shares shall be adjusted so as to provide that upon conversion
thereof the holder of the Series V Shares being converted shall
procure, in lieu of such Common Share theretofore issuable upon such
conversion, the kind and amount of shares, other securities, money and
property receivable upon such designation, change or division by the
holder of one Common Share issuable upon such conversion had conversion
occurred immediately prior to such designation, change or division. The
Series V Shares shall be deemed thereafter to provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Part 5. The provisions of this
subsection 5.5.1. shall apply in the same manner to successive
reclassifications, changes, consolidations and mergers.
5.5.2. If the Corporation, at any time while any of the Series V Shares
is outstanding, shall amend the Articles so as to change the Common
Shares into a different number of shares, the Conversion Price shall be
proportionately reduced, in case of such change increasing the number
of Common Shares, as of the effective date of such increase, or if the
Corporation shall take a record of holders of its Common Shares for the
purpose of such increase, as of such record date, whichever is earlier,
or the Conversion Price shall be proportionately increased, in the case
of such change decreasing the number of Common Shares, as of the
effective date of such decrease or, if the Corporation shall take a
record of holders of its Common Stock for the purpose of such decrease,
as of such record date, whichever is earlier.
5.5.3. If the Corporation, at any time while any of the Series V Shares
are outstanding, shall pay a dividend payable in Common Shares, the
Conversion Price shall be adjusted, as of the date the Corporation
shall take a record of the holders of its Common Shares for the purpose
of receiving such dividend (or if no such record is taken, as of the
date of payment of such dividend), to that price determined by
multiplying the Conversion Price therefor in effect by a fraction (1)
the numerator of which shall be the total number of Common Shares
outstanding immediately prior to such dividend, and (2) the denominator
of which shall be the total number of Common Shares outstanding
immediately after such dividend (plus in the event that the Corporation
paid cash for fractional shares, the number of additional shares which
would have been outstanding had the Corporation issued fractional
shares in connection with said dividend).
5.6. Whenever the Conversion Price shall be adjusted pursuant to Section 5.5
hereof, the Corporation shall make a certificate signed by its President or a
Vice President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary, setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board of
Directors made any determination hereunder), and the Conversion Price after
giving effect to such adjustment, and shall cause copies of such certificates to
be delivered to each holder of Series V Shares at its address shown on the books
of the Corporation. The Corporation shall make such certificate and mail it to
each such holder promptly after each adjustment.
5.7. No fractional Common Shares shall be issued in connection with any
conversion of Series V Shares, but in lieu of such fractional shares, the
Corporation shall make a cash payment therefor equal in amount to the product of
the applicable fraction multiplied by the Conversion Price then in effect.
5.8. No Series V Shares which have been converted into Common Shares shall be
reissued by the Corporation; provided however, that each such share, after being
retired and canceled, shall be restored to the status of an authorized but
unissued Preferred Share without designation as to series and may thereafter be
issued as a Preferred Share not designated a Series V Share.
Part 6. Parity with Other Shares of Preferred Shares.
6.1. If any cumulative dividends or redemption payment in respect of Series V
Shares are not paid in full, the owners of all series of Preferred Shares shall
participate ratably in any payment of accumulated dividends and redemption
payments.
Part 7. Amendment.
7.1. In addition to any requirement for a series vote pursuant to the MBCA in
respect of any amendment to the rights, privileges, restrictions and conditions
attaching to the Series V Shares, the rights, privileges, restrictions and
conditions attaching to the Series V Shares may be amended only if the
Corporation has obtained the affirmative vote of a majority of the holders of
the Series V Shares then outstanding at a duly called and held meeting of the
holders of the Series V Shares.
ENVIRONMENTAL TECHNOLOGIES USA, INC.
(the "Corporation")
RESOLUTION OF THE BOARD OF DIRECTORS
FIXING THE NUMBER AND DESIGNATING THE RIGHTS, PRIVILEGES,
RESTRICTIONS AND CONDITIONS ATTACHING TO THE SERIES III
PREFERRED STOCK
WHEREAS:
7.2. The Corporation's share capital includes 50,000,000 shares with a par
value of $.01 per share (the "Preferred Stock"), which Preferred Stock
may be issued in one or more series with the directors of the
Corporation (the "Board") being entitled by resolution to fix the
number of shares in each series and to designate the rights,
privileges, restrictions and conditions attaching to the share of each
series; and
7.3. It is in the best interests of the Corporation for the Board to create
a third series of Preferred Stock;
NOW, THEREFORE, BE IT RESOLVED, THAT:
The third series of the Preferred Stock (the "Series III Shares") of
the Corporation shall consist of 5000 shares and no more and shall be
designated as the Series III Preferred Shares and in addition to the
preferences, rights, privileges, restrictions and conditions attaching
to all the Preferred Stock as a class, the rights, privileges,
restrictions and conditions attaching to the Series III Shares shall be
as follows:
Part 1. Voting and Pre-emptive Rights and Dividends.
1.1. Except as otherwise provided herein, in the Articles of Incorporation as
amended of the Corporation (the "Articles"), in the By-laws of the Corporation
(the "By-laws") or the Minnesota Business Corporations Act (the "MBCA"), the
holders of Series III Shares, by virtue of their ownership thereof, shall be
entitled to cast the number of votes per share thereof on each matter submitted
to the Corporation's shareholders for voting which equals the number of votes
which could be cast by the holders of the number of Common Shares into which
such shares of Series III Shares could be converted pursuant to Part 5 hereof
immediately prior to the taking of such vote. Such vote shall be cast together
with those cast by the holders of Common Shares and other series of Preferred
Shares pursuant to the Articles or in the By-laws or by the MBCA. The Series III
Shares shall not have cumulative voting rights.
1.2. The Series III Shares shall not give their holders any pre-emptive rights
to acquire any other securities issued by the Corporation at any time in the
future.
1.3. The Series III Shares shall bear dividends at the rate of 9% per annum.
Dividends shall be cumulative and paid in cash on the last day of each calendar
quarter.
Part 2. Liquidation Rights.
2.1. If the Corporation shall be voluntarily or involuntarily liquidated,
dissolved or wound up, at any times when any Series III Shares shall be
outstanding, the holders of the then outstanding Series III Shares shall have a
preference in distribution of the Corporation's property available for
distribution to the holders of the Common Shares equal to the $1,000.00 per
Series III Share, together with an amount equal to all unpaid dividends accrued
thereon, if any, to the date of payment of such distribution, whether or not
declared by the Board: provided, however, that neither the amalgamation of the
Corporation with any Corporation or corporations, nor the sale nor transfer by
the Corporation of all or any part of its property, nor any reduction of the
authorized or issued capital of the Corporation of any class, whether now or
hereafter authorized, shall be deemed to be a liquidation of the Corporation
within the meaning of any of the provisions of this Part 2.
2.2. Subject to the provisions of Part 6 hereof, all amounts to be paid as
preferential distributions to the holders of Series III Shares as provided in
this Part 2 shall be paid or set apart for payment before the payment or setting
apart for payment of any amount for, or the distribution of any of the
Corporation's property to the holders of Common Shares, whether now or hereafter
authorized, in connection with such liquidation, dissolution or winding up.
Part 3. Market Price.
3.1. For the purposes of this Part 3, Part 4 and Part 5 hereof, "market price"
means the average of the daily closing bid prices of Common Shares for a period
of the last 5 consecutive trading days preceding the date (i) on which any
dividend becomes payable or (ii) of any notice of redemption or (iii) of any
notice of conversion, as the case may be. The closing price for each trading day
shall be (i) for any period during which the Common Shares shall be listed for
trading on a national securities exchange, the last reported bid price per share
of Common Shares as reported by the primary stock exchange, or (ii) for any
period during which the Common Shares shall be listed on the Nasdaq Stock
Market, the last reported sale price as quoted on the Nasdaq Stock Market.
Part 4. Redemption.
4.1. The Holder of any Series III Preferred Stock grants the Company the right
to redeem the Series III Preferred Stock for $1,150 per share within 45 days of
the issuance of any such share of Series III Preferred Stock.
4.2. Not less than two (2) days prior to any date stipulated by the Corporation
for the redemption of Series III Shares (the "Redemption Date"), written notice
(the "Redemption Notice") shall be mailed to each holder of record on such
notice date of the Series III Shares. The Redemption Notice shall state (i) the
Redemption Date of such Shares (ii) the number of Series III Shares to be
redeemed from the holder to whom the Redemption Notice is addressed (iii)
instructions for surrender to the Corporation, in the manner and at the place
designated of a share certificate or share certificates representing the number
of Series III Shares to be redeemed from such holder and (iv) instructions as to
how to specify to the Corporation the number of Series III Shares to be redeemed
as provided in this Part 4 and the number of shares to be converted into Common
Shares as provided in Part 5 hereof.
4.3. Upon receipt of the Redemption Notice, any Eligible Holder (as defined in
Section 5.2 hereof) shall have the option, at its sole election, to specify what
portion of its Series III Shares called for redemption in the Redemption Notice
shall be redeemed as provided in this Part 4 or converted into Common Shares in
the manner provided in Part 5 hereof except that, notwithstanding any provision
of such Part 5 to the contrary, any Eligible Holder shall have the right to
convert into Common Shares that number of Series III Shares called for
redemption in the Redemption Notice.
4.4. On or before the Redemption Date in respect of any Series III Shares, each
holder of such shares shall surrender the required certificate or certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Redemption Notice, and upon the Redemption Date, the
Redemption Price for such shares shall be made payable, in the manner provided
in Section 5.5 hereof, to the order of the person whose name appears on such
certificate or certificates as the owner thereof, and each surrendered share
certificate shall be canceled and retired. If a share certificate is surrendered
and all the shares evidenced thereby are not being redeemed (as described
below), the Corporation shall cause the Series III Shares which are not being
redeemed to be registered in the names of the persons whose names appear as the
owners on the respective surrendered share certificates and deliver such
certificate to such person.
4.5. On the Redemption Date in respect of any Series III Shares or prior
thereto, the Corporation shall deposit with any bank or trust company having a
capital and surplus of at least $50,000,000, as a trust fund, a sum equal to the
aggregate Redemption Price of all such shares called for redemption (less the
aggregate Redemption Price for those Series III Shares in respect of which the
Corporation has received notice from the Eligible Holder thereof of its election
to convert Series III Shares into Common Shares), with irrevocable instructions
and authority to the bank or trust company to pay, on or after the Redemption
Date, the Redemption Price to the respective holders upon the surrender of their
share certificates. The deposit shall constitute full payment for the shares to
their holders, and from and after the date of the deposit the redeemed shares
shall be deemed to be no longer outstanding, and holders thereof shall cease to
be shareholders with respect to such shares and shall have no rights with
respect thereto except the rights to receive from the bank or trust company
payments of the Redemption Price of the shares, without interest, upon surrender
of their certificates thereof. Any funds so deposited and unclaimed at the end
of one year following the Redemption Date shall be released or repaid to the
Corporation, after which the former holders of shares called for redemption
shall be entitled to receive payment of the Redemption Price in respect of their
shares only from the Corporation.
Part 5. Conversion.
5.1. For the purpose of conversion, the Series III Stock shall be valued at
$1,000.00 per share ("Value"), and, if converted, the Series III Stock shall be
converted into Common Stock (the "Conversion Stock") at the price per share
equal to the lower of (i) product of .65 multiplied by the average daily closing
bid prices of Common Stock for the period of 5 consecutive trading days
immediately preceding the date of the notice of conversion of the Series III
Stock or (ii) product .65 multiplied by the average daily closing bid prices of
the Common Stock for the period of 5 consecutive trading days immediately
preceding the date of subscription by the holder of Series III Stock (the lower
of (i) or (ii) is hereinafter referred to as the "Conversion Price"). The
closing price for each trading day shall be determined as provided in the last
sentence of Section 3.1.
5.2. Any holder of Series III Shares at any time and from time to time beginning
45 days after the issuance of any Series III Shares (an "Eligible Holder") may
convert all or any portion (up to 100%) of his or her holdings of Series III
Shares into shares of Common Stock of the Corporation.
5.3. The conversion right granted by Section 5.2 hereof may be exercised only by
an Eligible Holder of Series III Shares, in whole or in part, by delivery via
facsimile of Notice of Conversion at the principal office of the Corporation (or
at such other place as the Corporation may designate in a written notice sent to
the holder at its address shown on the books of the Corporation) against
delivery of that number of whole Common Shares as shall be computed by dividing
(1) the aggregate Value of the Series III Shares so surrendered by (2) the
Conversion Price in effect at the time of such surrender. At the time of
conversion of a Series III Share, the Corporation shall pay in cash to the
holder thereof an amount equal to all unpaid dividends, if any, accrued thereon
to the date of conversion, or, at the Eligible Holder's option, issue that
number of whole Common Shares which is equal to the product of dividing the
amount of such unpaid dividends by the Conversion Price whether or not declared
by the Board. In the event of any exercise of the conversion right of the Series
III Shares granted herein (i) share certificates representing the Common Shares
purchased by virtue of such exercise shall be delivered to such holder within 2
trading days, and (ii) the Corporation shall make a bookkeeping entry evidencing
the Series III Shares which have been fully converted, and those that remain
outstanding. Thereafter, upon request of either the Corporation or the Eligible
Holder, the original share certificate representing the Series III Shares may be
delivered to the Corporation for replacement by a new share certificate
evidencing the remaining shares outstanding; provided, however, that no delivery
of such certificate shall be required with the Conversion Notice. The share
certificates representing the Common Shares so purchased shall be dated the date
of delivery of the Conversion Notice and the holder making such surrender shall
be deemed for all purposes to be the holder of the Common Shares so purchased as
of the date of the Conversion Notice.
5.4. All Common Shares which may be issued upon conversion of Series III Shares
will, upon issuance, be duly issued without restrictive legend, fully paid and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof. At all times that any Series III Shares are outstanding, the
Corporation shall have authorized, and shall have reserved for the purpose of
issuance upon such conversion, a sufficient number of Common Shares to provide
for the conversion into Common Shares of all Series III Shares then outstanding
at the then effective Conversion Price. Without limiting the generality of the
foregoing, if, at any time, the Conversion Price is decreased, the number of
Common Shares authorized and reserved for issuance upon the conversion of the
Series III Shares shall be proportionately increased.
5.5. The number of Common Shares issued upon conversion of Series III Shares and
the Conversion Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
5.5.1. In the case of any amendment to the Articles to change the
designation of the Common Shares or the rights, privileges,
restrictions or conditions in respect of the Common Shares or division
of the Common Shares into series, the rights of the holders of the
Series III Shares shall be adjusted so as to provide that upon
conversion thereof the holder of the Series III Shares being converted
shall procure, in lieu of such Common Share theretofore issuable upon
such conversion, the kind and amount of shares, other securities, money
and property receivable upon such designation, change or division by
the holder of one Common Share issuable upon such conversion had
conversion occurred immediately prior to such designation, change or
division. The Series III Shares shall be deemed thereafter to provide
for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Part 5. The
provisions of this subsection
5.5.1. shall apply in the same manner to successive reclassifications,
changes, consolidations and mergers.
5.5.2. If the Corporation, at any time while any of the Series III
Shares is outstanding, shall amend the Articles so as to change the
Common Shares into a different number of shares, the Conversion Price
shall be proportionately reduced, in case of such change increasing the
number of Common Shares, as of the effective date of such increase, or
if the Corporation shall take a record of holders of its Common Shares
for the purpose of such increase, as of such record date, whichever is
earlier, or the Conversion Price shall be proportionately increased, in
the case of such change decreasing the number of Common Shares, as of
the effective date of such decrease or, if the Corporation shall take a
record of holders of its Common Stock for the purpose of such decrease,
as of such record date, whichever is earlier.
5.5.3. If the Corporation, at any time while any of the Series III
Shares are outstanding, shall pay a dividend payable in Common Shares,
the Conversion Price shall be adjusted, as of the date the Corporation
shall take a record of the holders of its Common Shares for the purpose
of receiving such dividend (or if no such record is taken, as of the
date of payment of such dividend), to that price determined by
multiplying the Conversion Price therefor in effect by a fraction (1)
the numerator of which shall be the total number of Common Shares
outstanding immediately prior to such dividend, and (2) the denominator
of which shall be the total number of Common Shares outstanding
immediately after such dividend (plus in the event that the Corporation
paid cash for fractional shares, the number of additional shares which
would have been outstanding had the Corporation issued fractional
shares in connection with said dividend).
5.6. Whenever the Conversion Price shall be adjusted pursuant to Section 5.5
hereof, the Corporation shall make a certificate signed by its President or a
Vice President and by its Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary, setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Board of
Directors made any determination hereunder), and the Conversion Price after
giving effect to such adjustment, and shall cause copies of such certificates to
be delivered to each holder of Series III Shares at its address shown on the
books of the Corporation. The Corporation shall make such certificate and mail
it to each such holder promptly after each adjustment.
5.7. No fractional Common Shares shall be issued in connection with any
conversion of Series III Shares, but in lieu of such fractional shares, the
Corporation shall make a cash payment therefor equal in amount to the product of
the applicable fraction multiplied by the Conversion Price then in effect.
5.8. No Series III Shares which have been converted into Common Shares shall be
reissued by the Corporation; provided however, that each such share, after being
retired and canceled, shall be restored to the status of an authorized but
unissued Preferred Share without designation as to series and may thereafter be
issued as a Preferred Share not designated a Series III Share.
Part 6. Parity with Other Shares of Preferred Shares.
6.1. If any cumulative dividends or redemption payment in respect of Series III
Shares are not paid in full, the owners of all series of Preferred Shares shall
participate ratably in any payment of accumulated dividends and redemption
payments.
Part 7. Amendment.
7.1. In addition to any requirement for a series vote pursuant to the MBCA in
respect of any amendment to the rights, privileges, restrictions and conditions
attaching to the Series III Shares, the rights, privileges, restrictions and
conditions attaching to the Series III Shares may be amended only if the
Corporation has obtained the affirmative vote of a majority of the holders of
the Series III Shares then outstanding at a duly called and held meeting of the
holders of the Series III Shares.
[TEXT ON FACE OF ENVIRONMENTAL
TECHNOLOGIES USA INC.
COMMON STOCK CERTIFICATE]
[Certificate number] [Number of shares]
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
ENVIRONMENTAL TECHNOLOGIES USA, INC.
SEE REVERSE SIDE
FOR CERTAIN DEFINITIONS
CUSIP 294090 40 2
THIS CERTIFIES THAT [blank]
is the owner of [blank]
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, OF THE PAR
VALUE OF $.01 PER SHARE, OF
ENVIRONMENTAL TECHNOLOGIES USA, INC.
transferable on the books of the Corporation by the holder hereof in person or
by Attorney upon surrender of this certificate properly endorsed. This
certificate is not valid unless countersigned by the Transfer Agent and
Registrar.
IN WITNESS WHEREOF, the said Corporation has caused this certificate to
be signed by the facsimile signatures of its duly authorized officers.
Dated: [blank]
/s/ Richard G. Lareau /s/ Robin R. Young
Secretary Chief Executive Officer
- - - - - - - - - - - - - - - - - - - -
[TEXT ON RIGHT SIDE OF FACE OF
ENVIRONMENTAL TECHNOLOGIES USA INC.
COMMON STOCK CERTIFICATE]
Countersigned and Registered:
NORWEST BANK MINNESOTA, N.A.
Transfer Agent and Registrar
By [blank]
Authorized Signature
[TEXT ON REVERSE SIDE OF ENVIRONMENTAL
TECHNOLOGIES USA INC.
COMMON STOCK CERTIFICATE]
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UTMA - _______ Custodian _______
(Cust) (Minor)
TEN ENT - as tenants by entireties under Uniform Transfer to Minors
Act ____________________________
JT TEN - as joint tenants with right of (State)
survivorship and not as tenants in common
Additional abbreviations may also be used though not in the above list.
For value received __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[blank]
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
___________________________________________________________________Shares of the
capital stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint _______________________ Attorney to transfer the said
stock on the books of the within-named Corporation with full power of
substitution in the premises.
Dated
____________________________________________________
____________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED
LEASE AGREEMENT
This Lease made this 12th day of March, 1996, by and between Kokette Properties
Inc. (Hereinafter called "Lessor") and United Recycling Company (Hereinafter
called "Tenant").
WITNESSETH
In consideration of the rents to be paid and the conditions and covenants to be
observed and performed by the parties, respectively in accordance herewith, IT
IS MUTUALLY AGREED AS FOLLOWS:
I.
Lessor hereby demises to Tenant, and Tenant hereby hires and takes from Lessor,
31,920 square feet of the building located at 3520 2nd Street North,
Minneapolis, Minnesota, which is shown on the attached floor plan that is hereby
made a part of this Lease, together with appurtenant easements of ingress and
egress, for persons and motor vehicles, therefrom and hereto (said land,
building and easements herein after called collectively "Demised Premises") and
to be used by all Tenants, with reasonable consideration of all Tenants. These
areas should never be blocked or abused by any Tenant.
TO HAVE AND TO HOLD the same unto Tenant, its successors and assigns, for a
period of forty (40) months commencing March 18, 1996 through and ending June
30, 1999. Tenant has the right to extend the lease term an additional
twenty-four months beginning July 1, 1999 and ending June 30, 2001. Lease rats
will be as provided below.
II.
Tenant hereby covenants with Lessor as follows, to wit:
(A) In lawful money of the United States to pay to Lessor, at 33716 Nacre
St. N.W., Princeton, Minnesota 55371 or at other such place as will
from time to time be prescribed by Lessor, in writing, as rent, the sum
of Five Hundred Two Thousand Seven Hundred Forty Dollars ($502,740.00)
in equal monthly installments of Seven Thousand Nine Hundred Eighty
($7,980.00) in advance without set-off or deductions, on or before the
first day of each and every month during the first 24 months of this
lease. Beginning July 1, 1996, and continuing through June 30, 1998
Beginning July 1, 1998 and continuing through June 30, 2001, Tenant
agrees to pay equal monthly installments of Eight Thousand Six Hundred
Forty-Five Dollars ($8,645.00).
(B) Tenants Proportionate share of estimated cost for each calendar year
shall be paid in mouthy installments on the first day of each and every
month, in advance, in an amount estimated by Landlord from time to
time. Within ninety (90) days after the end of each calendar year,
Landlord shall furnish Tenant with a statement of the actual amount of
Tenant's Proportionate share of the Operating Cost for such period. IN
the event the total of tenant's monthly installments paid for any
calendar year does not equal Tenant's Proportionate Share as shown on
such statement, then within thirty (30) days of receipt of such
statement, Tenant shall promptly pay Landlord any deficiency or
Landlord shall issue to Tenant a credit invoice for such excess, as the
case may be. The estimated [NOTHING FURTHER ON ORIGINAL]
(C) At its own cost and expense to keep and maintain the non-structural
interior building walls, the doors, windows, electrical service and the
other non-structural parts of the improvements of the demised premises,
as well as any air-conditioning equipment or heating plant now serving
any improvement on the demised premises, in good repair, working order
and watertight throughout the term of this lease and any extension of
said term, ordinary wear and tear excepted. Lessor represents and
warrants all mechanical, electrical, plumbing and heating systems in
the premises will be in good working condition and repair at the
commencement of the lease term.
(D) At its own cost and expense to provide utility service for heat and air
conditioning, if desired, to the building on the demised premises.
Tenant will prior to occupancy install 2 saw tooth dock platforms and 1
14' drive-in door. Paint and recarpeting of office area is at the sole
discretion of Tenant. All work is subject to the prior approval of
Landlord and completed within ninety (90) days of occupancy.
(E) Not to cause or suffer any waste or defacement of the improvements of
the demised premises.
(F) Not to cause or suffer on the demised premises any illegal or immoral
pursuit.
(G) Not to assign or sublet this lease.
(H) To indemnify Lessor and any mortgages or trust beneficiary of the
mortgage or trust deed encumbering the demised premises against, and
save them harmless from all claims, actions, demands, damage and
expenses (including reasonable attorney's fees):
1. consequent upon Tenant's negligent failure to keep the
improvements of the demised premises in repair, as herein
elsewhere prescribed, or
2. arising as a consequence of any act, omission or occurrence on
the demised premises, other than an act or omission by Lessor,
its agents or employees; and at Tenant's own cost and expense
to keep unceasingly in force a policy of public liability
insurance, naming Lessor, Tenant and any aforesaid mortgagee
or trust beneficiary as insured, which policy shall be written
by an insurance company licensed to do business in Minnesota,
shall not be cancelable without at least thirty (30) days
prior notice to Lessor and to any aforesaid mortgagee or trust
beneficiary, and shall provide limits of coverage in such
reasonable amounts as Lessor shall from time to time require.
(I) At the expiration of the term hereof, or at any earlier or later
termination of this lease,
1. at its own expense to remove from the demised premises, but
protecting Lessor against damages except normal wear and tear,
thereto caused by such removal, all movable shelving, racks
and other moveable fixtures and moveable equipment owned by
Tenant, and
2. to quit and deliver the improvements of the demised premises
to Lessor in as good condition as when taken or put into
during the term hereof, reasonable wear and tear and damage by
fire, casualty, the elements and acts of God excepted.
(J) To permit Lessor and its authorized agents to enter upon the demised
premises during ordinary business hours for any purpose not harmful to
or interfering with Tenant's business operation. Landlord shall notify
Tenant of any third party access to the demised premises in advance
other than governmental officials in case of emergency.
(K) To be removed or cause to be discharged any lien filed against the
leased premises, or, in the event Tenant wishes to contest any such
lien, to provide to Lessor security against the foreclosure thereof by
means of a bond in an amount not less than one and one-half (1-1/2)
times the lien claimed.
(L) Not to make any claim or demand against Lessor (and Tenant does hereby
waive the right to make any said claim or demand) for any injury, death
or property damage occurring on or about the demised premises, unless
caused by the negligent act or omission of Lessor, its agents or
employees.
(M) Not to make any structural alteration or addition to any improvement on
the demised premises without prior written consent of Lessor, such
consent to be on the terms and conditions established by Lessor in the
exercise of its sole discretion. Landlord's consent shall not be
unreasonably withheld.
(N) To notify the Lessor and mortgagee or trust beneficiary under any
mortgage or trust deed encumbering the demised premises of any default
by Lessor alleged to exist under this lease, and not to exercise any
right Tenant may have at law to terminate this lease unless and until
the passage of sixty (60) days following the giving of such notice
without the commencement of a cure of such breach by Lessor or said
mortgagee or trust beneficiary, if such breach does in fact exist.
(O) Tenant will use and occupy the demised premises for the use of a carpet
collection and recycling plant. Tenant use of the demised premises
includes the use of cars, vans, moving vans, and semi-truck trailers
and dumpsters.
III.
Lessor hereby covenants with Tenant as follows, to wit:
(A) To permit Tenant to erect and maintain on any exterior wall of the
building of the demised premises, signs and illuminated structures, on
condition that any such sign or structure complies with all laws,
ordinances and governmental regulations pertaining thereto.
(B) To permit Tenant to make any non-structural alteration or improvement
of the building of the demised premises at Tenant's own cost and
expense, on condition that Tenant will indemnify and save harmless
Lessor against any cost, damage or expense by reason of the make of any
such improvement, alteration or repair, and to save Lessor harmless
from the assertion of any mechanic's lien for labor and/or material
incorporated by Tenant in the demised premises. Any changes over
$10,000 require the written consent of Lessor which shall not
unreasonably be withheld.
(C) Upon Tenant's observance and performance of its part hereof, to assure,
and it hereby does assure, to Tenant the quiet and peaceful possession
and enjoyment of the demised premises throughout the term of this lease
and any extension of said term.
(D) Landlord warrants that the demised premises is zoned appropriately for
the use set forth in Article II Paragraph (O).
(E) Landlord warrants that it has not received any notice indicating that
the demised premises is not in compliance with the Americans with
Disability's Act as amended and the Clean Air Act as amended.
IV.
Lessor and tenant hereby covenant with each other as follows, to wit:
(A) If at any time during the term of this Lease or any extension thereof,
the entire land area of the demised premises be taken by public
authority under the power of eminent domain, or if all appurtenant
easements of access be cut off by such a taking, then this lease shall
terminate as of the effective date of taking and both parties shall be
fully released from all further liability hereunder, excepting only the
Lessor shall in such event refund to tenant any rent prepaid for a time
beyond such effective date.
If at any time during the term of this Lease or any extension thereof,
any part of the land of the demised premises become substantially
unusable by Tenant because of a taking of the property by a public
authority, then either Lessor or Tenant may, by written notice to the
other within sixty (60) days following the date of such taking,
terminate this lease; whereupon Tenant shall vacate and surrender the
demised premises and both parties shall be fully released from all
further liability hereunder, excepting only that Lessor shall in such
event refund to Tenant any rent prepaid for a time beyond the effective
date of such taking. No taking which does not render the demised
premises substantially unusable by Tenant shall give either party any
right to terminate this Lease.
As used in this Lease, taking by pubic authority under the power of
eminent domain shall include any sale or conveyance under threat or
imminence thereof. Any proceeds payable upon a said taking shall be the
sole property of Lessor, except for any amount awarded to Tenant for
its moving or relocation expense by the condemning authority.
(B) It is the intention and purpose of the parties that this lease shall be
a completely net lease and that all rent shall be paid to Lessor
without diminution or deduction; the parties agree that all operating
cost or expenses of whatever character or kind, general or special,
ordinary or extraordinary, foreseen or unforeseen, and of every kind
and nature whatsoever that may be necessary in or abut the operation of
the demised premises and the operation of all improvements erected
thereon shall be paid within 60 days by Tenant except as set forth
above restricted by II B (second paragraph). In the event Tenant
refused or fails to pay any amount due hereunder (or to be paid by
Tenant) who due, or fails or refuses to cure any default hereunder,
Lessor may (but shall not be required), in addition to other remedies
available to it hereunder otherwise, pay said amount or cure said
default and charge such payment or the cost of such cure to Tenant,
together with interest at the Minnesota prime rate then charged by the
First Bank Minneapolis, and the same shall be payable to Lessor with
the rent installment next due hereunder. Rent due hereunder and paid
after the date due shall bear interest at said rate.
(C) Lessor shall require that any mortgage or trust deed placed upon the
demised premises shall recognize the validity and effect of this lease
and shall provide that in the event of foreclosure or sale under such
mortgage or trust deed, this lease shall remain in full force and
effect, unless Tenant is in default hereunder.
(D) In the event Tenant defaults in the payment of any installment of rent
or in the observance or performance of any other condition or covenant
hereof, and if Tenant fails to extinguish the default within sixty (60)
days after the receipt of written notice specifying the same, or in the
event of the bankruptcy, insolvency, voluntary or involuntary
liquidation or winding up of affairs of Tenant, or in the event of any
corporate reorganization or arrangements under the bankruptcy or
insolvency laws of the United States or any State involving the
interest of said Tenant hereunder, or in the event Tenant's interest
hereunder be assigned by operation of law, then Lessor may, in addition
to other remedies available by law, at its option,
1. re-enter the demised premises, repossess itself thereof and
terminate this lease, or
2. re-enter the demised premises and repossess itself thereof,
without terminating this lease or working a forfeiture of the
rents to be paid or of the conditions and covenants to be
observed and performed by Tenant through out the remainder of
the term hereof.
Provided, nevertheless, that if default be made in any condition or
covenant herein contained to be observed or performed by Tenant which
cannot with due diligence be cured within a period of sixty (60) days,
and if notice thereof in writing be give to Tenant and if Tenant prior
to the expiration of sixty (60) days from and after the giving of such
notice commences to eliminate or overcome the cause of such default and
does in due course cure such default, then Lessor shall not have the
right to declare the said term ended by reason of such default.
Provided, however, that the curing of any default in such a manner
shall be construed to limit or restrict the right of Lessor to declare
said term and enforce all of its rights and remedies hereunder for any
other default not so cured. And, provided further, default in the
payment of rent when due is not subject to the grace provisions of this
paragraph.
(E) No waiver or forbearance by either party shall constitute a waiver or
forbearance. in any other instance--the parties hereby acknowledging
that all conditions and covenants of this lease are continuing
conditions and covenants throughout its term and any extension thereof.
(F) Whenever a notice be given by either party to the other, the same shall
be in writing and deemed delivered when personally delivered or mailed
by prepaid registered or certified mail(return receipt card requested
addressed as follows; In the case of Lessor, to the place then
designated for the payment of rent; and in the case of Tenant, to its
home or registered office. Personal delivery shall be deemed
accomplished hereunder when delivery is made to any officer of Lessor
or to any officer of Tenant.
(G) Upon the written request of either party hereto, the other party shall
execute and deliver to the requesting party a recordable short form of
this lease. The requesting party shall pay the cost of preparation and
recording of such form.
(H) If any term, condition, or covenant hereof shall be determined to be
invalid, void or unenforceable by any court of competent jurisdiction
or properly constituted public authority, such determination shall not
affect other terms, conditions and covenants hereof, which shall
continue in full force and effect.
(I) Time is an essential part hereof. Each and every grant, condition and
covenant herein contained shall run with the demised premises and shall
bind and extend to the benefit, respectively, of the parties hereto and
their respective heirs, executors, administrators, successors and
permitted assigns.
(J) All preliminary and contemporaneous negotiations are merged into and
incorporated in this lease. This lease contains the entire agreement
between the parties and shall not be modified or amended in any manner
except by an instrument in writing executed by the parties hereto.
(K) Tenant shall, within ten (10) days after written request by Lessor,
execute, acknowledge and deliver to Lessor, any mortgagee or trust
beneficiary, or any assignee or transferee designated by Lessor, a
writing rectifying this lease, confirming both the commencement date
here of and the initial rent payable hereunder, which commencement date
and rent shall-be designated and certified to Tenant in good faith by
Lessor; and also certifying:
1. That tenant has entered into occupancy of the demised
premises, if such be the case;
2. That this lease is in full force and effect, and has not been
assigned, modified, supplemented or amended in any way (or if
there has been an assignment, modification, supplement or
amendment, identifying the same);
3. That this lease represents the entire agreement between the
parties hereto (or if there has been any modification,
supplement or amendment, identifying the same);
4. That to the knowledge of Tenant no default exist in the
performance or observance of any term, condition or covenant
of this lease and there are no defenses or offset against the
enforcement of this lease by Lessor, or specifying such
default, defense of offset of which the tenant may have
knowledge.
5. The amount of rent which has been paid in advance, if any; and
6. The date to which all rents have been paid under the lease.
(L) Except as provided in Section IV (C) above, this lease and tenant's
rights hereunder are and shall be subject and subordinate to the
operation and effect of all terms and conditions contained in any
mortgage or trust deed now or hereafter encumbering the demised
premises or any part thereof. In the event Lessor or the mortgagee or
trust beneficiary under any such mortgage or trust deed request a
written confirmation of such subordination, Tenant shall, within (10)
days following receipt thereof by certified mail return receipt
requested, execute, acknowledge and deliver to the requesting party any
instrument reasonably required to evidence such subordination, provided
that any such instrument shall recognize the leasehold estate of
Tenant, if Tenants not in default hereunder as provided in Paragraph
(D) of
V
(A) Landlord shall give tenant written notice of the availability of any
additional rentable square footage of the building located at 3520
Second Street North, Minneapolis, MN, whenever the space first comes
available to landlord for releasing after expiration or earlier
termination of the existing lease for that space. The notice shall set
out the annual rent and estimated operating costs. Tenant shall have
the right to lease the space if:
1. Tenant is not in default under this lease at the time such
option is exercised and at the time such option is to
commence.
2. Tenant delivers to Landlord written notice exercising its
right to lease the space within (10) days or receipt of
landlord's notice of availability of that space. If tenant
fails to exercise its right to lease the space with landlord
taking no additional actions, tenant shall have no further
right to lease this space under this article until the space
has been leased and again becomes available to landlord for
releasing.
IN WITNESS WHEREOF, this lease has been executed the day and year first above
written.
KOKETTE PROPERTIES, INC. UNITED RECYCLING, INC.
/s/ Samuel J. Kokette /s/ Marcel J. Kole
Its: President Its: COO/CFO
Date: 3/29/96 Date: 3/15/96
LEASE ADDENDUM
This Agreement dated March 7, 1996 by and between Kokette Properties Inc.
(Lessor) and United Recycling Company (Tenant).
PREAMBLE
This addendum is an integral part of this lease between the parties. In
the event of a conflict between the terms and conditions of this addendum and
the Lease and exhibits, the provision of this addendum shall control.
capitalized words or defined terms contained in this addendum shall have the
same meaning as in the Lease unless the context requires otherwise.
I. SECURITY DEPOSIT
Tenant will deposit with Lessor the sum of Fifteen Thousand Nine
Hundred Sixty Dollars ($15,960.00) . Said sum shall be held by Lessor
as security for the faithful performance by Tenant of all the terms and
conditions of this lease to be kept and performed by tenant during the
term hereof. If tenant defaults with respect to any provision of the
lease, Lessor may (but shall not be required to) use, apply or retain
all or any part of this security deposit the payment of any rent or any
other sum in default, or for the payment of any other amount which
Lessor may spend or become obligated to spend by reason of Tenant's
default or to compensate Lessor for any other loss or damage which
Lessor may suffer by reason of Tenant's default. If any portion od said
deposit is so used or applied, Tenant shall immediately deposit cash
with Lessor in an amount sufficient to restore the security deposit to
its original amount and Tenant's failure to do so shall be a material
breach of this lease. Landlord shall not be required to keep this
security deposit separate from general funds, and Tenant shall be
entitled to interest on such deposit. If Tenant shall fully and
faithfully perform every provision of this lease to be performed by it,
the security deposit or any balance thereof shall be returned to
Tenant.
II. BUILDING IMPROVEMENTS
Tenant will install 2 saw tooth dock platforms and 1-14' drive in door.
All work is subject to the prior approval of Lessor and in accordance
with all laws and regulations of applicable governing body.
III. EARLY OCCUPANCY
Tenant acknowledges that, although the lease term begins July 1, 1996,
it has been given occupancy, and may occupy the Premises as of January
1, 1996 and therefore Tenant shall hold Lessor harmless and indemnified
from any claims or damages arising out of Tenant's use of the premises
from March 18, 1996 to June 30, 1996. Tenant will be allowed use of the
Premises base rent free, but will begin payment immediately for it's
share of the taxes and operating cost estimated for 1996 to be $1.25
per square foot per year ($3,325.00 per month). However all building
improvements must be completed during the early occupancy period. If
building improvements are not completed immediately and are delayed for
any reason Tenant will begin payment of the base rent as called for in
provision II (A) of the lease. If and when the improvements are
completed tenant will be compensated with a reduction in base rent
equal to a total of four months.
KOKETTE PROPERTIES, INC. UNITED RECYCLING, INC.
By:/s/ Samuel J. Kokette By:/s/ Marcel J. Kole
Its: President Its: COO/CFO
LEASE ADDENDUM II
This Agreement dated March 13, 1996 by and between Kokette Properties Inc.
(Lessor) and United Recycling, Inc. (Tenant).
PREAMBLE
This addendum is an integral part of this lease between the parties. In the
event of a conflict between the terms and conditions of this addendum and the
Lease and exhibits, the provisions of this addendum shall control. Capitalized
words of defined terms contained in this addendum shall have the same meaning as
in the Lease unless the context requires otherwise.
I. In reference to Lease Agreement, page one, section A:
At end of paragraph A add: In the event that the lease expires after
the first forty (40) months and is sot renewed, Tenant shall not be liable or
obligated for any further payments after the forty (40) monthS period has
transpired. Total payments then paid to the Lessor shall not total more than Two
Hundred Ninety Five Thousand Two Hundred Sixty Dollars ($295,260).
And:
After end of last sentence of section A, add: Rent shall be pro rated
for the month of July 1996 from July 17th of that month.
II. In reference to Lease Agreement, page two, section G:
At end of line 0 and end of word lease, add: "without the permission of
Landlord.
KOKETTE PROPERTIES, INC. UNITED RECYCLING, INC.
/s/ Samuel J. Kokette /s/ Marcel J. Kole
Its: President Its: COO/CFO
Date: 3/29/96 Date: 3/15/96
SUBLEASE
1. PARTIES
This Sublease, dated March 20, 1996, is made between Berkley
Administrators ("Sublessor"), and United Recycling, Inc. ("Sublessee").
2. MASTER LEASE
Sublessor is the lessee under a written lease dated February 27, 1995,
wherein Westwood Lake Limited Partnership ("Lessor") leased to
Sublessor the real property located in the City of Golden Valley,
Country of Hennepin, State of Minnesota, described as legal to govern
("Master Premises"). Said lease has been amended by Amendment #3, dated
February 27, 1995, Amendment #2, dated November 25, 1993 and Amendment
#1, dated June 23, 1993: Said lease and amendments are herein
collectively referred to as the "Master Lease" and are attached hereto
as Exhibit "A".
3. PREMISES
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): Approximately 5,231 rentable square feet as shown on the
attached Exhibit B.
4. WARRANTY BY SUBLESSOR
Sublessor warrants and represents to Sublessee that the Master Lease
has not been amended or modified except as expressly set forth herein,
that Sublessor is not now, and as of the commencement of the Term
hereof will not be, in default or breach of any of the provisions of
the Master Lease, and that Sublessor has no knowledge of any claim by
Lessor that Sublessor is in default or breach of any of the provisions
of the Master Lease.
5. TERM.
The Term of this Sublease shall commence on May 1, 1996 ("Commencement
Date"), or when Lessor consents to this Sublease (if such consent is
required under the Master Lease), whichever shall last occur, and end
on September 30, 2000 ("Termination Date"), unless otherwise sooner
terminated in accordance with the provisions of this Sublease. In the
event the Term commences on a date other than the Commencement Date,
Sublessor and Sublessee shall execute a memorandum setting forth the
actual date of commencement of the Term. Possession of the Premises
("Possession") shall be delivered to Sublessee on the commencement of
the Term. If for any reason Sublessor does not deliver Possession to
Sublessee on the commencement of the Term, Sublessor shall not be
subject to any liability for such failure, the Termination Date shall
not be extended by the delay, and the validity of this Sublease shall
not be impaired, but rent shall abate until delivery of Possession.
Notwithstanding the foregoing, if Sublessor has not delivered
Possession to Sublessee within thirty (30) days after the Commencement
Date, then at any time thereafter and before delivery of Possession,
Sublessee may give written notice to Sublessor of Sublessee's intention
to cancel this Sublease. Said notice shall set forth an effective date
for such cancellation which shall be at least ten (10) days after
delivery of said notice to Sublessor. If Sublessor delivers Possession
to Sublessee on or before such effective date, this Sublease shall
remain in full force and effect. If Sublessor fails to deliver
Possession to Sublessee on or before such effective date, this Sublease
shall be canceled, in which case all consideration previously paid by
Sublessee to Sublessor on account of this Sublease shall be returned to
Sublessee, this Sublease shall thereafter be of no further force or
effect, and Sublessor shall have no further liability to Sublessee on
account of such delay or cancellation. If Sublessor permits Sublessee
to take Possession prior to the commencement of the Term, such early
Possession shall not advance the Termination Date and shall be subject
to the provisions of this Sublease, including without limitation the
payment of rent.
6. GROSS RENT
6.1 MINIMUM RENT. Sublessee shall pay to Sublessor as minimum rent,
without deduction, setoff, notice, or demand, at 8441 Wayzata
Boulevard, Golden Valley, MN 55426 Attn: Nicole Hoy or at such other
place as Sublessor shall designate from time to time by notice to
Sublessee, the sum of Three Thousand Three Hundred Seventy-Eight and
35/100s ($3,378.35) in advance of the first day of each month of the
Term. If the Term begins or ends on a day other than the first or last
day of a month, the rent for the partial months shall be prorated on a
per diem basis. Additional provisions: IN the event the "west" portion
of the Premises becomes available prior to May 1, 1996, Sublessee
agrees to pay a prorated amount equal to the approximate square footage
leased.
6.2 OPERATING COSTS. The Master Lease requires Sublessor to pay to
Lessor all or a portion of the expenses of operating the building
and/or project of which the Premises are a part ("Operating Costs"),
including but not limited to taxes, utilities, or insurance. Sublessee
shall pay to Sublessor as additional rent its pro-rata share of
Operating Expenses based on 5,231 rentable square feet. Operating
Expenses for 1996 are estimated at $6.99 per rentable square foot and
are subject to change pursuant to Article 6 of the Master Lease. Such
provides for the payment by Sublessor of Operating Costs on the basis
of an estimate thereof, then as and when adjustments between estimated
and actual Operating Costs are made under the Master Lease, the
obligations of Sublessor and Sublessee thereunder shall be adjusted in
a like manner, and if any such adjustment shall occur after the
expiration or earlier termination of the Term, then the obligations of
Sublessor and Sublessee under this Subsection 6.2 shall survive such
expiration or termination. Sublessor shall, upon request by Sublessee,
furnish Sublessee with copies of all statements submitted by Lessor of
actual or estimated Operating Costs during the Term.
7. SECURITY DEPOSIT
Sublessee shall deposit with Sublessor upon execution of this Sublease
the sum of Nineteen Thousand Two-Hundred Seventy-six & 24/100 Dollars
($19,276.24) as security for Sublessee's faithful performance of
Sublessee's faithful performance of Sublessee's obligations hereunder
("Security Deposit"). If Sublessee fails to pay rent or other charges
when due under this Sublease, or fails to perform any of its other
obligations hereunder, Sublessor may use or apply all or any portion of
the Security Deposit for the payment of any rent or other amount then
due hereunder and unpaid, for the payment of any other sum for which
Sublessor may become obligated by reason of Sublessee's default or
breach, or for any loss or damage sustained by Sublessor as a result of
Sublessee's default or breach. If Sublessor so uses any portion of the
Security Deposit, Sublessee shall, within ten (10) days after written
demand by Sublessor, restore the Security Deposit to the full amount
originally deposited, and Sublessee's failure to do so shall constitute
a default under this Sublease. Sublessor shall not be required to keep
the Security Deposit separate from its general accounts, and shall have
no obligation or liability for payment of interest on the Security
Deposit. In the event Sublessor assigns its interest in this Sublease,
Sublessor shall delivery to its assignee so much of the Security
Deposit as is then held by Sublessor. Within ten (10) days after the
Term has expired, or Sublessee has vacated the Premises, or any final
adjustment pursuant to Subsection 6.2 hereof has been made, whichever
shall last occur, and provided Sublessee is not then in default of any
of its obligations hereunder, the Security Deposit, or so much thereof
as had not theretofore been applied by Sublessor, shall be returned to
Sublessee or to the last assignee, if any, of Sublessee's interest
hereunder. Provided Sublessee is no in default of the Sublease,
Sublessor agrees to apply $6,425.41 towards the rental obligation due
in month seven (7) and $6,425 toward the rental obligation due in month
nineteen (19).
8. USE OF PREMISES.
The Premises shall be used and occupied only for General Office Use,
and for no other use or purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any
part of the Premises without the prior written consent of Sublessor
(and the consent of Lessor, if such is required under the terms of the
Master Lease).
10. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are
incorporated into and made a part of this Sublease as if Sublessor were
the lessor thereunder, Sublessee the lessee thereunder, and the
Premises, the Master Premises, except for the following: N/A Sublessee
assumes and agrees to perform the lessee's obligations under the Master
Lease during the Term to the extent that such obligations are
applicable to the Premises, except that the obligation to pay rent to
Lessor under the Master Lease shall be considered Performed by
Sublessee to the extent and in the amount rent is paid to Sublessor in
accordance with Section 6 of this Sublease. Sublessee shall not commit
or suffer any act or omission that will violate any of the provisions
of the Master Lease. Sublessor shall exercise due diligence in
attempting to cause Lessor to perform its obligations under the Master
Lease for the benefit of Sublessee. If the Master Lease terminates,
this Sublease shall terminate and the parties shall be relieved of any
further liability or obligation under this Sublease, provided however,
that if the Master Lease terminates as a result of a default or breach
by Sublessor or Sublessee under this Sublease and/or the Master Lease,
then the defaulting party shall be liable to the nondefaulting party
for the damage suffered as a result of such termination.
Notwithstanding the foregoing, if the Master Lease gives Sublessor any
right to terminate the Master Lease in the event of the partial or
total damage, destruction, or condemnation of the Master Premises or
the building or project of which the Master Premises are a part, the
exercise of such right by Sublessor shall not constitute a default or
breach hereunder.
11. ATTORNEY'S FEES.
If Sublessor, Sublessee, or Broker shall commence an action against the
other arising out of or in connection with this Sublease, the
prevailing party shall be entitled to recover its costs of suit and
reasonable attorney's fees.
12. AGENCY DISCLOSURE.
Sublessor and Sublessee each warrant that they have dealt with no other
real estate broker in connection with this transaction except: John F.
McCarthy of United Properties, who represents Sublessor, and Gary
Glockner of Towle Real Estate, who represents Sublessee. In the event
that either broker represents both Sublessor and Sublessee, Sublessor
and Sublessee hereby confirm that they were timely advised of dual
representation and that they consent to the same, and that they do not
expect said broker to disclose to either of them the confidential
information of the other party.
13. NOTICES.
All notices and demands which may or are to be required or permitted to
be given by either party on the other hereunder shall be in writing.
All notices and demands by the Sublessor to Sublessee shall be sent by
United States Mail, postage prepaid, addressed to the Sublessee at
__________________, and to the address herein below, or to such other
place as Sublessee may from time to time designate in a notice to the
Sublessor. All notices and demands by the Sublessee to Sublessor shall
be sent by United States Mail, postage prepaid, addressed to the
Sublessor at the address set forth herein, and to such other person or
place as the Sublessor may from time to time designate in a notice to
the Sublessee.
To Sublessor: Berkley Administrators
8841 Wayzata Boulevard
Minneapolis, MN 55426
Attn: Elizabeth Holden Hill
To Sublessee: United Recycling Inc.
8841 Wayzata Boulevard
Minneapolis, MN 55426
Attn: Marcel J. Kole
14. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY
LESSOR WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS
REQUIRED UNDER THE TERMS OF THE MASTER LEASE.
15. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state
and local laws, regulations, codes, ordinances and administrative
orders having jurisdiction over the parties, property or the subject
matter of this Agreement, including, but not limited to, the 1964 Civil
Rights Act and all amendments thereto, the Foreign Investment in Real
Property Tax Act, the Comprehensive Environmental Response Compensation
and Liability Act, and the Americans With Disabilities Act.
16. ADDITIONAL PROVISIONS
1. Condition of Premises: Sublessee accepts the Premises in "as-is"
condition. Sublessor agrees to shampoo all carpets and patch and repair
walls (as reasonably necessary). Sublessor agrees to provide Sublessee
with an initial set of twenty (20) access cards to the building, rekey
all locks leading into the Premises and provide suite signage.
2. Covered Parking: Sublessor agrees to provide two (2) free parking
stalls (covered) for the duration of the lease term. Sublessor also
agrees to provide up to three (3) additional covered stalls to
Sublessee for $25.00 per month per stall.
SUBLESSOR: SUBLESSEE:United Recycling, Inc.
By: By:/s/ Marcel J. Kole
Title: Title:COO/CFO
By: By:
Title: Title:
Date: Date:
LESSOR'S CONSENT TO SUBLEASE
The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to
the foregoing Sublease without waiver of any restriction in the Master Lease
concerning further assignment or subletting. Lessor certifies that, as of the
date of Lessor's execution hereof, Sublessor is not in default or breach of any
of the provisions of the Master Lease, and that the Master Lease has not been
amended or modified except as expressly set forth in the foregoing Sublease.
Lessor:
By:
Title:
Date:
EXHIBIT A
STANDARD OFFICE LEASE AGREEMENT (NET)
THIS LEASE AGREEMENT (hereinafter called the "Lease Agreement") made as of the
29th day of June, 1992, by and between THE NORTHLAND COMPANY, a Minnesota
corporation, having offices at Suite 100, 3500 West 80th Street, Bloomington,
Minnesota 55431 (hereinafter called the "Landlord"), and BERKELY ADMINISTRATORS,
a division of TRI-STATE INSURANCE COMPANY OF MINNESOTA, INC., (hereinafter
called the "Tenant").
WITNESSETH
FOR AND IN CONSIDERATION of the sum of One Dollar ($1.00) in hand paid
by each of the parties in the other, and other good and valuable consideration,
receipt and sufficiency of which is hereby acknowledged, Landlord does hereby
lease and let unto Tenant, and Tenant does hereby hire, lease and take from
Landlord, that area outlined in red on Exhibit A-1 attached herein, and by this
reference incorporated herein, and described as Suite 100/200/300 containing
approximately 44,222 square feet, (hereinafter called the "Premises") at 8441
Wayzata Boulevard (hereinafter called the "Building") in the City of Golden
Valley, County of Hennepin, State of Minnesota. The term Building as it is used
herein shall consist of the land and building(s) set forth in Exhibit A-2
hereto.
ARTICLE 1 - TERM
To have and to hold said Premises for a term of three (3) years,
commencing October 1, 1992 and terminating September 30, 1995 (hereinafter
called the "Term") upon the rentals and subject to the conditions set forth in
this Lease Agreement, and the Exhibits attached hereto. The commencement and
termination dates are specifically subject to the provisions of Article 5
hereof.
ARTICLE 2 - USE
The Premises shall be used by the Tenant solely for the following
purposes: General office
ARTICLE 3 - RENTALS
Tenant agrees to pay to Landlord as minimum rental (hereinafter called
"Minimum Rental") for the Premises, without notice set-off or demand, the sum of
Eighteen Thousand Seven Hundred Ninety-four Dollars ($18,794.00) per monthly
installments to be due and payable by Tenant in advance on the first day of each
calendar month during the Term of this Lease Agreement, or any extension or
renewal thereof, at the office of Landlord set forth in the preamble in this
Lease Agreement or at such other place as Landlord may designate. In the event
of any fractional calendar month, Tenant shall pay for each day in such partial
month a rental equal in 1/30 of the Minimum Rental. Tenant agrees to pay, as
Additional Rent, which shall be collectible in the same extent as Minimum
Rental, all amounts which may become due to Landlord hereunder as any tax,
charge or fee that may be levied, assessed or imposed upon or measured by the
rental reserved hereunder by any governmental authority acting under any present
or future law before any fine, penalty, interest or costs may be added thereto
for non-payment. Pursuant to Article 6 hereof, Landlord's estimated Operating
Expenses for 1992 are $4.68 per square food and estimated Real Estate Taxes
payable in 1992 are $2.07 per square foot.
ARTICLE 4 - CONSTRUCTION
Plans and/or a description for permanent improvements to the Premises
are attached hereto as Exhibit A-3 and by this reference incorporated herein
(hereafter called the "Plans"). The Plans have been approved by each of Landlord
and Tenant. The parties acknowledge that the Plans are in modify the Premises in
accommodate Tenant's intended use. Landlord shall be responsible for
constructing the improvements as shown on the Plans (hereafter called "Tenant
Improvements") for and on behalf of tenant. Landlord and Tenant have agreed that
the costs of such Tenant Improvements shall be paid by Tenant, although
initially advanced by Landlord, with said costs to be reimbursed to Landlord by
Tenant as part of Tenant's payments of Minimum Rental as set forth in Article 3
above. Any improvements to the Premises, other than as shown on the Plans, and
the furnishing of the Premises, shall be made by tenant at the sole cost and
expense of tenant, subject to all other provision of this Lease Agreement,
including compliance with all applicable governmental laws, ordinances and
regulations. If the Tenant Improvements cannot be substantially completed prior
to the commencement of the Term, then the provision of Article 5 shall apply.
ARTICLE 5 - POSSESSION
Except as otherwise provide,d Landlord shall deliver possession of the
Premises on or before the date hereinabove specified for commencement of the
Term, but delivery of possession prior to such commencement date shall not
affect the expiration date of this Lease Agreement. Failure of Landlord to
deliver possession of the Premises by the date hereinabove provided, due to a
holding over a prior tenant, or any other cause beyond Landlord's control, or
time required for construction delays due to material shortages, strikes, or
acts of God, shall automatically postpone the date of commencement of the Term
of this Lease Agreement and shall extend the termination date by periods equal
to those which shall have elapsed between and including the date hereinabove
specified for commencement of the Term hereof and the date on which possession
of the Premises is delivered to the Tenant. The rentals herein reserved shall
commence on the first day of the Term, provided, however, in the event of any
occupancy by Tenant prior to the beginning of the Term, such occupancy shall in
all respects be the same as that of a tenant under this Lease Agreement, and the
rental shall commence as of the date that Tenant enters into such occupancy of
the Premises. Provided further, that if Landlord shall be delayed in delivery of
the Premises to Tenant due to Tenant's failure to agree to the Plans or any
delay caused by a party employed by or the agent of Tenant, or by Tenant's
failure to pay for the costs of the Tenant Improvements requested by Tenant
subsequent in approval of the Plans, then in such case the rental shall be
accelerated by the number of days of such delay, and the rentals shall commence
the same as if occupancy had been taken by Tenant. Prior to the commencement of
the Term, Landlord shall have no responsibility or liability for loss or damage
to fixtures, facilities or equipment installed or left on the Premises. By
occupying the Premises as a Tenant, or to install fixtures, facilities or
equipment, or to perform finishing work, Tenant shall be conclusively deemed to
have accepted the same and to have acknowledged that the Premises are in the
condition required by this Lease Agreement, except items which are not in
compliance with Exhibit A-3 and for which Tenant has given Landlord a written
"punch list' within thirty (30) days of Tenant's first occupancy of the
Premises. Should the commencement of the rental obligations of Tenant under this
Lease Agreement occur for any reason on a day other than the first day of a
calendar month, then in that event solely for the purposes of combining the Term
of this Lease Agreement, the commencement date of the Term shall become and be
the first day of the first full calendar month following the date when Tenant's
rental obligation commences, or the first day of the first full calendar month
following the commencement date set out in Article I (if such is other than the
first date of a calendar month), whichever date is later, and the termination
date shall be adjusted accordingly; provided however, that the termination date
shall be the last day of a calendar month, which date shall in no event be
earlier than the termination date set out in Article 1. Immediately after
Tenant's occupancy of the Premises the Landlord and tenant shall execute a
ratification agreement which shall set forth the final commencement and
termination dates for the Term and shall acknowledge the Minimum Rental, the
square footage of the Premises, and delivery of the Premises in the condition
required by this Lease Agreement.
ARTICLE 6 - TENANT'S PRO RATA SHARE OF REAL ESTATE TAXES AND OPERATING
EXPENSES
A. During each full or partial calendar year during the Term of this
Lease Agreement, Tenant shall pay to Landlord, as Additional Rental, an amount
equal to the Real Estate Taxes and Operation Expenses (both as hereinafter
defined) per square foot of rentable area in the Building multiplied by the
number of square feet of rentable area in the Premises prorated for the period
that Tenant occupied the Premises. Notwithstanding the preceding sentence,
Tenant's share of the following Operating Expenses shall be computed on the
basis of the cost of said expenses per rentable square foot of area within the
Building actually occupied; cleaning, management, and energy expenses.
B. Landlord shall, each year during the Term of this Lease Agreement,
give Tenant an estimate of Operating Expenses and Real Estate Taxes payable per
square foot of rentable area for the coming calendar year. Tenant shall pay, as
Additional Rental, along with its monthly Minimum Rental payments required
hereunder, one-twelfth (1/12) of such estimated Operating Expenses and Real
Estate Taxes and such Additional Rental shall be payable until subsequently
adjusted for the following year pursuant to this Article.
C. As soon as possible after the expiration of each calendar year,
Landlord shall determine and certify to Tenant the actual Operating Expenses and
Real Estate Taxes for the previous year per square foot of rentable area in the
Building and the amount applicable to the Premises. If such statement shows that
Tenant's share of Operating Expenses and Real Estate Taxes exceeds Tenant's
estimated monthly payments for the previous calendar year, then Tenant shall,
within twenty (20) days after receiving Landlord's certification, pay such
deficiency to Landlord. In the event of an overpayment by Tenant, such
overpayment shall be refunded to Tenant, at the time of certification, in the
form of an adjustment in the Additional Rental next coming due, or if at the end
of the Term by a refund.
D. For the purposes of this Article, the term "Real Estate Taxes" means
the total of all taxes, fees, charges and assessments, general and special,
ordinary and extraordinary, foreseen or unforeseen, which become due or payable
upon the Building. All costs and expenses incurred by Landlord during
negotiations for or contests of the amount of Real Estate Taxes shall be
included within the term "Real Estate Taxes." For purposes of this Article, the
term "Operating Expenses" shall be deemed to mean all costs and expenses
directly related to the Building incurred by Landlord in the repair, operation,
management and maintenance of the Building including interior and exterior and
common area maintenance, management fees, cleaning expenses, energy expenses,
insurance premiums, and the amortization of capital investments made to reduce
operating costs or that are necessary due to governmental requirements, all in
accordance with generally accepted accounting principles.
E. Landlord may at any time designate a fiscal year in lieu of a
calendar year and in such event, at the time of such a change, there may be a
billing for the fiscal year which is less than 12 calendar months.
F. Landlord reserves, and Tenant hereby assigns to Landlord, the sole
and exclusive right to contest, protest, petition for review, or otherwise seek
a reduction in the Real Estate Taxes.
ARTICLE 7 - UTILITIES AND SERVICE
A. Landlord agrees to furnish water, electricity, elevator services,
and janitorial service. In the event Tenant's requirements and/or usage of such
utilities and services is substantially greater than is customarily supplied to
a typical tenant in the Building. Landlord or Tenant may request that the
difference in such requirement and/or usage be determined and that appropriate
adjustments be made in the Minimum Rental provided for in Article 3 of this
Lease Agreement.
B. Landlord agrees to furnish heat during the usual heating season and
air conditioning during the usual air conditioning season, all during normal
business hours as defined in this Lease Agreement.
C. No temporary interruption or failure of such services incidental to
the making of repairs, alterations or improvements, or due to accidents or
strike or conditions or events not under Landlord's control, shall be deemed as
an eviction of the Tenant or relieve the Tenant from any of the Tenant's
obligations hereunder.
D. For the purposes of this Article 7, normal business hours shall be
deemed to mean the period of time between 8:00 a.m. and 5:00 p.m., Monday
through Friday, and specifically excluding Saturdays, Sundays and legal
holidays.
ARTICLE 8 - NON-LIABILITY OF LANDLORD
Except in the event of negligence of Landlord, its agents, employees or
contractors, Landlord shall not be liable for any loss or damage for failure to
furnish heat, air conditioning, electricity, elevator service, water, sprinkler
system or janitorial service. Landlord shall not be liable for personal injury,
death or any damage from any cause about the Premises or the Building except is
caused by Landlord's negligences.
ARTICLE 9 - CARE OF PREMISES
A. Tenant agrees:
1. To keep the Premises in as good condition and repair as
they were in at the time Tenant took possession of same, reasonable
wear and tear and damage from fire and other casualty for which
insurance is normally procured excepted;
2. To keep the Premise in a clean and sanitary condition;
3. Not to commit any nuisance or waste on the Premises, over
load the electrical, water and/or plumbing facilities in the Premises
or Building, throw foreign substances in plumbing facilities, or waste
any of the utilities furnished by Landlord;
4. To abide by such rules and regulations as may from time to
time be reasonably promulgated by Landlord;
5. To preserve and protect all carpeted areas; and
6. To obtain Landlord's prior approval of the interior design
of any portion of the Premises visible from the common areas or from
the outside of the Building. "Interior design" as used in the preceding
sentence shall include but not be limited to floor and wall coverings,
furniture, office design, artwork and color scheme.
B. If Tenant shall fail to keep and preserve the Premises in the state
of condition required by the provisions of this Article 9, the Landlord may at
his option put or cause the same to be put into the condition and state of
repair agreed upon, and in such case the Tenant, on demand, shall pay the cost
thereof.
ARTICLE 10 - NON-PERMITTED USE
Tenant agrees to use the Premises only for the purposes set forth in
Article 2 hereof. Tenant further agrees not to commit or permit any act to be
performed on the Premises or any omission to occur which shall be in violation
of any statute, regulation or ordinance of any governmental body or which will
increase the insurance rates on the Building or which will be in violation of
any insurance policy carried on the Building by the Landlord. Tenant, at its
expense, shall comply with all governmental laws, ordinances, rules and
regulations applicable to the use of the Premises and its occupancy and shall
promptly comply with all governmental orders, rulings and directives for the
correction, prevention and abatement of any violation upon, or in connection
with the Premises or Tenant's use or occupancy of the Premises, including the
making of any alterations or improvements to the Premises, all at Tenant's sole
cost and expense. The Tenant shall not disturb other occupants of the Building
by making any undue or unseemly noise or otherwise and shall not do or permit to
be done in or about the Premises anything which will be dangerous to life or
limb.
ARTICLE 11 - INSPECTION
The Landlord or its employees or agents shall have the right without
any diminution of rent or other charges payable hereunder by Tenant to enter the
Premises at all reasonable times for the purposes of exhibiting the Premises to
prospective tenants or purchasers, inspection, cleaning, repairing, testing,
altering or improving the same on said Building, but nothing contained in this
Article shall be construed so as to impose any obligation on the Landlord to
make any repairs, alterations or improvements.
ARTICLE 12 - ALTERATIONS
Tenant will not make any alterations, repairs, additions or
improvements in or to the Premises or add, disturb or in any way change any
plumbing, wiring, life/safety or mechanical systems, locks, or structural
improvements of the Building without the prior written consent of the Landlord
as to the character of the alterations, additions or improvements to be made,
the manner of doing the work, and the contractor doing the work. Such consent
shall not be unreasonably withheld or delayed, if such alterations, repairs,
additions or improvements are required of Tenant or are the obligation of Tenant
pursuant to this Lease Agreement. All such work shall comply with all applicable
government laws, ordinances, rules and regulations. The Landlord as a condition
to said consent may require a surety performance and/or payment bond from the
Tenant for said actions. Tenant agrees to indemnify and hold Landlord free and
harmless from any liability, loss, cost, damage or expense (including attorney's
fees) by reasons of any said alteration, repairs, additions or improvements.
ARTICLE 13 - SIGNS
Tenant agrees that no signs or other advertising materials shall be
erected, attached or affixed to any portion of the interior or exterior of the
Premises or the Building without the express prior written consent of Landlord.
ARTICLE 14 - COMMON AREAS
A. Tenant agrees that the use of all corridors, passageways, elevators,
toilet rooms, parking areas and landscaped area in and around said Building, by
the Tenant or Tenant's employees, visitors or invitees, shall be subject to such
rules and regulations as may from time to time be made by Landlord for the
safety and convenience of the owners, occupants, tenants and invitees of said
Building. Tenant agrees that no awnings, curtains, drapes or shades shall be
used upon the Premises except as may be approved by Landlord.
B. In addition to the Premises, Tenant shall have the right of
non-exclusive use, in common with others, of (a) all unrestricted automobile
parking areas, driveways and walkways, and (b) loading facilities, freight
elevators and other facilities as may be constructed in the Building, all to be
subject to the terms and conditions of this Lease Agreement and to reasonable
rules and regulations for the use thereof as prescribed from time to time by
Landlord.
C. Landlord shall have the right to make changes or revisions in the
site plan and in the Building so as to provide additional leasing areas.
Landlord shall also have the right to construct additional buildings on the land
described on Exhibit A-2 for such purposes as Landlord may deem appropriate.
Landlord also reserves all airspace rights above, below and to all sides of the
Premises, including the right to make changes, alterations or provide additional
leasing areas.
D. Landlord and Tenant agrees that Landlord will not be responsible for
any loss, theft or damage to vehicles, or the contents thereof, parked or left
in the parking areas of the Building and Tenant agrees to so advise its
employees, visitors or invitees who may use such parking areas. The parking
areas shall include those areas designated by Landlord, in its sole discretion,
as either restricted or unrestricted parking areas. Any restricted parking areas
shall be leased only by separate license agreement with Landlord.
ARTICLE 15 - ASSIGNMENT AND SUBLETTING
A. Tenant agrees not to assign, sublet, license, mortgage or encumber
this Lease Agreement, the Premises, or any part thereof, whether by voluntary
act, operation of law, or otherwise, without the specific prior written consent
of Landlord in each instance. If Tenant is a corporation or a partnership,
transfer of a controlling interest of Tenant shall be considered an assignment
of this Lease Agreement for purposes of this Article. Consent by Landlord in one
such instance shall not be a waiver of Landlord's rights under this Article as
to requiring consent for any subsequent instance. In the event Tenant desires to
sublet a part or all of the Premises, or assign this Lease Agreement, Tenant
shall give written notice to Landlord at least thirty (30) days prior to the
proposed subletting or assignment, which notice shall state the name of the
proposed subtenant or assignee, the terms of any sublease or assignment
documents and copies of financial reports or other relevant financial
information of the proposed subtenant or assignee, the terms of any sublease or
assignment documents and copies of financial reports or other relevant financial
information of the proposed subtenant or assignee. At Landlord's option, any and
all payments by the proposed assignee or sublessee with respect to the
assignment of sublease shall be paid directly to Landlord. In any event no
subletting or assignment shall release Tenant of its obligation to pay the rent
and to perform all other obligations to be performed by Tenant hereunder for the
Term of this Lease Agreement. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord hereunder for the Term of
this Lease Agreement. The acceptance of rent by Landlord from any other person
shall not be deemed to be a waiver by Landlord of any provision hereof. At
Landlord's option, Landlord may terminate the Lease Agreement in lieu of giving
its consent to any proposed assignment of this Lease Agreement or subletting of
the Premises (which termination may be contingent upon the execution of a new
lease with the proposed assignee or subtenant).
B. Landlord's right to assign this Lease Agreement is and shall remain
unqualified upon any sale or transfer of the Building and, providing the
purchaser succeeds to the interests of Landlord under this Lease Agreement,
Landlord shall thereupon be entirely freed of all obligations of the Landlord
hereunder and shall not be subject to any liability resulting from any act or
omission or event occurring after such conveyance.
ARTICLE 16 - LOSS BY CASUALTY
If the Building is damaged or destroyed by fire or other casualty, the
Landlord shall have the right to terminate this Lease Agreement, provided it
gives written notices thereof to the Tenant within ninety (90) days after such
damage or destruction. If a portion of the Premises is damages by fire or other
casualty, the Landlord does not elect to terminate this Lease Agreement, the
Landlord shall, at its expense, restore the Premises to as near the condition
which existed immediately prior to such damage or destruction, as reasonably
possible, and the rentals shall abate during such period of time as the Premises
are untenantable, in the proportion that the untenantable portion of the
Premises bears to the entire Promises.
* Tenant shall be entitled to its proportionate share of covered parking
spaces on the west side of the 8441 Building. Tenant's proportionate
share of parking spaces shall equal its proportionate share of the 9441
Building; example: If Tenant leases 65% of the 8441 building, Tenant
shall be entitled to 65% of the covered spaces. Said covered parking
spaces shall be available to Tenant at no charge.
ARTICLE 17 - WAIVER OF SUBROGATION
Landlord and Tenant hereby releases the other from any and all
liability or responsibility to the other or anyone claiming through or under
them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any of the extended coverage or supplementary contract
casualties, even if such fire or other casualty shall have been caused by the
fault or negligence of the other party, or anyone for whom such party may be
responsible, provided however, that this release shall be applicable and in
force and effect only with respect to loss or damage occurring during such times
as the releasing party's policies shall contain a clause or endorsement to the
effect that any such release would not adversely affect or impair said policies
or prejudice the right of the releasing party to recover thereunder. Landlord
and Tenant agree that they will request their insurance carriers to include in
their policies such a clause or endorsement. If entire cost shall be charged
therefore, each party shall advise the other of the amount of the entire cost,
and the other party, at its election, may pay the same, but shall not be
obligated to do so.
ARTICLE 18 - EMINENT DOMAIN
If the entire Building is taken by eminent domain, this Lease Agreement
shall automatically terminate as of the date of taking. If a portion of the
Building is taken by eminent domain, the Landlord shall have the right to
terminate this Lease Agreement, provided it gives written notice thereof to the
Tenant within ninety (90) days after the d ate of taking. If a portion of the
Premises is taken by eminent domain and this Lease Agreement is not terminated
by Landlord, the Landlord shall, at its expense, restore the Premises to as near
the condition which existed immediately prior to the date of taking as
reasonably possible, and the rentals shall abate during such period of time as
the Premises are untenantable, in the proportion that the untenantable portion
of the Premises bears to the entire Premises. All damages awarded for such
taking under the power of eminent domain shall belong to and be the sole
property of Landlord, irrespective of the basis upon which they are awarded,
provided, however that nothing contained herein shall prevent Tenant from making
a separate claim to the condemning authority for its moving expenses and trade
fixtures. For purposes of this Article, a taking by eminent domain shall include
Landlord's giving of a deed under thread of condemnation.
ARTICLE 19 - SURRENDER
On the last day of the Term of this Lease Agreement or on the sooner
termination thereof in accordance with the terms hereof, Tenant shall peaceably
surrender the Premises in good condition and repair consistent with Tenant's
duty to make repairs as provided in Article 9 hereof. On or before said last
day. Tenant shall at its expense remove all of its equipment from the Premises,
repairing any damage caused thereby, and any property not removed shall be
deemed abandoned. All alterations, additions and fixtures other than Tenant's
trade fixtures, which have been made or installed by either Landlord or Tenant
upon the Premises shall remain as Landlord's property and shall be surrendered
with the Premises as a part thereof, or shall be removed by Tenant, at the
option of Landlord, in which event Tenant shall at its expense repair any damage
caused thereby. It is specifically agreed that any and all telephone, coaxial,
ethernet, or other computer, wordprocessing, facsimile, or electronic wiring
installed by Tenant within the Premises (hereafter "Wiring") shall be removed at
Tenant's cost at the expiration of the Term, unless Landlord has specifically
requested in writing that said Wiring shall remain, whereupon said Wiring shall
be surrendered with the Premises as Landlord's property. If the Premises are not
surrendered at the end of the Term or the sooner termination thereof, Tenant
shall indemnify Landlord against loss or liability resulting from delay by
Tenant in so surrendering the Premises, including, without limitation, claims
made by any succeeding tenant founded on such delay. Tenant shall promptly
surrender all keys for the Premises to Landlord at the place then fixed for
payment of rental and shall inform Landlord of combinations on any locks and
safes on the Premises.
ARTICLE 20 - NON-PAYMENT OF RENT, DEFAULTS
If any one or more of the following occurs: (1) a rent payment or any
other payment due from Tenant to Landlord shall be and remain unpaid in whole or
in part for more than ten (10) days after same is due and payable; (2) Tenant
shall violate or default on any of the other covenants, agreements, stipulations
or conditions herein, or in any parking agreement(s) or other agreements between
Landlord and Tenant relating to the Premises, and such violation or default
shall continue for a period of ten (10) days after written notice from Landlord
of such violation or default; (3) If Tenant shall commence or have commenced
against Tenant proceedings under a bankruptcy, receivership, insolvency or
similar type of action; or (4) If Tenant shall vacate any substantial portion of
the Premises for a period of more than 15 days; then it shall be optional for
Landlord, without further notice or demand, to cure such default or to declare
this Lease Agreement forfeited and the said Term ended, or to terminate only
Tenant's right to possession of the Premises, and to re-enter the Premises, with
or without process of law, using such force as may be necessary to remove all
persons or chattels therefrom, and Landlord shall not be liable for damages by
reason of such re-entry or forfeiture; but notwithstanding re-entry by Landlord
or termination only of Tenant's right to possession of the Premises, the
liability of Tenant for the rent and all other sums provided herein shall not be
relinquished or extinguished for the balance of the Term of this Lease Agreement
and Landlord shall be entitled to periodically sue Tenant for all sums due under
this Lease Agreement or which become due prior to judgment, but such suit shall
not bar subsequent suits for any further sums coming due thereafter. Tenant
shall be responsible for, in addition to the rentals and other sums agreed to be
paid hereunder, the cost of any necessary maintenance, repair, restoration,
reletting (including related cost of removal or modification of tenant
improvements) or cure as well as reasonable attorney's fees incurred or awarded
in any suit or action instituted by Landlord to enforce the provisions of this
Lease Agreement, regain possession of the Premises, or the collection of the
rentals due Landlord hereunder. Tenant shall also be liable to Landlord for the
payment of a late charge in the amount of 10% of the rental installment or other
sum due Landlord hereunder if said payment has not been received within ten (10)
days from the date said payment becomes due and payable, or cleared by
Landlord's bank within three (3) business days after deposit. Tenant agrees to
pay interest at the highest permissible rate of interest allowed under the usury
statutes of the State of Minnesota, or in case no such maximum rate of interest
is provided, at the rate of 12% per annum, on all rentals and other sums due
Landlord hereunder not paid within ten (10) days from the date same becomes due
and payable. Each right or remedy of Landlord provided for in this Lease
Agreement shall be cumulative and shall be in addition to every other right or
remedy provided for in this Lease Agreement now or hereafter existing at law or
in equity or by statute or otherwise.
ARTICLE 21 - LANDLORD'S DEFAULT
Landlord shall not be deemed to be in default under this Lease
Agreement until Tenant has given Landlord written notice specifying the nature
of the default and Landlord does not cure such default within thirty (30) days
after receipt of such notice or within such reasonable time thereafter as may be
necessary to cure such default where such default is of such a character as to
reasonably require more than thirty (30) days to cure.
ARTICLE 22 - HOLDING OVER
Tenant will, at the expiration of this Lease Agreement, whether by
lapse of time or termination, give up immediate possession to landlord. If
Tenant fails to give up possession the Landlord may, at its option, serve
written notice upon Tenant that such holdover constitutes any one of (i)
creation of a month-to-month tenancy, or (ii) creation of a tenancy at
sufferance. If Landlord does not give said notice, Tenant's holdover shall
create a tenancy at sufferance. In any such event the tenancy shall be upon the
terms and conditions of this Lease Agreement, except that the Minimum Rental
shall be 12.5% the Minimum Rental Tenant was obligated to pay Landlord under
this Lease Agreement immediately prior to termination (in the case of tenancy at
sufferance such Minimum Rental shall be prorated on the basis of a 365 day year
for each day Tenant remains in possession); excepting further that in the case
of a tenancy at sufferance, Tenant shall also pay to Landlord all damages
sustained by Landlord resulting from retention of Possession by Tenant. The
provisions of this paragraph shall not constitute a waiver by Landlord of any
right of re-entry as otherwise available to Landlord; nor shall receipt of any
rent or any other act in apparent affirmance of the tenancy operate as a waiver
of the right to terminate this Lease Agreement for a breach by Tenant hereof.
ARTICLE 23 - SUBORDINATION
Tenant agrees that this Lease Agreement shall be subordinate to any
mortgage(s) that may now or hereafter be placed upon the Building or any part
thereof, and in and all advances to be made thereunder, and to the interest
thereon, and all renewals, replacements, and extensions thereof, provided the
mortgagee named in such mortgage(s) shall agree to recognize this Lease
Agreement or Tenant in the event of foreclosure provided the Tenant is not in
default. In confirmation of such subordination, Tenant shall promptly execute
and deliver any instrument, in recordable form, as required by Landlord's
mortgage. In the event of any mortgagee electing to have the Lease Agreement a
prior incumbrance to its mortgage, then and in such event upon such mortgagee
notifying Tenant to that effect, this Lease Agreement shall be deemed prior in
incumbrance to the said mortgage, whether this Lease Agreement is dated prior to
or subsequent to the date of said mortgage.
ARTICLE 24 - INDEMNITY, INSURANCE AND SECURITY
A. Tenant will keep in force at its own expense for as long as this
Lease Agreement remains in effect public liability insurance with respect to the
Premises in which Landlord shall be named as an additional insured, in companies
and in form acceptable to Landlord with a minimum combined limit of liability of
Two Million Dollars ($2,000,000.00). This limit shall apply per location. Said
insurance shall also provide for contractual liability coverage by endorsement.
Tenant will further deposit with Landlord the policy or policies of such
insurance or certificates thereof, or other acceptable evidence that such
insurance is in effect, which evidence shall provide that Landlord shall be
notified in writing thirty (30) days prior to cancellation, material change, or
failure to renew the insurance. Tenant further covenants and agrees to indemnify
and hold Landlord and Landlord's manager of the Building harmless for any claim,
loss or damage, including reasonable attorney's fees, suffered by Landlord,
Landlord's manager or Landlord's other tenants caused by: i) any act or omission
by Tenant, Tenant's employees or anyone claiming through or by Tenant in, at, or
around the Premises or the Building; ii) the conduct or management of any work
or thing whatsoever done by Tenant in or about the Premises; or iii) Tenant's
failure to comply with any and all governmental laws, rules, ordinances or
regulations applicable to the use of the Premises and its occupancy. If Tenant
shall not comply with its covenants made in this Article 24, Landlord may, at
its option, cause insurance as aforesaid to be issued and in such event Tenant
agrees to pay the premium for such insurance promptly upon Landlord's demand.
B. Tenant shall be responsible for the security and safeguarding of the
Premises and all property kept, stored or maintained in the Premises. Landlord
will make available to Tenant, at Tenant's request, the plan and specifications
for construction of the Building and Premises. Tenant represents that it is
satisfied that the construction of the Building and the Premises, including the
floors, walls, windows, doors and means of access thereto are suitable for the
particular needs of Tenant's business. Tenant further represents that it is
satisfied with the security of said Building and Premises for the protection of
any property which may be owned, held, stored or otherwise caused or permitted
by Tenant to be present upon the Premises. The placement and sufficiency of all
safes, vaults, cash or security drawers, cabinets or the like placed upon the
Premises by Tenant shall be at the sole responsibility and risk of Tenant.
Tenant shall maintain in force throughout the Term, insurance upon all contents
of the Premises, including that owned by others and Tenant's equipment and any
alterations, additions, fixtures, or improvements in the Premises acknowledged
by Landlord to be the Tenant's.
C. Landlord shall convey and cause to be in full force and effect a
fire and extended coverage insurance policy on the Building, but not contents
owned, leased or otherwise in possession of Tenant. The cost of such insurance
shall be an Operating Expense.
ARTICLE 25 - NOTICES
All notices from Tenant to Landlord required or permitted by any
provisions of this Lease Agreement shall be directed to Landlord postage
prepaid, certified or registered mail, at the address provided for Landlord in
the preamble to this Lease Agreement or at such other address as Tenant shall be
advised to use by Landlord. All notices from Landlord to Tenant required or
permitted by any provision of this Lease Agreement shall be directed to Tenant,
postage prepaid, certified or registered mail, at the Premises and at the
address, if any, set forth on page 6 of this Lease Agreement. Landlord and
Tenant shall each have the right at any time and from time to time to designate
one (1) additional party to whom copies of any notice shall be sent.
ARTICLE 26 - APPLICABLE LAW
This Lease Agreement shall be construed under the laws of the State of
Minnesota.
ARTICLE 27 - MECHANICS' LIEN
In the event any mechanic's lien shall at any time be filed against the
Premises or any part of the Building by reason of work, labor, services or
materials performed or furnished to Tenant or to anyone holding the Premises
through or under Tenant, Tenant shall forthwith cause the same to be discharged
of record. If Tenant shall fail to cause such lien forthwith to be discharged
within five (5) days after being notified of the filing thereof, then, in
addition to any other right or remedy of Landlord, Landlord may, but shall not
be obligated to, discharge the same by paying the amount claimed to be due, or
by bonding, and the amount so paid by Landlord and all costs and expenses,
including reasonable attorney's fees incurred by Landlord in procuring the
discharge of such lien, shall be due and payable in full by Tenant to Landlord
on demand.
ARTICLE 28 - SECURITY INTEREST
Tenant hereby grants to Landlord a security interest in all goods,
chattels, fixtures and personal property belonging to Tenant, which now are or
may hereafter be placed in the Premises, to secure all rents due hereunder and
all other covenants and obligations of Tenant hereunder, in the event there
exists any security interest in said property which security interest is
paramount and superior to the security interest therein created, Landlord may
satisfy said paramount security interest and all sums paid in satisfying said
security interest will be considered additional sums owed Landlord by Tenant
hereunder. Tenant hereby acknowledges receipt of a true, full and complete copy
of this Lease Agreement. Landlord, in the event of a default by Tenant of any
covenant or condition herein contained, may exercise, in addition to any rights
and remedies herein granted, all the rights and remedies of a secured party
under the Uniform Commercial Code or any other applicable law. Tenant agrees
upon request of Landlord to exercise and deliver to Landlord a financing
statement evidencing such security interest. A copy of this Lease Agreement may
be filed as a financing statement.
ARTICLE 29 - BROKERAGE
Each of the parties represents and warrants that there are no claims
for brokerage commissions or finder's fees in connection with this Lease
Agreement, and agrees to indemnify the other against, and hold it harmless from
all liabilities arising from any such claim, including without limitation, the
cost of attorney's fees in connection therewith. Tenant agrees to provide
Landlord (but not more often than twice in any calendar year), within ten (10)
days of request, the then most current financial statements of Tenant and any
guarantors of this Lease Agreement, which shall be certified by Tenant, and if
available, shall be audited and certified by a certified public accountant.
Landlord shall keep such financial statements confidential, except Landlord
shall, in confidence, be entitled to disclose such financial statements to
existing or prospective mortgagees or purchasers of the Building.
ARTICLE 30 - SUBSTITUTION
ARTICLE 31 - GENERAL
This Lease Agreement does not create the relationship of principal and
agent or of partnership or of joint venture or of any association between
Landlord and Tenant, the sole relationship between Landlord and Tenant being
that of landlord and tenant. No waiver of any default of Tenant hereunder shall
be implied from any omission by Landlord to take any action on account of such
default if such default persists or is repealed, and an express waiver shall
affect any default other than the default specified in the specific waiver and
that only for this time and to the extent therein stated. The covenants of
Tenant to pay the Minimum Rental and the Additional Rental are each independent
of any other covenant, condition, or provision contain in this Lease Agreement.
The marginal or topical headings of the several Articles, paragraphs and clauses
are for convenience only and do not define, limits or construe the contents of
such Articles, paragraphs or clauses. All preliminary negotiations are merged
into and incorporated in this Lease Agreement. This Lease Agreement can only be
modified as amended by an agreement in writing signed by the parties hereto. All
provisions hereof shall be binding upon the heirs, successors and assigns of
each party hereto. If any term or provision of this Lease Agreement shall to any
extent be held invalid or unenforceable, the remainder shall not be affected
thereby, and each other term and provision of this Lease Agreement shall be
valid and be enforceable in the fullest extent permitted by law. If Tenant is a
corporation, each individual executing this Lease Agreement on behalf on said
corporation represents and warrants that he is duly authorized to execute and
deliver this Lease Agreement on behalf of said corporation in accordance with a
duly adopted resolution of the Board of Directors of said corporation or in
accordance with the Bylaws of said corporation, and that this Lease Agreement is
binding upon said corporation in accordance with its terms. No receipt or
acceptance by Landlord from Tenant of loss then the monthly rent herein
stipulated shall be deemed to be other than a partial payment an account for any
due and unpaid stipulated rent; an endorsement or statement of any check as any
letter or other writing accompanying any check or payment of rent to Landlord
shall be deemed an accord and satisfaction, and Landlord may accept and
negotiate such check or payment without prejudice to Landlord's rights to (i)
recover the remaining balance of such unpaid rent or (ii) pursue any other
remedy provided in this Lease Agreement. (Neither party shall record this Lease
Agreement or any memorandum hereof, and any such recordation shall be a breach
of this Lease Agreement void, and without affect.) Time is of the essence with
respect to the due performance of the terms, covenants and conditions herein
contained. Submission of this instrument for examination does not constitute a
reservation of an option for the Premises, and this Lease Agreement shall become
effective only upon execution and delivery thereof by Landlord and Tenant.
ARTICLE 32 - EXCULPATION
Tenant agrees to look solely to Landlord's interest in the Building for
the recovery of any judgement from Landlord, it being agreed that Landlord and
Landlord's partners, whether general or limited (if Landlord is a partnership)
or its directors, officers or shareholders (if Landlord is a corporation), shall
never be personally liable for any such judgment.
ARTICLE 33
Landlord agrees, so long as Tenant occupied not less than 25,000 square
feet of rentable space at Westwood Lake Office Park, 8441 Wayzata Boulevard,
Golden Valley, MN ("WLOP") and is not in default under any Lease Agreement with
Landlord, that Landlord will arrange to provide within WLOP a
cafeteria/restaurant ("Food Services") similar to the food service operation
currently existing within WLOP. Such Food Services shall be available to the
employees, visitors and invitees of Tenant between the hours of 7:30 a.m. to
3:00 p.m., Monday through Friday, legal holidays excepted. Tenant acknowledges
that the Food Services presently supplied at WLOP is through a third party and
is not subject to the direct control of Landlord. Tenant further acknowledges
that Landlord shall not be in breach of this Article if the Food Services are
interrupted or discontinued by said third party provided Landlord uses its
continuing and good faith efforts to replace and/or restore such Food Services
through a new third party contractual arrangement or through enforcement of the
then existing contractual arrangement with said third party.
ARTICLE 34
Americans with Disabilities Act Compliance. Landlord represents and
warrants that it is in the process of determining what architectural barriers
(and communication barriers that are architectural in nature) to persons with
disabilities may exist in the common areas of the Building and is further
determining which of said barriers, if any, can be removed on a readily
achievable basis pursuant to Title III of the Americans with Disabilities Act of
1990 ("ADA"). Landlord shall comply with the ADA as it relates to the common
areas of the Building. Landlord shall indemnify, defend and hold Tenant harmless
from any liabilities, judgements, acts, actions, costs and expenses (including
reasonable attorneys fees) relating to Landlord's breach of the immediately
preceding sentence. Tenant shall comply with the ADA as it relates to Tenant and
the Premises. Tenant shall indemnify, defend and hold Landlord harmless from any
liabilities, judgements, acts, actions, costs and expenses (including reasonable
attorneys fees) relating to Tenant's breach of the immediately preceding
sentence. Landlord agrees, upon the request of Tenant, to consult with and
recommend to Tenant those modifications which are, in Landlord's judgement,
necessary to comply with the ADA in conjunction with any expansion, modification
or alterations Tenant desires or intends to make to the Premises after the
commencement of the Term. Landlord further agrees, subject to satisfactory
arrangements and to compensation for such services, and further subject to the
remaining portions of this Lease Agreement, to construct or cause to be
constructed such requested alterations.
IN WITNESS WHEREOF, this Lease Agreement has been duly executed by the
parties herein as of the day and year indicated above.
TENANT: BERKLEY ADMINISTRATORS, LANDLORD: THE NORTHLAND COMPANY
a division of TRI-STATE INSURANCE
COMPANY OF MINNESOTA, INC.
Address for Notices, if other than the Premises:
By By
Its Kenneth N. Stensby
Its Vice President
By By
Its Boyd B. Stofer
Its: Assistant Secretary
LICENSE AGREEMENT
This LICENSE AGREEMENT, the effective date of which is March 1, 1995,
is made by and between KANSAS STATE UNIVERSITY RESEARCH FOUNDATION, a non-profit
Kansas corporation having its principal office at 146 Durland Hall, Kansas State
University, Manhattan, Kansas 66506, U.S.A., hereinafter called the
"FOUNDATION"; and ENVIRONMENTAL TECHNOLOGIES USA, 326 Cedar Avenue, Minneapolis,
Minnesota 55454, U.S.A., hereinafter called the "LICENSEE".
W I T N E S S E T H:
WHEREAS, the FOUNDATION is the owner by assignment of United States
Patent Number 5,185,382, issued February 9, 1993; Patent Number 5,208,267,
issued May 4, 1993; and Patent Number 5,248,702, issued September 28, 1993
entitled "Starch-based, Biodegradable Packing Filler and Method of Preparing
Same," developed by Kansas State University researchers Paul E. Neumann and Paul
A. Seib; Department of Grain Science and Industry, said United States Patent and
any subsequent patent or patents issued thereon, including divisions,
continuations, continuations-in-part, and reissues, being hereinafter referred
to as the "Patent Rights";
WHEREAS, the FOUNDATION has determined that an exclusive license is
necessary with respect to the Patent Rights as an incentive for development of
the invention covered thereby, and that market conditions with respect to the
invention are such as to require exclusive licensing;
WHEREAS, LICENSEE has requested an exclusive license with respect to
the Patent Rights; and
WHEREAS, LICENSEE has agreed to vigorously undertake further
development and marketing of the Patent Rights.
NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants contained herein, the parties hereby stipulate and agree
as follows:
ARTICLE I: DEFINITIONS
(1) "Licensed Territory" means any country where the FOUNDATION holds
one or more patents or patent applications that form the Patent Rights.
(2) "Licensed Products" is a generic term and means one or more
products and/or processes covered by the Patent Rights licensed herein.
(3) "Net Sales" means the price expressed in United States dollars that
is received for the Licensed Products manufactured, used, sold, or billed by the
LICENSEE, or any sublicensee, minus freight, allowances, and returns. Where
sales are made by LICENSEE to a business organization, either owned or
controlled by LICENSEE or which own or control LICENSEE, the net sales to which
the royalty is applicable shall include the net sales of such related
organizations. In expressing these Net Sales in United States dollars,
conversion from the Licensed Territory currency shall be accomplished at the
rate present at the time of sale.
(4) "Piggy Back Rights" means the right to include shares of stock in
any future registration of common stock by the LICENSEE.
(5) "Incremental Profit Gain" means the increase in gross profits over
and above the gross profit per audited financial statements for the base year
for each Contract Year of the Agreement defined as the fiscal year ending April
30 following the introduction of Patent Rights into use. Only those revenue
centers implementing the Patent Rights shall be applicable.
(6) "Net Proceeds of the Underwriting" means the offering price less
applicable offering expenses on a pro rata basis.
(7) "Contract Year" means a twelve-month period beginning in any year
on the anniversary of the effective date of this Agreement.
ARTICLE II: LICENSE GRANT
(1) The FOUNDATION hereby grants to LICENSEE an exclusive license in
the Licensed Territory to manufacture, sell, and use under the subject Patent
Rights including any division, continuation, or continuation-in-part thereof,
and under any patent or patents issuing therefrom, including reissues of such
patents.
(2) Under no circumstances will a license continue past the final
expiration date of the subject Patent Rights.
ARTICLE III: PERFORMANCE REQUIREMENTS
(1) LICENSEE agrees to employ due diligence and reasonable efforts to
complete the development of and to effect introduction into the commercial
market of Licensed Products, and also agrees to keep the FOUNDATION fully
informed as to its progress in the development and introduction of such Licensed
Products. LICENSEE further agrees to mark all Licensed Products as allowed by
the statutes of the Licensed Territory.
(2) If LICENSEE fails to introduce at least one Licensed Product within
two (2) years from the effective date of this Agreement and to achieve combined
Net Sales of all Licensed Products during the Contract Year beginning in 1997 of
One Hundred Thousand United States Dollars ($100,000), the FOUNDATION, at its
option, may cancel this Agreement by giving written notice to LICENSEE of such
cancellation within ninety (90) days after receiving from LICENSEE a report of
the sales for that subject Contract Year.
(3) LICENSEE may request a six- (6) month extension in connection with
Paragraph 2 above. Further, LICENSEE agrees to pay to FOUNDATION Three Thousand
United States Dollars ($3,000.00) within thirty (30) days of said request for
the extension. LICENSEE may request one additional six- (6) month extension at
the same rate.
(4) LICENSEE agrees to use reasonable efforts to integrate Licensed
Product into its existing product line. In that regard and within sixty (60)
days after signing of the Agreement, LICENSEE agrees to provide to FOUNDATION a
research and development plan describing potential utilization and integration
of Licensed Product and strategies for identifying and securing sublicenses.
(5) There shall be no minimum sales requirement in the Contract Year
for any or all of the Patent Rights that LICENSEE holds only under the exclusive
license as defined in the Royalty and Reports section.
(6) FOUNDATION reserves the right to review LICENSEE's performance with
respect to development of the Licensed Product within sixty (60) days after the
third anniversary of the Agreement. Upon completion of the performance review,
FOUNDATION may elect to continue the Agreement under the existing terms and
conditions or may request to negotiate more favorable terms, providing that
continuation of the Agreement under existing terms may not be unreasonably
withheld.
ARTICLE IV: SUBLICENSING
(1) During any exclusive licensing period applicable to any or all of
the Licensed Territory, LICENSEE shall have the right to grant sublicenses under
the Patent Rights; provided, however, that said sublicenses shall be on
reasonable terms under the circumstances, and shall not require the payment of
unreasonably high royalties in excess of normal trade practice. A copy in the
English language of each proposed sublicense shall be sent by LICENSEE to the
FOUNDATION by Registered Air Mail or special courier at least sixty (60) days
prior to the proposed entering into of such sublicense by LICENSEE.
(2) The FOUNDATION shall have the right of approval of all sublicenses
to insure that each sublicensee shall: (a) have the same requirements as
LICENSEE; (b) maintain the quality of the Licensed Products; (c) pay sufficient
royalties that the FOUNDATION shall receive the royalties agreed upon per
Article V, Paragraph 3.
(3) Any sublicense granted by LICENSEE shall automatically terminate if
LICENSEE no longer holds the appropriate exclusive license from the FOUNDATION.
ARTICLE V: ROYALTIES AND REPORTS
(1) LICENSEE shall pay the FOUNDATION within fifteen (15) days after
signing of the Agreement a signing fee of Five Thousand United States dollars
($5,000.00) and an additional payment of Five Thousand United States dollars
($5,000.00) sixty (60) days from date of signing, both payments which shall be
non-refundable and not applicable as a credit against any future royalties and
agrees to issue ten thousand (10,000) warrants to FOUNDATION at a fixed price of
$1.00/share for the purchase of ten thousand (10,000) shares of Environmental
Technologies USA (ETI) common stock. Said warrants shall expire three (3) years
from the date the last signature is affixed to the Agreement. In addition,
LICENSEE agrees to issue 65,000 shares of ETI common stock carrying Piggy Back
Rights to the FOUNDATION at the first available offering excluding S-8 (employee
plan) registrations or any registration where inclusion of a selling
shareholder's stock is not permitted. Within thirty (30) days after receipt of
written notification from LICENSEE regarding said underwriting, FOUNDATION
agrees to inform LICENSEE in writing a to whether stock issued to FOUNDATION
should be included. In the event the underwriter declines to include
FOUNDATION's shares of stock in the first available underwriting, FOUNDATION may
request in writing within sixty (60) days of said notification to receive from
LICENSEE its share of the net proceeds of the underwriting. Net proceeds of the
underwriting shall be due and owing FOUNDATION within thirty (30) days of
notification.
(2) LICENSEE agrees to pay the FOUNDATION a royalty based upon
incremental profit gain LICENSEE achieves through the application of Licensed
Product to either LICENSEE's current product line or to new products developed
through application of Licensed Product at the rate of ten percent (10%).
Royalties of this paragraph shall be paid annually within forth-five (45) days
after the end of the LICENSEE's fiscal year and accompanied by audited financial
statements and sales report, which report shall include any applicable currency
conversion rate. Said audited financial statements and sales report will be due
the FOUNDATION even if no payments are due and owing that fiscal year.
(3) For any royalty or other payment due and owing to LICENSEE as a
result of sublicensing the subject Patent Rights, then ten percent (10%) shall
be paid to the FOUNDATION within thirty (30) days after the end of each calendar
quarter from the date when such royalties or payments become due and owing to
LICENSEE.
(4) With respect to royalty payments due to the FOUNDATION, LICENSEE
agrees to maintain records from which such payments can be determined, and the
FOUNDATION or its authorized agent shall have the right to an audit of such
records at the expense of the FOUNDATION not more than once a year.
(5) In all instances, LICENSEE shall produce for the FOUNDATION a
Contract Year summary of all Net Sales by product line and domestic versus
foreign sales.
ARTICLE VI: PATENTS
(1) The FOUNDATION shall have full and complete ownership and control
over the filing and prosecution of the patent application, any reissue of a
licensed patent, and all foreign patent applications and patents that are
germane to the Patent Rights. Foreign patents are not available to LICENSEE
within the Patent Rights.
(2) The FOUNDATION, either directly or through its attorneys, shall
keep LICENSEE or its designated attorneys adequately informed with respect to
the filing, prosecution, and maintenance of all patent applications and patents
licensed under this Agreement. LICENSEE shall have the right to request and
receive additional information, as LICENSEE or its attorneys may require,
including copies of patent applications, patents, Patent Office actions, and
replies thereto.
(3) The FOUNDATION shall fund the initial filing and prosecution for
the first United States patent, thereafter, all expenses of filing, prosecuting,
maintaining, and reissuing the Patent Rights, shall be born by the LICENSEE.
(4) Foreign patent applications, if any, and patents obtained under
this Agreement will automatically be incorporated in the Patent Rights and will
expand the Licensed Territory to so include such countries.
ARTICLE VII: TERMINATION
(1) LICENSEE shall have the right and option to cancel this Agreement
on December 31 of any Contract Year by giving written notice to the FOUNDATION
by the prior July 1. Such termination shall not relieve LICENSEE of its
obligation to pay royalties on any Licensed Products manufactured and/or sold
prior to the effective date of the termination.
(2) The FOUNDATION shall have the right and option of terminating this
Agreement and the rights and obligations hereunder upon written notice to
LICENSEE in the event that LICENSEE: (a) fails, after preliminary written notice
to LICENSEE that royalties due and owing to the FOUNDATION are unpaid, to pay
such royalties within sixty (60) days after such preliminary notice; (b) is
declared insolvent or bankrupt by a court of competent jurisdiction, or a
voluntary petition of bankruptcy is filed in any court of competent jurisdiction
by LICENSEE, or if LICENSEE shall make or execute an assignment for the benefit
of creditors; or (c) commits a material breach of any of the provisions of this
Agreement, which remains uncorrected by LICENSEE for sixty (60) days following
receipt of written notice from the FOUNDATION.
(3) LICENSEE agrees in the event of a termination of this Agreement for
any reason to transmit copies to the FOUNDATION of all engineering, development,
marketing, economic, and any other reports or information concerning the
manufacture, sale, and use of said Patent Rights. Further, if LICENSEE has
obtained any Trademark Rights in the Licensed Territory applicable to the
Licensed Products, all such Trademark Rights will be assigned to the FOUNDATION
with no additional charge as part of any termination of this Agreement. This
assignment excludes Trademarks currently owned or in use prior to execution of
this Agreement.
ARTICLE VIII: INFRINGEMENT
(1) While as long as its license under this Agreement remains
exclusive, LICENSEE is empowered: (a) to bring a suit in its own name or, if
required by law, jointly with the FOUNDATION, at its own expense and on its own
behalf, for infringement of the Licensed Products; (b) in any such suit, to
enjoin infringement and to collect for its use, damages, profits, and awards of
whatever nature recoverable for such infringement; and (c) to settle any claim
or suit for infringement of the Licensed Products by granting the infringing
party a sublicense under the provisions of the applicable Article of this
Agreement.
(2) In the event the FOUNDATION shall bring to the attention of
LICENSEE any unlicensed infringement of the Licensed Products, and LICENSEE
shall not, within six (6) months: (a) secure cessation of the infringement; (b)
enter suit against the infringer; or (c) provide the FOUNDATION with evidence of
the pendency of a bona fide negotiation for the acceptance by the infringer of a
sublicense under the provisions of the applicable Article of this Agreement;
then the license herein granted to LICENSEE in this Agreement shall forthwith
become non-exclusive, and the FOUNDATION shall thereafter have the right to sue
for the infringement at the FOUNDATION's expense, and to collect for its own use
all damages, profits, and awards of whatever nature recoverable for such
infringement.
ARTICLE IX: NOTICES
Any notice required to be given under this Agreement shall be deemed to
have been sufficiently given, if a written notice is mailed by Registered Air
Mail, postage prepaid, or by special courier, addressed to the party to be
notified at its address shown at the beginning of this Agreement, or at such
other address as may later be furnished in writing to the notifying party, and
providing that the party to be notified is also promptly advised by telephone,
telegraph, or telex of the sending and content of the written notice.
ARTICLE X: PRODUCTS LIABILITY
It is expressly understood and agreed that the FOUNDATION, Kansas State
University, and the inventors of the licensed Patent Rights assume no liability
with respect to the manufacture, sale, use, or misuse of products licensed under
this Agreement, and LICENSEE agrees to assume all such liability and to
indemnify, protect, and hold harmless the FOUNDATION, Kansas State University,
and the inventors against any United States or foreign claim for any such
liability.
ARTICLE XI: SITUS
This Agreement shall be interpreted in accordance with and governed by
the laws of the location of the principal place of business of the FOUNDATION
provided that all questions concerning the construction or effect of patents and
patent applications shall be interpreted in accordance with and governed by the
laws of the country in which the particular patent or patent application at
issue has been granted or filed, as the case may be.
ARTICLE XII: GOVERNMENTAL APPROVAL
In the event that this License Agreement requires the registration with
any government in the Licensed Territory or any government to which the LICENSEE
is responsible, it shall be the responsibility of the LICENSEE to obtain and
notify the FOUNDATION of such registration. The lack of said registration shall
not negate any portion of this Agreement unless it is finally denied by said
government after all appeals have been exhausted. If registration is finally
denied, then only that portion or clause of this License Agreement directly
concerned with such registration will be ineffective in only that country where
the denial occurs and the remaining portion of this Agreement shall continue in
full effect.
ARTICLE XIII: MISCELLANEOUS
(1) This Agreement shall be assignable to successors to the respective
businesses of the FOUNDATION and LICENSEE, but shall not otherwise be assignable
by one party without the written consent of the other party.
(2) LICENSEE agrees not to use or publish any promotional material,
such as advertising, which contains a reference to Kansas State University
and/or the FOUNDATION, and/or the inventors of the licensed Patent Rights except
after obtaining written authorization from the FOUNDATION, which authorization
shall not unreasonably be withheld; however, the FOUNDATION has no objection to
a consulting arrangement between any or all inventors and the LICENSEE.
(3) The license granted under this Agreement is subject to a reserved
exclusive license by Kansas State University and/or the FOUNDATION to make and
use the Licensed Products for further research and development purposes at
Kansas State University.
(4) All values, payments, or any other consideration due and owing in
this Agreement represent United States dollars, unless specially stated
otherwise, payable at the principal office of the FOUNDATION and are considered
"net of taxes;" thus, any sales or use taxes or income taxes of LICENSEE must be
paid separately by the LICENSEE but all taxes relating to the income to the
FOUNDATION from this License Agreement are payable by the FOUNDATION.
(5) LICENSEE agrees to consider providing financial support to the
Kansas State University Department of Grain Sciences and Industry for further
research in the field of loose fill and molded foam packing materials.
(6) The effective date of this Agreement is March 1, 1995 even though
necessary ratifying signatures may be at a later date.
(7) Any temporary waiver, either by actual notice or by noncompliance,
by either party of any contract provision herein does not indicate that such
party has permanently waived said contract provision. Permanent modification of
this Agreement can only be by a written document that has been signed by both
parties.
(8) This Agreement embodies the entire understanding between the
FOUNDATION and the LICENSEE, and supersedes all prior representations,
warranties, or agreements between the parties relating to said subject matter.
IN WITNESS WHEREOF, the parties hereto have caused these instruments to
be signed in duplicate by their respective proper officers.
ENVIRONMENTAL TECHNOLOGIES USA
By:/s/ Robin R. Young
Robin R. Young
Chief Executive Officer
Date: 5-9-95
KANSAS STATE UNIVERSITY RESEARCH
FOUNDATION
By:/s/ John W. Walters
John W. Walters
President
Date: 4-21-95
OFFICE/WAREHOUSE LEASE
This Indenture of lease, dated this 21st day of October, 1994, by and
between Crown Packaging Corp. and/or its assigns hereinafter referred to as
"Lessor", and Clean Green, Inc.
hereinafter referred to as "Lessee".
DEFINITIONS:
"Premises" That certain real property located in the City of Golden
Valley, County of Hennepin and State of Minnesota and legally described on
Exhibit "A" attached hereto and made a part hereof, including all buildings and
site improvements located thereon.
"Building" That certain office/warehouse building containing
approximately 27,753 square feet located upon the Premises and commonly
described as Suite A.
"Demised Premises" That certain portion of the Building located at 700
Florida Avenue and designated as Bay A, consisting of approximately 27,753
square feet, 3,200 square feet of office space and 24,553 square feet of
warehouse space, as measured from the outside walls of the Demised Presides to
the center of the partition wall. The Demised Premises include a non-exclusive
easement for access to common areas, as hereinafter defined, and all licenses
and easements appurtenant to the Demised Premises.
"Common Areas" The term "common area" means the entire areas to be used
to the non-exclusive use by Lessee and other lessees in the Building, including,
but not limited to, corridors, lavatories, driveways, truck docks, parking lots
and landscaped areas. Subject to reasonable rules and regulations promulgated by
Lessor, the common areas are hereby made available to Lessee and its employees,
agents, customers, and invitees for reasonable use in common with other lessees,
their employees, agents, customers and invitees. The common areas are shown in
Exhibit "A" attached hereto.
WITNESSETH:
TERM:
1. For and in consideration of the rents, additional rents, terms,
provisions and covenants herein contained. Lessor hereby lets, leases and
demises to Lessee the Demised Premises for the term of 60 months commencing on
the 1st day of December 1994 (sometimes called "the Commencement Date") and
expiring the 30th day of November, 1999 (sometimes called "Expiration Date"),
unless sooner terminated as hereinafter provided.
BASE RENT:
2. Lessor reserves and Lessee shall pay Lessor, a total rental of Three
Hundred Nineteen Thousand One Hundred Fifty-Nine and 50/100 Dollars
($319,159.50), payable in advance, in equal monthly installments of Five
Thousand Three Hundred Nineteen and 32/100 ($5,319.32). Commencing on the
Commencement Date and continuing on the first day of each and every month
thereafter for the next succeeding months during the balance of the term
(sometimes called "Base Rent"). In the event the Commencement Date falls on a
date other than the first of a month the rental for that month shall be prorated
and adjusted accordingly.
ADDITIONAL RENT:
3. Lessee shall pay to Lessor throughout the term of this Lease the
following:
a. Lessee shall pay a sum equal to Fifty-Four percent (54%) of
the Real Estate taxes. The term "Real Estate Taxes" shall mean all real estate
taxes, all assessments and any taxes in lieu thereof which may be levied upon or
assessed against the Premises of which the Demised Premises are a part. Lessee,
in addition to all other payments to Lessor by Lessee required hereunder shall
pay to Lessor, in each year during the term of this Lease and any extension or
renewal thereof. Lessee's proportionate share of such real estate taxes and
assessments paid in the first instance by Lessor.
In the event the taxing authorities include in such real estate taxes
and assessments the value of any improvements made by Lessee, or of machinery,
equipment, fixtures, inventory or other personal property or assets of Lessee,
then Lessee shall pay all the taxes attributable to such items in addition to
its proportionate share of said aforementioned real estate taxes and
assessments. A photostatic copy of the tax statement and a detailed accounting
of such Real Estate Taxes submitted by Lessor to Lessee shall be sufficient
evidence of the amount of taxes and assessments assessed or levied against the
Premises of which the Demised Premises are a part.
b. A sum equal to Fifty-Four (54%) of the annual aggregate reasonable
operating expenses incurred by Lessor in the operation, maintenance and repair
of the Premises. If premises is expanded, Lessee's Additional Rent will be
adjusted to reflect any proportionate square footage. The term "Operating
Expenses" shall include but not be limited to maintenance, repair, replacement
and care of all common area lighting, common area plumbing and roofs, parking
and landscaped areas, signs, snow removal, non-structural repair and maintenance
of the exterior of the Building. Insurance premiums, management fee, wages and
fringe benefits of personnel employed for such work, costs of equipment
purchased and used for such purposes, and the cost or portion thereof properly
allocable to the Premises (amortized in accordance with generally accepted
accounting principles with the interest at the rate of 10% per annum on the
unamortized balance) of any capital improvements made to the Building by Lessor
after the Base Year which result in a reduction of Operating Expenses or made to
the Building by Lessor after the date of this Lease that are required under any
governmental law or regulation that was not applicable to the Building at the
time it was constructed.
c. In no event shall the total adjusted monthly rent be less than Three
Thousand Five Hundred Thirty-Eight and 51/100 Dollars ($3,538.51) per month
during the term of this Lease.
The payment of the sums set forth in this Article 3 shall be in
addition to the Base Rent payable pursuant to Article 2 of this Lease. All sums
due hereunder shall be due and payable within thirty (30) days of delivery of
written certification by Lessor setting forth the computation of the amount due
from Lessee. In the event the lease term shall begin or expire at any time
during the calendar year, the Lessee shall be responsible for his pro-rata share
of Additional Rent under subdivision a. and b. during the Lease and/or occupancy
time.
Prior to commencement of this Lease, and prior to the commencement of
each calendar year thereafter commencing during the term of this Lease or any
renewal or extension thereof, Lessor may reasonably estimate for each calendar
year (i) the total amount of Real Estate Taxes; (ii) the total amount of
Operating Expenses; (iii) Lessee's share of Real Estate Taxes for such calendar
year; and (v) the computation of the annual and monthly rental payable during
such calendar year as a result of increases or decreases in Lessee's share of
Real Estate Taxes, and Operating Expenses. Said estimates will be in writing and
will be delivered or mailed to Lessee.
The amount of Lessee's share of Real Estate Taxes, and operating
Expenses for each calendar year, so estimated, shall be payable as Additional
Rent. In equal monthly installments, in advance, on the first day of each month
during such calendar year at the option of Lessor. In the event that such
estimate is delivered to Lessee before the first day of January of such calendar
year, said amount, so estimated, shall be payable as additional rent in equal
monthly installments, in advance, on the first day of each month during such
calendar year. In the event that such estimate is delivered to Lessee after the
first day of January of such calendar year, said amount, so estimated, shall be
payable as additional rent in equal monthly installments, in advance, on the
first day of each month over the balance of such calendar year, with the number
of installments being equal to the number of full calendar months remaining in
such calendar year.
Within 60 days after completion of each calendar year during the term
of this Lease or any renewal or extension thereof, Lessor shall cause its
accountants to determine the actual amount of the Real Estate Taxes, and
Operating Expenses payable in such calendar year and Lessee's share thereof and
deliver a written certification of the amounts thereof to Lessee. If Lessee has
underpaid its share of Real Estate Taxes, or Operating Expenses for such
calendar year, Lessee shall pay no balance of its share of same within twenty
(20) days after the receipt of such statement. If Lessee has overpaid its share
of Real Estate Taxes, or Operating Expenses for such calendar year, Lessor shall
credit such excess against the most current monthly installment due Lessor for
its estimate or Lessee's share of Real Estate Taxes and Operating Expenses for
the next calendar year. A pro rata adjustment shall be made for a fractional
calendar year occurring during the term of the Lease or any renewal or extension
thereof based upon the number of days of the term of the Lease during said
calendar year as compared to three hundred sixty-five (365) days and all
additional sums payable by Lessee or credits due Lessee as a result of the
provision of this Article 3 shall be adjusted accordingly.
"In the event of any dispute in the amount of any payment actually due
under this Section, Lessee shall pay the amount according to Lessee's bill or
statement hereunder. However, such payment shall be without prejudice to
Lessee's favor. By agreement or otherwise, Lessor shall credit Lessee the amount
of Lessee's overpayment resulting from such compliance by Lessee. A bill or
statement setting forth the amount of any payment due Lessor under this Section
shall be deemed binding and conclusive if Lessee fails to object thereto within
thirty (30) days after receipt thereof." If Lessee objects to statement, they
can order an audit, at Lessee's expense, to clarify Lessee's objection, and a
credit will be issued if audit finds in favor of Lessee.
COVENANT TO PAY RENT:
4. The covenants of Lessee to Pay the Base Rent and the Additional Rent
are each independent of any other covenant, condition, provision or agreement
contained in this Lease. All rents are payable to Lessor at 8514 Eager Road, St.
Louis, Missouri 63144.
UTILITIES:
5. Lessor shall provide mains and conduits to supply water, gas,
electricity and sanitary sewage to the Premises. Lessee shall pay, when due, all
charges for sewer usage or rental, garbage disposal, refuse removal, water,
electricity, gas, fuel oil, L.P. gas, telephone and/or other utility services or
energy source furnished to the Demised Premises during the term of this Lease,
or any renewal or extension thereof. If Lessor elects to furnish any of the
foregoing utility services of other services furnished or caused to be furnished
to Lessee, then the rate charged by Lessor shall not exceed the rate Lessee
would be required to pay to a utility company or service company furnishing any
of the foregoing utilities or services. The charges thereof shall be deemed
additional rent in accordance with Article 3. In the event of a cessation of
utilities for more than 2 days which is caused by the acts or omission of Lessor
or its agents, contractors or employees, all rent payable only owing down period
hereunder shall abate until such utilities are restored, only if cessation of
utilities affects the conduct of business;
CARE AND REPAIR OF DEMISED PREMISES:
6. Lessee shall, at all times throughout the term of this Lease,
including renewals and extension, and at its sole expense, keep and maintain the
Demised Premises in a clean, safe, sanitary and first class condition and in
compliance with all applicable laws, codes, ordinances, rules and regulations.
Lessee's obligations hereunder shall include but not be limited to the
maintenance, repair and replacement, if necessary, of heating, air conditioning
fixtures, equipment, and systems, all lighting and plumbing fixtures and
equipment, fixtures, motors and machinery, as of, joists, flashings, downspouts,
gutters, all interior walls, partitions, doors and windows, doors and docks and
the replacement of all broker glass. When used in this provision, the term
"repairs" shall include replacements or renewals when necessary, and all such
repairs made by the Lessee shall be equal in quality and class to the original
work. The Lessee shall keep and maintain all portions of the Demised Premises
and the sidewalk and areas adjoining the same in a clean and orderly condition,
free of accumulation of dirt, rubbish, snow and ice.
If Lessee fails, refuses or neglects to maintain or repair the Demised
Premises as required in this Lease within a reasonable time after notice shall
have been given Lessee, in accordance with Article 33 of this Lease, Lessor may
make such repairs without liability to Lessee for any loss or damage that may
accrue to Lessee's merchandise, fixtures or other property or to Lessee's
business by reason thereof, and upon completion thereof, Lessee shall pay to
Lessor all reasonable costs by Lessor in making such repairs upon presentation
to Lessee of bill therefor.
Lessor shall repair, at its expense, the structural portions of the
Building, provided however where structural repairs are required to be made by
reason of the acts of Lessee, the costs thereof shall be borne by Lessee and
payable by Lessee to Lessor upon demand.
The Lessor shall be responsible for all outside maintenance of the
Demised Premises, including grounds and parking areas. All such maintenance
which is the responsibility of the Lessor shall be provided as reasonably
necessary to the comfortable use and occupancy of Demised Premises during
business hours, except Saturdays, Sundays and holidays (except in the case of an
emergency), upon the condition that the Lessor shall not be liable for damages
for failure to do so due to causes beyond Its control.
SIGNS:
7. Any sign, lettering, picture, notice or advertisement installed on
or in any part of the Premises and visible from the exterior of the Building, or
visible from the exterior of the Demised Premises, shall be approved by Lessor
and installed at Lessee's expense. In the event of a violation of the foregoing
by Lessee, Lessor may remove the same without any liability and may charge the
expense incurred by such removal to Lessor.
ALTERATIONS, INSTALLATION, FIXTURES:
8. Except as hereinafter provided, Lessee shall not make nay
alteration, additions, or improvements in or to the Demised Premises or add,
disturb or in any way change any plumbing or wiring therein in excess of
$1,000.00 without the prior written consent of the Lessor which consent shall
not be unreasonably withheld or delayed. In the event alterations are required
by any governmental agency by reason of the use and occupancy of the Demised
Premises by Lessee, Lessee shall make such alterations at its own cost and
expense after first obtaining Lessor's approval of plans and specifications
therefor and furnishing such indemnification as Lessor may reasonably require
against liens, costs, damages and expenses arising out of such alterations. Any
approval shall not be unreasonably withheld or delayed. In the event alterations
are required by any governmental agency by reason of the use and occupancy of
the Demised Premises by Lessee, Lessee shall make such alterations at its own
cost and expense after first obtaining Lessor's approval of plans and
specifications therefor and furnishing such indemnification as Lessor may
reasonably require against lines, costs, damages and expenses arising out of
such alterations. Any approval shall not be unreasonably withheld or delayed.
Alterations or additions by Lessee must be built in compliance with all laws,
ordinances and governmental regulations affecting the premises and Lessee shall
warrant to Lessor that all such alterations, additions, or improvements shall be
in strict compliance with all relevant laws, ordinances, governmental
regulations than in affect. Construction of such alterations or additions shall
commence only upon Lessee obtaining and exhibiting to Lessor the requisite
approvals, licenses and permits and indemnification against liens. All
alterations, installations, physical additions or improvements to the Demised
Premises made by Lessee shall at once become the property of Lessor and shall be
surrendered to Lessor upon the termination of this Lease; provided, however,
this clause shall not apply to movable equipment or furniture owned by Lessee
which may be removed by Lessee at the end of the term if this Lease of Lessee is
not then in default.
"The parties acknowledge and agree that, while Landlord may review and
approve the plans and specifications for the construction of alterations by
Tenant within the Demised Premises, Landlord will not review said plans and
specifications for compliance with the requirements and regulations of the
Americans With Disabilities Act of 1990 ("ADA"), and Landlord shall not be
responsible for any additions, modifications, or alterations to the design of
the Demised Premises or to Tenant improvements, prior or subsequent to
completion of construction thereof, which may be required in order that the
Demised Premises comply with the terms and provisions of the ADA."
POSSESSION:
9. Except as hereinafter provided Lessor shall deliver possession of
the Demised Premises to Lessee in the condition required by this Lease on or
before the Commencement Date, but delivery of possession prior to or later than
such Commencement Date shall not affect the expiration date of this Lease. The
rentals herein reserved shall commence on the date when possession of the
Demised Premises is delivered by Lessor to Lessee. Any occupancy by Lessee prior
to the beginning of the term shall in all respects be the same as that of Lessee
under this Lease. Lessor shall have no responsibility or liability for loss or
damage to fixtures, facilities or equipment installed or left on the Demised
Premises. If Demised Premises are not ready for occupancy by Commencement Date
and possession is later than Commencement Date, rent shall begin on date of
possession.
SECURITY AND DAMAGE DEPOSIT:
10. Lessee contemporaneously with the execution of this Lease, has
deposited with Lessor the sum of Five Thousand Three Hundred Nineteen and 32/100
Dollars ($5,319.32),receipt of which is acknowledged hereby by Lessor, which
deposit is to be held by Lessor, without liability for interest, as a security
and damage deposit for the faithful performance by Lessee during the term hereof
or any extension thereof. Prior to the time when Lessee shall be entitled to the
return of this security deposit, Lessor may commingle such deposit with Lessor's
own funds and to use such security deposit for such purpose as Lessor may
determine. In the event of the failure of Lessee to keep and perform any of the
terms, covenants and conditions of this Lease to be kept and performed by Lessee
during the term hereof or any extension hereof, then Lessor, either with or
without terminating this Lease may (but shall not be required to) apply such
portion of said deposit as may be necessary to compensate or repay Lessor for
all losses or damages sustained or to be sustained by Lessor due to such breach
on the part of Lessee, including, but not limited to overdue and unpaid rent,
any other sum payable by Lessee to Lessor pursuant to the provisions of this
Lease, damages or deficiencies in the reletting of Demised Premises, and
reasonable attorney's fees incurred by Lessor. Should the entire deposit or any
portion thereof, be appropriated and applied by Lessor, in accordance with the
provisions of this paragraph, Lessee upon written demand by Lessor, shall remit
forthwith the Lessor a sufficient amount of cash to restore said security
deposit to the original sum deposited, and Lessee's failure to do so within
fifteen (15) days after receipt of such demand shall constitute a breach of this
Lease. Said security deposit shall be returned to Lessee, less any depletion
thereof as the result of the provisions of this paragraph, at the end of the
term of this Lease or any renewal thereof, or upon the earlier termination of
this Lease. Lessee shall have no right to anticipate return of said deposit by
withholding any amount required to be paid pursuant to the provision of this
Lease or otherwise.
In the event Lessor shall sell the Premises, or shall otherwise convey
or dispose of its interest in this Lease, Lessor may assign aid security deposit
or any balance thereof to Lessor's assignee, whereupon Lessor shall be released
from all liability for the return or repayment of such security deposit and
Lessee shall look solely to the said assignee for the return and repayment of
said security deposit to the extent that such security deposit was actually
delivered to Lessor's assignee. Said security deposit shall not be assigned or
encumbered by Lessee without such consent of Lessor, and any assignment or
encumbrance without such consent shall not bind Lessor. In the event of any
rightful and permitted assignment of this Lease by Lessee, said security deposit
shall be deemed to be held by Lessor as a deposit made by the assignee, and
Lessor shall have no further liability with respect to the return of said
security deposit to the Lessee
USE:
11. The Demised Premises shall be used and occupied by Lessee solely
for the purposes of light manufacturing and office so long as such use is in
compliance with all applicable laws, ordinances and governmental regulations
affecting the Building and Premises. The Demised Premises shall not be used in
such manner that, in accordance with any requirement of law or of any public
authority, Lessor shall be obligated on account of the purpose or manner of said
use to make any addition or alterations to or in the Building. The Demised
Premises shall not be used in any manner which will increase the rates required
to be paid for public liability or for fire and extended coverage insurance
covering the Premises. Lessee shall occupy the Demised Premises conduct its
business and control its agents, employees, invitees and visitors in such a way
as is lawful, and reputable and will not permit or create any nuisance, noise,
odor, or otherwise interferes with, annoy or disturb any other Lessee in the
Building in its normal business operations or Lessor in its management of the
Building. Lessee's use of the Demised Promises shall conform to all the Lessor's
reasonable rules and regulations relating to the use of the Premises. Outside
storage on the Premises of any type of equipment property or materials owned or
used on the Premises by Lessee or its customers and suppliers shall not be
permitted.
ACCESS TO DEMISED PREMISES:
12. The Lessee agrees to permit the Lessor and the authorized
representatives of the Lessor after 24 hour notice, unless due to an emergency
to enter the Demised Premises at all times during usual business hours for the
purpose of inspecting the same and making any necessary repairs to the Demised
Premises and performing any work therein that may be necessary to comply with
any laws, ordinances, rules, regulations or requirements of any public authority
or the Board of Fire Underwriters or any similar body or that the Lessor may
deem necessary to prevent waste or deterioration in connection with the Demised
Premises. Nothing herein shall imply any duty upon the part of the Lessor to do
any such work which, under any provision of this Lease, the Lessee may be
required to perform and the performance thereof by the Lessor shall not
constitute a waiver of the Lessee's default in failing to perform the same. The
Lessor may, during the progress of any work in the Demised Premises, keep and
store upon the Demised Premises all necessary materials, tools and equipment.
The Lessor will use all reasonable efforts not to interfere with the operation
of Lessee's business, however, the Lessor shall not in any event be liable for
inconvenience, annoyance, disturbance, loss of business, or other damage of the
Lessee by reason of making repairs or the performance of any work in the Demised
Premises, or on account of bringing materials, supplies and equipment into or
through the Demised Premises during the course thereof and the obligations of
the Lessee under this Lease shall not thereby by affected in any manner
whatsoever.
Lessor reserves the right to enter upon the Demised Premises at any
time in the event of an emergency and at reasonable hours to exhibit the Demised
Premises to prospective purchasers or others; and to exhibit the Demised
Premises to prospective Lessors and to display "For Lease" during the last One
hundred Twenty Days (120) days of the term of this Lease, all without hindrance
or molestation by Lessee.
EMINENT DOMAIN:
13. In the event of any eminent domain or condemnation proceeding or
private sale in lieu thereof in respect to the Premises during the term thereof,
the following provision shall apply:
a. If the whole of the Premises shall be acquired or condemned by
eminent domain or any public or quasipublic use or purpose, then the term of
this Lease shall cease and terminate as of the date possession shall be taken in
such proceeding and all rentals shall be paid up to that date.
b. If any part constituting less than the whole of the Premises shall
be acquired or condemned as aforesaid, and in the event that such partial taking
or condemnation shall materially affect the Demised Premises so as to render the
Demised Premises unsuitable for the business of the Lessee, in the reasonable
opinion of the Lessor or Lessee, then the term of this Lease shall cease and
terminate as of the date possession shall be taken by the condemning authority
and rent shall be paid to the date of such termination
In the event of a partial taking or condemnation of the Premises which
shall not materially affect the Demised promises so as to render the Demised
Premise unsuitable for the business of the Lessee, in the reasonable opinion of
the Lessor or the Lessee, this Lease shall continue in full force and effect but
with a proportionate abatement of the Base Rent and Additional Rent based on the
portion, if any, of the Demised Premise taken. Lessor shall restore the Building
and the Demised Premises to substantially the same condition as they were prior
to such condemnation. In such event, Lessor shall give written notice to Lessee,
within thirty (30) days following the date possession shall be taken by the
condemning authority, of Lessor's obligation to restore. Upon Lessor's notice of
obligation to restore, Lessor shall commence restoration and shall restore the
Building and the Demised Premises with reasonable promptness, subject to delays
beyond Lessor's control and delays in the making of condemnation or sale
proceeds adjustments by Lessor; and Lessee shall have no right to terminate this
Lease except as herein provided. Upon completion of such restoration, the rent
shall be adjusted based upon the portion, if any, of the Demised Premises
restored.
c. Except as provided below, in the event of any condemnation or taking
as aforesaid, whether whole or partial, the Lessee shall not be entitled to any
part of the awarded paid for such condemnation and Lessor is to receive the full
amount of such awarded, the Lessee hereby expressly waiving any right to claim
to any part thereof.
d. Although all damages in the event of any condemnation shall belong
to the Lessor whether such damages are award as compensation for diminution in
value of the leasehold or to the fee of the Demised Premises, Lessee shall have
the right to claim and recover from the condemnating authority, but not from
Lessor, such compensation as may be separately awarded or recoverable by Lessee
in Lessee's own right on account of any and all damage to Lessee's business by
reason of the condemnation and for or on account of any cost or loss to which
Lessee might be put in removing Lessee's merchandise, furniture, fixtures,
leasehold improvements and equipment. However, Lessee shall have no claim
against Lessor or make any claim with the condemning authority to the loss of
its leasehold estate, any unexpired term of loss of any possible renewal or
extension of said lease or loss of any possible value of said lease, any
unexpired term, renewal or extension of said Lease.
DAMAGE OR DESTRUCTION:
14. In the event of any damage or destruction to the Premises by fire
or other cause during the term hereof, the following provisions shall apply:
a. If the Building is damaged by fire or any other cause to such extent
that the cost of restoration, as reasonably estimated by Lessor, will equal or
exceed thirty percent (30%) of the replacement value of the Building (exclusive
of foundations) just prior to the occurrence of the damage, then Lessor may, no
later than the sixtieth (60th) day following the damage, give Lessee written
notice of Lessor's election to terminate this Lease.
b. If the cost of restoration as reasonably estimated by Lessor will
equal or exceed fifty percent (50%) of said replacement value of the Building
and if the Demised Premises are not suitable as a result of said damage for the
purposes for which they are demised hereunder, in the reasonable opinion of
Lessee, then Lessee may, no later than the sixtieth (60th) day following the
damage, give Lessor a written notice of election to terminate this Lease.
c. If the cost of restoration as estimated by Lessor shall amount to
less than thirty percent (30%) of said replacement value of the Building, or if,
dispute the cost, Lessor does not elect to terminate this Lease, Lessor shall
restore the Building and the Demised Premises with reasonable promptness,
subject to delays beyond Lessor's control and delays in the making of insurance
adjustments by Lessor; and Lessee shall have no right to terminate this Lease
except as herein provided, Lessor shall not be responsible for restoring or
repairing leasehold improvements of the Lessee, which are made by Lessee and not
Lessor.
d. In the event of either of the elections to terminate, this Lease
shall be deemed to terminate on the date of the receipt of the notice of
election and all rentals shall be paid up to that date. Lessee shall have no
claim against Lessor for the value of any unexpired term of this Lease.
e. In any case where damage to the Building shall materially affect the
Demised Premises so as to render them unsuitable in whole or in part for the
purpose for which they are demised hereunder, then, unless such destruction was
wholly or partially caused by the negligence or breach of the terms of this
Lease by Lessee, its employees, contractors or licensees, a portion of the rent
based upon he amount of the extent to which the Demised Premises are rendered
unsuitable shall be abated until repaired or restored. If the destruction or
damage was wholly or partially caused by negligence or breach of the terms of
this Lease by Lessee as aforesaid and if Lessor shall elect to rebuild, the rent
shall not abate and the Lessee shall remain liable for the same.
CASUALTY INSURANCE:
15. a. Lessor shall at all times during the terms of this Lease, at its
expense, maintain a policy or policies of insurance with premiums paid in
advance issued by an insurance company licensed to do business in the State of
Minnesota insuring the Building against loss or damage by fire, explosion or
other insurance hazards and contingencies for the full replacement value,
provided that Lessor shall not be obligated to insure any furniture, equipment,
machinery, goods or supplies not covered by this Lease which Lessee may bring
upon the Demised Premises or any additional improvements which Lessee may
construct or install on the Demised Premise.
b. Lessee shall not carry any stock of goods or do anything in or about
the Demised Premises which will in any way impair or invalidate the obligation
of the insurer under any policy of insurance required by this Lease.
c. Lessor hereby waives and releases all claims, liabilities and causes
of action against Lessee and its agents, servants and employees for loss or
damage to, or destruction of, the Premises or any portion thereof, including the
buildings and other improvements situated thereon, resulting from fire,
explosion and other merits included standard extended coverage insurance,
whether caused by the negligence of any of said persons or otherwise. Likewise,
Lessee hereby waives and releases all claims, liabilities and causes of action
against Lessor and its agents, servants and employees for loss or damage to, or
destruction of, any of the improvements, fixtures, equipment, supplies,
merchandise and other property, whether that of Lessee or of others, upon or
about the Premises resulting from fire, explosion or the other perils included
in standard extended coverage insurance, whether caused by the negligence of any
of said persons or otherwise. The waiver shall remain in force whether or not
the Lessee's insurer shall consent thereto.
d. In the event that the use of the Demised Premises by Lessee
increases the premium rate for insurance carried by Lessor on the improvements
of which the Demised Premises are a part, Lessee shall pay Lessor, upon demand,
the amount of such premium increase. If Lessee installs any electrical equipment
that overloads the power lines to the building or its wiring. Lessee shall, at
its own expense, make whatever changes are necessary to comply with the
requirements of the insurance underwriter, insurance rating bureau and
governmental authorities having jurisdiction.
PUBLIC LIABILITY INSURANCE:
16. Lessee shall during the term hereof keep in full force and effect
at its expense a policy or policies of public liability insurance with respect
to the Demised Premises and the business of Lessee, on terms with companies
reasonably approved in writing by Lessor, in which both Lessee and Lessor shall
be covered by being named as insured parties under reasonable limits of
liability not less than: $500,000 for injury/death to any one person; $1,000,000
for injury/death to more than one person, and $500,000 with respect to damage to
property. Such policy or policies shall provide that ten (10) days written
notice must be given to Lessor prior to cancellation thereof. Lessee shall
furnish evidence satisfactory to Lessor at the time this Lease is executed that
such coverage is in full force and effect.
DEFAULT OF LESSEE:
17. a. In the event of any failure of Lessee to pay any rental due
hereunder within ten (10) days after the same shall be due, or any failure to
perform any other of the terms, conditions or covenants of this Lease to be
observed or performed by Lessee for more than thirty (30) days after written
notice of such failure shall have been given to Lessee, or if Lessee or any
guarantor of this Lease shall become bankrupt or insolvent, or file any debtor
proceedings or any person shall take or have against Lessee or any guarantor of
this Lease in any court pursuant to any statue either of the United States or of
any state a petition of bankruptcy or for reorganization or for the appointment
of a receiver or trustee of all or a portion of Lessee's or any such guarantor's
property, of if Lessee or any such guarantor makes an assignment for the benefit
or creditors, or petitions for or enters into an arrangement, of if Lessee shall
abandon the Demised Premises or suffer this Lease to be taken under any writ of
execution, then in any such event Lessee shall be in default hereunder, and
Lessor, in addition to other rights of remedies it may have, shall have the
immediate right or re-entry and may remove all persons and property from the
Demised Premises and such property may be removed and stored in a public
warehouse or also where at the cost of, and for the account of Lessee, all
without service of notice or resort to legal process and without being guilty of
trespass, or becoming liable for any loss or damage which may be occasioned
thereby.
b. Should Lessor elect to re-enter the Demised Premises, as herein
provided, or should it take possession of the Demised Premises pursuant to legal
proceedings or pursuant to any notice provided for by law, it may either
terminate this Lease or it may from time to time, without terminating this
Lease, make such alterations and repairs as may be necessary in order to relet
the Demised Premises, and relet the Demised Promises or any part thereof upon
such term or terms (which may be for a term extending beyond the term of this
Lease) and at such rental or rentals and upon such other terms and conditions as
Lessor in its sole discretion may deem advisable. Upon each such subletting all
rentals received by the Lessor from such reletting shall be applied first to the
payment of any indebtedness other than rent due hereunder from Lessee to Lessor;
second, to the payment of any reasonable costs and expenses of such reletting,
including brokerage fees and attorney's fees and costs of such alterations and
repairs; third, to the payment of the rent due and unpaid payment of future rent
s the same may become due and payable hereunder. If such rentals received from
such reletting during any month be less than that to be paid during that month
by Lessee hereunder, Lessee, upon demand, shall pay any such deficiency to
Lessor. No such re-entry or taking possession of the Demised Premises by Lessor
shall be construed as an election on its part to terminate this Lease unless the
termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such reletting without termination, Lessor may at any time
after such re-entry and reletting elect to terminate this Lease for any such
breach, in addition to any other remedies it may have, it may recover from
Lessee all damages it may incur by reason of such breach, including the cost of
recovering the Demised Premises, reasonable attorney's fees, and including the
worth at the time of such termination of the excess, if any, of the amount of
rent and charges equivalent to rent reserved in this Lease for the reminder of
the stated term over the ten reasonable rental value of the Demised Premises for
the remainder of the stated term, all of which amounts shall be immediately due
and payable form Lessee to Lessor.
c. Lessor may, at its option, instead of exercising any other rights or
remedies available to it in this Lease or otherwise by law, statue or equity,
spend such money as is reasonably necessary to cure any default of Lessee herein
and the amount so spent, and costs incurred, including attorney's fees in curing
such default, shall be paid by Lessee, and additional rent, upon demand.
d. In the event suit shall be brought for recovery of possession of the
Demised Premises, for the recovery of rent of any other amount due under the
provisions of this Lease, or because of the breach of any other covenant herein
contained on the part of Lessee to be kept or performed, and a breach shall be
established by a court of competent jurisdiction, Lessee shall pay to Lessor all
reasonable expenses incurred therefor, including a reasonable attorney's fee,
together with interest on all such expenses at the rate of ten percent (10%) per
annum from the date of such broach of the covenants of this Lease.
e. Lessee hereby expressly waives any and all rights of redemption
granted by or under any present or future laws in the event of Lessee being
evicted or dispossessed for any cause, or in the event of Lessor obtaining
possession of the Demised Premises, by reason of the violation by Lessee of any
of the covenants or conditions of this Lease, or otherwise.
f. No remedy herein or elsewhere in this Lease or otherwise by law,
statue or equity, conferred upon or reserved to Lessor or Lessee shall be
exclusive of any other remedy, but shall be cumulative, and may be exercised
from time to time and as often as the occasion may arise.
COVENANTS TO HOLD HARMLESS:
18. Unless the liability for damage or loss is caused by the negligence
of Lessor, its agents or employees, Lessee shall hold harmless Lessor from any
liability for damages to any person or property in or upon the Demised Premises
caused by the acts or omissions of Lessee or its employees or agents, including
the person and the property of Lessee and its employees and all persons in the
Building at its or their invitation or sufferance, and from all damages
resulting from Lessee's failure to perform the covenants of this Lease. All
property kept, maintained or stored on the Demised Premises shall be so kept,
maintained or stored at the sole risk of Lessee. Lessee agrees to pay all sums
of money in respect of any labor, service, materials, supplies or equipment
furnished or alleged to have been furnished to Lessee in or about the Premises,
and not furnished on order of Lessor, which may be secured by and Mechanic's
Materialmen's or other lien to be discharged at the time performance of any
obligation secured thereby matures, provided that Lessee may contest such lien,
but if such lien is reduced to final judgment and if such judgment or process
thereon is not stayed, or if stayed and said stay expires, then and in each such
event, Lessee shall forthwith pay and discharge said judgment. Lessor shall have
the right to post and maintain on the Demise Premises, notices of
non-responsibility under the laws of the State of Minnesota.
NON-LIABILITY:
19. Subject the terms and conditions of Article 14 hereof, and except
to the extent caused by the gross negligence or willful misconduct of Lessor,
its agents, contractors or employees, Lessor shall not be liable for damage to
any property of Lessee or of others located on the Premises, not for the loss of
or damage to any property of Lessee or of others by theft or otherwise. Lessor
shall not be liable for any injury or damage to persons or property resulting
from fire, explosion, falling plaster, steam, gas, electricity, water, rain or
snow or leaks from any part of the Premises or from the pipes, appliances, or
plumbing works or from the roof, street or subsurface or from any other place or
by dampness or by any other cause of whatsoever nature. Lessor shall not be
liable for any such damage caused by other Lessees or persons in the Premises,
occupants of adjacent property of the buildings, or the public or caused by
operations in construction of any private, public or quasipublic work not
completed by Landlord. Lessor shall not be liable for any latent defect in the
Demised Premises. All property of Lessee kept or stored on the Demised Premises
shall be so kept or stored at the risk of Lessee only and Lessee shall hold
Lessor harmless from any claims arising out of damage to the same, including
subrogation claims by Lessee's insurance carrier.
SUBORDINATION:
20. This Lease shall be subordinated to any mortgages that may now exit
or that may hereafter be placed upon the Demised Premises and to any and all
advances made thereunder, and to the interest upon the indebtedness evidenced by
such mortgages, and to all renewals, replacements and extensions thereof. In the
event of execution by Lessor after the date of this Lease of any such mortgage
renewal, replacement or extension, Lessee agrees to execute a subordination
agreement with the holder thereof of any mortgage on the premises which
agreement Lessor agrees to provide from its lender shall provide that:
a. Such holder shall not disturb the possession and other
rights of Lessee under this Lease so long as Lessee is not in default hereunder.
b. In the event of acquisition of title to the Demised
Premises by such holder, such holder shall accept the Lessee as Lessee of the
Demised Premises under the terms and conditions of this Lease and shall perform
all the obligations of Lessor hereunder, and
c. The Lessee shall recognize such holder as Lessor hereunder.
Lessee shall, within 20 days after receipt of a request from Lessor therefor,
execute and deliver to Lessor or to any proposed holder of a mortgage or trust
deed or to any proposed purchaser of the Premises, a certificate in recordable
form, certifying that this Lease is in full force and effect, and that there are
no offsets against rent nor defenses to Lessee's performance under this Lease,
or setting further any such offsets or defenses claimed by Lessee, as the case
may be.
ASSIGNMENT OR SUBLETTING:
21. Lessee agrees to use and occupy the Demised Premises throughout the
entire term hereof for the purpose or purposes herein specified and for no other
purposes, in the manner and to substantially the extent now intended, and not to
transfer or assign this Lease or sublet said Demised Premises, or any part
thereof, whether by voluntary act, operation of law, or otherwise, without
obtaining the prior written consent of Lessor in each instance. Lessee shall
seek such consent of Lessor by a written request therefor, setting forth such
information as Lessor may deem necessary. Lessor agrees not to withhold consent
unreasonably. Consent by Lessor to any assignment of this Lease or to any
subletting of the Demised Premises shall not be a waiver of Lessor's rights
under this Article as to any subsequent assignment or subletting. Lessor's
rights to assign this Lease are and shall remain unqualified. No such assignment
or subleasing shall relieve the Lessee from any of Lessee's obligations in this
Lease contained, nor shall any assignment or sublease or other transfer of this
Lease be effective unless the assignees, sublease or transferee shall at the
time of such assignment, sublease or transfer, assume in writing for the benefit
of Lessor, its successors or assigns, all of the forms, covenants and conditions
of this Lease thereafter to be performed by Lessee and shall agree in writing to
be bound thereby.
ATTORNMENT:
22. In the event of a sale or assignment of Lessor's interest, in the
Premises, or the Building in which the Demised Premises are located, or this
Lease, or if the premises come into custody or possession of a mortgage or any
other party whether because of a mortgage foreclosure, or otherwise, Lessee
shall attorn to such assignee or other party and recognize such party as Lessor
hereunder; provided, however, Lessee's peaceable possession will not be
disturbed so long as Lessee faithfully performs its obligations under this
Lease. Lessee shall execute, on demand, any attornment agreement required by any
such party to be executed, containing such provisions and such other provisions
as such party may require.
NOVATION IN THE EVENT OF SALE:
23. In the event of the sale of the Demised Premises, Lessor shall be
and hereby is relieved of all of the covenants and obligations created hereby
accruing from and after the date of sale, and such sale shall result
automatically in the purchaser assuming and agreeing to carry out all the
covenants and obligations of Lessor herein. Notwithstanding the foregoing
provisions of this Article, Lessor, in the event of a sale of the Demised
Premises, shall cause to be included in this agreement of sale and purchase a
covenant whereby the purchaser of the Demised Premises assumes and agree to
carry out all of the covenants and obligations of Lessor herein.
The Lessee agrees at any time and from time to time upon not less than
twenty (20) days prior written request by the Lessor to execute, acknowledge and
deliver to the Lessor a statement in writing notifying that this Lease is
unmodified and in full force and effect as modified and stating the
modifications, and the dates to which the basic rent and other charges have been
paid in advance, if any, it being intended that any such statement delivered
pursuant to this paragraph may be relied upon by any prospective purchaser of
the fee or mortgagee or assignee of any mortgage upon the fee of the Demised
Premises.
SUCCESSORS AND ASSIGNS:
24. The terms, covenants and conditions hereof shall be binding upon and
inure to the successors and assigns of the parties hereto.
REMOVAL OF FIXTURES:
25. Notwithstanding anything contained in Article 8, 29 or elsewhere in
this Lease, if Lessor requests then Lessee will promptly remove at the sole cost
and expense of Lessee all fixtures, equipment and alterations made by Lessee
simultaneously with vacating the Demised Premises and Lessee will promptly
restore said Demised Premises to the condition that existed immediately prior to
said fixtures, equipment and alterations having been made all at the sole cost
and expense of Lessee.
QUIET ENJOYMENT:
26. Lessor warrants that it has full right to execute and to perform
this Lease and to grant the estate demised, and that lessee, upon payment of the
rents and other amounts due and the performance of all the terms, conditions,
covenants and agreements on Lessee's part to be observed and performed under
this Lease, may peaceably and quietly enjoy the Demised Promises for the
business uses permitted hereunder, subject, nevertheless, to the terms and
conditions of this Lease.
RECORDING:
27. Lessee shall not record this Lease without the written consent of
Lessor. However, upon the request of either party hereto, the other party shall
join in the execution of the Memorandum lease for the purposes of recordation.
Said Memorandum lease shall describe the parties, the Demised Premises and the
term of the Lease and shall incorporate this Lease by reference. This Article 27
shall not be construed to limit Lessor's right to file this Lease under Article
22 of this Lease.
OVERDUE PAYMENTS:
28. All monies due under this Lease from Lessee to Lessor shall be due
on demand, unless otherwise specified and if not paid within 5 days after it us
due, shall result in the imposition of a service charge for such late payment in
the amount of Ten percent (10%) of the amount due.
SURRENDER:
29. On the Expiration Date or upon the termination hereof upon a day other
than the Expiration Date, Lessee shall peaceably surrender the Demised Premises
broom-clean in good order, condition and repair, reasonable wear and tear only
excepted. On or before the Expiration Date or upon termination of this Lease on
a day other than the Expiration Date, Lessee shall, at its expense, remove all
trade fixtures, personal property and equipment and signs from the Demised
Premises and any property not removed shall be deemed to have been abandoned.
Any damage caused in the removal of such items shall be repaired by Lessee and
at its expense, ordinary wear and tear accepted. All alterations, additions,
improvements and fixtures (other than trade fixtures) which shall have been made
or installed by Lessor or Lessee upon the Demised Premises and all floor
covering so installed shall remain upon and be surrendered with the Demised
Premises as a part thereof, without disturbance, molestation or injury, and
without charge, at the expiration or termination of this Lease. If the Demised
Premises are not surrendered on the Expiration Date or the date of termination,
Lessee shall indemnify Lessor against loss or liability, claims, without
limitation, made by any succeeding Lessee founded on such delay. Lessee shall
promptly surrender all keys for the Demised Premises to Lessor at the place then
fixed for payment of rent and shall inform Lessor of combinations of any locks
and safes on the Demised Premises.
HOLDING OVER:
30. In the event of a holding over by Lessee after expiration or
termination of this Lease without the consent in writing of Lessor, Lessee shall
be deemed a lessee at sufferance and shall pay rent for which occupancy at the
rate of 150% of the lease-current aggregate lease and Additional Rent, prorated
for the entire holdover period, plus all reasonable attorney's fees and expenses
incurred by Lessor in enforcing its rights hereunder, plus any other damages
occasioned by such holding over. Except as otherwise agreed, any holding over
with the written consent of Lessor shall constitute Lessor a month-to-month
lessee.
ABANDONMENT:
31. In the event Lessee shall remove its fixtures, equipment or
machinery or shall remove its fixtures, equipment or machinery or shall vacate
the Demised Premises or any part thereof prior to the Expiration Date of this
Lease, or shall discontinue or suspend the operation of its business conducted
on the Demised Premises for a period of more than thirty (30) consecutive days
(except during any time when the Demised Premises may be rendered untenantable
by reason of fire or other casualty), then in any such event Lessee shall be
deemed to have abandoned the Demised Premises and Lessee shall be in default
under the terms of this Lease.
CONSENTS BY LESSOR:
32. Whenever provision is made under this Lease for Lessee securing the
consent or approval by Lessor, such consent or approval shall only be in
writing.
NOTICES:
33. Any notice required or permitted under this Lease shall be deemed
sufficiently given or secured if sent by registered or certified return receipt
mail to Lessee at 700 Florida Avenue South, Suite A, Golden Valley, Minnesota
and to Lessor at the address then fixed for the payment of rent as provided in
Article 4 of this Lease, and either party may by like written notice at any time
designate a different address to which notices shall subsequently be sent or
rent to be paid.
RULES AND REGULATIONS:
34. Lessee shall observe and comply with the reasonable rules and
regulations as Lessor may prescribe on written notice to Lessee for the safety,
care and cleanliness of the Building.
INTENT OF PARTIES:
35. Except as otherwise provided herein, the Lessee covenants and
agrees that if it shall any time fail to pay any such cost or expenses, or fail
to take out, pay for, maintain or deliver any of the insurance policies above
required, or fail to make any other payment or perform any other act on its part
to be made or performed as in this Lease provided, then the Lessor may, but
shall not be obligated so to do, and after reasonable written notice and without
waiving or releasing the Lessee from any obligations of the Lessee in this Lease
contained, pay any such cost or expense, effect any such insurance coverage and
pay premiums therefor, and may make any other payment or perform any other act
on the part of the Lessee to be made and performed as in this Lease provided, in
such manner and to such extent as the Lessor may deem desirable, and in
exercising any such right, to also pay all necessary and incidental costs and
expenses, employ counsel and incur and pay reasonable attorneys' fees. All
reasonable sums so paid by Lessor and all necessary and reasonable incidental
costs and expenses in connection with the performance of any such act by the
Lessor, together with interest thereon at the rate of Ten percent (10%) per
annum from the date of making of such expenditure, by Lessor, shall be deemed
additional rent hereunder, and shall be payable to Lessor within 10 days after
demand. Lessee covenants to pay any such sum or sums with interest as aforesaid
and the Lessor shall have the same rights and remedies in the event of the
non-payment thereof by Lessee as in the case of default by Lessee in the payment
of the Base Rent payable under this Lease.
GENERAL:
36. The Lease does not create the relationship of principal and agent
or of partnership or of joint venture or of any association between Lessor and
Lessee, the sole relationship between the parties hereto being that of Lessor
and Lessee.
No waiver of any default of Lessee hereunder shall be implied from any
omission by Lessor to take any action on account of such default if such default
persists or is repeated, and no express waiver shall affect any default other
than the default specified in the express waiver and that only for the time and
to the extent therein stated. One or more waivers by Lessor shall not then be
construed as a waiver of a subsequent breach of the same covenant, term or
condition. The consent to or approval by Lessor of any act by Lessee requiring
Lessor's consent or approval shall not waive or render necessary Lessor's
consent to or approval of any subsequent similar act by lessee shall be
construed to be both a covenant and a condition. No action required or permitted
to be taken by or on behalf of Lessor under the terms or provisions of this
Lease shall be deemed to constitute an eviction or disturbance of Lessee's
possession of the Demised Premises. All preliminary negotiations are merged into
and incorporated in this Lease. The laws of the State of Minnesota shall govern
the validity, performance and enforcement of this Lease.
a. This Lease and the exhibits, if any, attached hereto and
forming a party hereof, constitute the entire agreement between Lessor and
Lessee affecting the Demised Premises and here are no other agreements, either
oral or written, between them other than are herein set forth. No subsequent
alteration, amendment, change or addition to this Lease shall be binding upon
Lessor Lessee unless reduced to writing and executed in the same form and manner
in which this Lease is executed.
b. If any agreement, covenant or condition of this Lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such agreement, covenant or condition to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each agreement, covenant or condition of this Lease shall be valid
and be enforced to the fullest extent permitted by law.
GOVERNMENTAL REGULATIONS:
37. a. The Demised Premises hereby leased shall be used by and/or at
the sufferance of Lessee only for the purpose set forth in Article 11 above and
for no other purposes except as incidental to a permitted use, Lessee shall not
use or permit the use of the Demised Premises in any manner that will tend to
create waste or a nuisance, or will tend to unreasonably disturb other Lessees
in the Building or the Premises. Lessee, its employees and all persons visiting
or doing business with Lessee in the Demised Premises shall be bound by and
shall observe the reasonable rules and regulations made by Lessor relating to
the Demised Premises, the Building or the Premises of which notice in writing
shall be given to the Lessee, and all such rules and regulations shall be deemed
to be incorporated into and form a part of this Lease.
b. Lessee covenants throughout the Lease Term, at Lessee's
sole cost and expense, promptly to comply with all laws and ordinances and the
orders, rules and regulations and requirements of all federal, state and
municipal governments and appropriate departments, commissions, boards, and
officers thereof, and the orders, rules and regulations of the Board of F ire
Underwriters where the Demised Premises are situated, or any other body now or
hereafter as well as extraordinary, and whether or not the same require
structural repairs or alterations, which may be applicable to the Demised
Premises, or the use or manner of Lessee's use of the Demised Premises. Lessee
will likewise observe and comply with the requirements of all policies of public
liability, fire and all other policies of insurance at any time in force with
respect to the buildings and improvements on the Demised Premises and the
equipment thereof, proved such policies have been delivered to Lessee and do not
conflict with this Lease.
c. In the event any Hazardous Material (hereinafter defined)
is brought or caused to be brought into or onto the Demise Premises, the
Building or the Premises by Lessee, Lessee shall handle any such material
incompliance with all applicable federal, state and/or local regulations. For
purposes of this Article, "Hazardous Material" means and includes any hazardous,
toxic or dangerous waste, substance or material defined as such in (or for
purposes of) the Comprehensive Environmental Response, Compensation, and
Liability Act, and so-called "Superfund" or "Superlien" law, or any federal,
state or local statute, law, ordinance, code, rule, regulation, order decree
regulation, relating or imposing liability or standards of conduct concerning
any hazardous, toxic or dangerous waste, substance or material, as now or at any
time hereafter in affect. Lessee shall submit to Lessor on an annual basis
copies of its approved hazardous materials communication plan, OSHA monitoring
plan, and permits required by the Resource Recovery and Conservation Act of 1976
if Lessee is required to prepare, file or obtain any such plans or permits.
Lessee will indemnify and hold harmless Lessor from any losses, liabilities,
damages, cost or expenses (including reasonable attorneys' fees) which Lessor
may suffer or incur as a result of Lessee's introduction into or onto the
Demised Premised, Building or Premises of any Hazardous Material. This Article
shall survive the expiration or sooner termination of this Lease.
"Tenant shall be responsible for and shall bear all costs and expenses
associated with any and all alterations to the Demised Premises, that ma be
required by the ADA, for the accommodation of disabled individuals who may be
employed from time to time by Tenant, or any disabled customers, clients, guests
or invitees or sublessee of Tenant. Tenant shall indemnify and hold Landlord
harmless from and against any and all costs incurred or arising from the failure
of the Demised Premises to conform with the ADA, including the costs of making
any alterations, renovations or accommodations required by the ADA, or nay
government enforcement agency, or any court, any and all finesses, civil
penalties, and damages awarded against Landlord resulting from a violation or
violations of the ADA, and all reasonable legal expenses and court costs
incurred in defending claims made under the ADA, including reasonable attorneys'
fees."
CAPTIONS:
39. See also rider attached hereto and made a part hereof containing
article 41, inclusive as well as Exhibits A through B, inclusive, which Exhibits
are attached hereto and made a part hereof.
Exhibits Description
Exhibit A Legal Description
Exhibit B Demised Premises
SUBMISSION:
40. Submission of this instrument to Lessee or proposed Lessee or his
agents or attorneys for examination, review, consideration or signature does not
constitute or imply an offer to lease, reservation of space, or option to lease,
and this instrument shall have no binding legal affect until execution hereof by
both Lessor/Owner and Lessee or its agents.
REPRESENTATION:
41. It is agreed and understood that Craig Patterson, Dennis Panzer,
agent or broker with the Sholard Group, Inc. is representing Crown Packaging
Corp., and or its assigns.
IMPROVEMENTS:
42. Lessee, at Lessee's expense will make any and all improvements to
the Demised Premises, and are accepting and leasing the Demised Premises in its
present "as is" condition. This included but is not limited to securing the
Demised Premises from the balance of the building, separating and metering
utilities, any permits, architectural and/or construction fees, and preparing
the space for the operation Lessee's business practices.
OPTION TO RENEW:
43. Lessee is hereby granted a five (5) year renewal option under the
same terms and conditions of Lease as set forth herein provided however Lessee
is not in default of any Lease condition and except that the base rental rate
will be a "market rate" to be mutually agreed upon between Lessor and Lessee.
Lessee shall give written notice to Lessor no later than 180 days prior to
expiration of Lease term of intent to renew.
EXCLUSIONS FROM TAXES & OPERATING EXPENSES:
44. Part I - Items Excluded from Real Estate Taxes Notwithstanding the
foregoing in no event shall Tenant's share of Real Estate Taxes and/or
assessment include payments which are attributable to land or buildings not
otherwise included within the Premises. All refunds, rebates and discounts
received by Landlord in connection with such Real Estate Taxes shall be deducted
prior to the calculation of Tenant's proportionate share of the Real Estate
Taxes: Real Estate Taxes shall not include any of the following items incurred
by Landlord: (1) income tax; tax on rents or rentals, excess profits or revenue
tax, excise tax or inheritance tax gift tax; franchise tax, corporation tax,
capital tax transfer, estate succession or other similar tax or charge that may
be payable by or chargeable to the Landlord under any present or future laws;
(2) interest or penalties imposed upon Landlord for late payment of Real Estate
Taxes, unless penalty is caused by Tenant's failure to pay proportionate share
of taxes.
45. Part II: Items Excluded from Operating Expenses:
The following items shall in all cases be excluded from Operating
Expenses:
(a) The cost of any work performed (such as preparing a tenant's space
for occupancy, including painting and decorating) of services provided (such as
separately metered electricity for any tenant including Tenant) at such tenant's
cost, or provided by Landlord without charge as an inducement to lease such as
free rent or improvement allowances;
(b) deleted
(c) deleted
(d) the cost of any items for which Landlord is reimbursed by insurance
proceeds, condemnation awards, a tenant of the premises, or otherwise;
(e) the cost of any additions to the Premises which would increase the
total square footage of the building, or operating expenses generated by such
additions, after the date of this Lease;
(f) the cost of any repairs, alterations, additions, changes,
replacements, tools and equipment and the like which under generally accepted
accounting principles, consistently applied, are properly classified as capital
expenditures, capital repairs, capital improvements or capital items;
(g) insurance premiums to the extent any other tenant causes Landlord's
existing insurance premiums to increase or requires Landlord to purchase
additional insurance;
(h) interest and unpaid principal payments on any debt, depreciation,
and rental under any mortgage, trust, deed, ground lease or other underlying
lease or any form of amortization payment as determined in accordance with
generally accepted accounting principles, consistently applied;
(i) any marketing costs, space planning costs, real estate brokerage
commission, legal costs or other costs incurred in procuring relocating or
negotiating with tenants, including, without limitation, with respect to new
lessees, subleases, lease modifications, lease assignments and other transaction
with actual or prospective tenants, or any fees lieu of commissions;
(j) deleted
(k) deleted
(l) deleted
(m) any expenses for repairs or maintenance which are covered by
warranties, guarantees or service contracts, for which Lessor receives
reimbursement (excluding any mandatory deductibles);
(o) deleted
(p) deleted
(q) costs incurred due to the violation by Landlord, service provider
or any other tenant of occupant of any lease or other contract relating to the
Premises;
(r) governmental fines and/or penalties incurred as a result of
Landlord's negligence, inability or unwillingness to make payments when due;
(s) charitable or political contributions;
(t) any cost incurred in connection with the investigation, reporting,
remediation or abatement of any Hazardous Material located (or alleged to be
located) in, on, under or about the premises and any cost incurred in connection
with any governmental investigation, order, proceeding or report with respect
thereto prior to this agreement;
(u) deleted
(v) costs and expenses incurred by reason of the negligence or
misconduct of Landlord, other tenants or their agents, contractors, and service
providers;
(w) costs and expenses associated with the operation of the business of
the entity which constitutes Landlord tax opposed to operation of the premises),
including without limitation, disputes between parties, sale and financing
matters, accounting matters, income taxation matters and disputes with employees
or persons who own an interest in Landlord;
(x) deleted
IN WITNESS WHEREOF, the Lessor and the Lessee have caused these presents to be
executed in form and manner sufficient to bind them at law, as of the day and
year first above written.
Lessee: Lessor:
/s/ Robin R. Young Crown Packaging Corp.
By:/s/ Robin R. Young By:/s/ Fred L. Antmon
Its: President Its: President
STATE OF MINNESOTA )
) SS:
COUNTY OF HENNEPIN )
On this 21st day of October, 1994, personally came before me, a Notary Public
within and for said County, Robin Young, to me well known to be the same persons
described in and who executed the foregoing instrument, and acknowledged that
they executed the same as their free act and deed.
/s/ Judith K. Timmons
Notary Public
STATE OF MISSOURI )
) SS:
COUNTY OF ST. LOUIS )
On this 26th day of October, 1994, personally came before me, a Notary Public
within and for said County, Fred L. Antmon, to me well known to be the same
persons described in and who executed the foregoing instrument, and acknowledged
that they executed the same as their free act and deed.
/s/ Ray D. Hunt
Notary Public
EXHIBIT 21.1
SUBSIDIARIES OF ENVIRONMENTAL TECHNOLOGIES USA, INC.
1. United Recycling, Inc., a Minnesota corporation
2. Clean Green Packing Company of Minnesota, Inc., a Minnesota corporation
3. Minnesota Starch Polymers, Inc. (f/k/a Clean Green Polymers, Inc.), a
Minnesota corporation (owned 20% by Environmental Technologies USA,
Inc.)
EXHIBIT 23.1
[EIDE HELMEKE PLLP LETTERHEAD]
We hereby consent to incorporation by reference in the Evironmental Technologies
USA, Inc. Form S-8 Registration Statement dated May 12, 1994 of our report dated
July 25, 1996, relating to the consolidated balance sheet of Environmental
Technologies USA, Inc. and subsidiaries as of April 30, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended April 30, 1996.
The consolidated financial statements as of April 30, 1995, were audited by Fox,
McCue & Company, P.A., who merged with Eide Helmeke PLLP as of May 1, 1996.
Both our report on the April 30, 1996 consolidated financial statements and the
Fox, McCue & Company, P.A. report on the April 30, 1995 consolidated financial
statements of Environmental Technologies USA, Inc. and subsidiaries included an
explanatory paragraph that described substantial doubt about the entity's
ability to continue as a going concern.
August 7, 1996
Eden Prairie, Minnesota
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