<PAGE>
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the
fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-25974
R-B RUBBER PRODUCTS, INC.
(Name of small business issuer in its charter)
OREGON 93-0967413
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
904 E. 10TH AVENUE, MCMINNVILLE, OREGON 97128
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 503-472-4691
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days:
Yes [ X ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were $8,592,368. The
aggregate market value of voting stock held by non-affiliates of the
registrant was $2,393,955 as of February 26, 1999, based upon the last sales
price as reported on the Nasdaq System-Small Cap Market.
The number of shares outstanding of the Registrant's Common Stock as of
February 26, 1999 was 2,239,167 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
None.
==============================================================================
<PAGE>
R-B RUBBER PRODUCTS, INC.
FORM 10-KSB INDEX
PART I
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Description of Business 2
Item 2. Description of Property 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters 6
Item 6. Management's Discussion and Analysis or Plan of
Operation 7
Item 7. Financial Statements 11
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act 12
Item 10. Executive Compensation 14
Item 11. Security Ownership of Certain Beneficial Owners
and Management 15
Item 12. Certain Relationships and Related Transactions 16
Item 13. Exhibits and Reports on Form 8-K 17
Signatures 19
</TABLE>
1
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
R-B Rubber Products, Inc. (the "Company") was incorporated in Oregon in
September 1986. The Company is a vertically integrated rubber recycler and
manufacturer that processes scrap tires and rubber to produce high quality,
durable rubber mats and other products and protective surfaces. The Company
sells its products to agribusiness concerns, sports and fitness facilities
and other commercial and industrial users.
On January 29, 1999, RB Recycling, Inc., a newly formed, 100 percent owned
subsidiary of the Company, acquired certain assets related to a tire recovery
and processing plant in Portland, Oregon from Dallas, Texas based Waste
Recovery, Inc. (WRI). WRI's Portland plant has been a supplier of the
Company's lowest cost raw material (tire chips) since 1996. RB Recycling,
Inc. will operate a tire collection and processing site in north Portland,
which utilizes tire collection routes, tire shredding equipment and handling
systems for the collection of tires and production of tire chips.
PRODUCTS
Applications for the Company's products generally fall into one of two
primary markets, agribusiness or fitness. Within each of these, the Company
manufactures and sells a variety of products designed to meet consumer
requirements.
AGRIBUSINESS. Approximately 74 percent of the Company's 1998 sales
were for rubber matting used in agricultural surfacing. These products
include flooring for horse and livestock trailers, stalls and wash areas.
Rubber matting has significant advantages over other flooring options, such
as straw, dirt or wood, because of its improved comfort and safety for the
animal and the reduction of cleaning time and bedding costs.
FITNESS AND SPORTS FACILITIES. Sales of rubber matting for sports
and fitness applications accounted for approximately 16 percent of sales in
1998. These sales were primarily for weight room flooring in gyms, private
clubs, military bases, colleges and high schools. The Company has been named
a "preferred" or "recommended" vendor for Gold's and World Gyms for more than
four years.
The Company also markets various other products. Some of these products are
manufactured by the Company and some are purchased from third party vendors.
These products include truck bed liners, rubber edging, drain tiles, aerobic
flooring and thinner specialty mat products. These products accounted for
approximately 5 percent of the Company's sales in 1998.
NEW PRODUCTS
During 1998, the Company acquired certain assets of Iowa Mat Company, adding
two new products: rubber weight plates for fitness and a playground surface
safety pad. The Company produces these products in its newly constructed
molded products facility in McMinnville, Oregon. These molded products use
similar raw materials as the Company's existing products and are distributed
through the Company's existing distribution channels. The new molded products
division accounted for approximately 5 percent of the Company's sales in 1998.
2
<PAGE>
PRODUCT DISTRIBUTION
The Company sells its products through several channels including
distributors, retailers, original equipment manufacturers ("OEMs") and
directly to the end-user. This strategy enables the Company to obtain a
diversified distribution of its products while at the same time maintaining
direct contact with many of its end-users. In 1998, most sales were to
distributors and retailers.
DISTRIBUTORS AND RETAILERS. The majority of the Company's products
were sold through distributor and retailer channels in 1998. These customers
include major agricultural supply retailers, automotive tire and accessory
retailers, as well as fitness equipment suppliers.
ORIGINAL EQUIPMENT MANUFACTURERS. In 1998, 16 percent of the
Company's revenues were from sales to OEMs. This is primarily from sales to
horse trailer and farm implement manufacturers.
END USERS. Individuals contact the Company (via an 800 number) in
response to Company advertisements or referrals from other users. In most
cases, these callers are referred to dealers in their local area. Because of
this, only a relatively small portion of the Company's total sales have been
at retail prices, directly to end-users. The Company believes this
distribution channel is important because of the direct feedback it receives
from these customers and the referral value enjoyed by its dealers.
The Company utilizes three strategically located public warehouses to
facilitate product availability and lower the cost of freight to its
customers. These warehouses, located in North Carolina, Missouri and Texas,
enable the Company to transport by rail larger quantities of mats per
shipment. The mats are then shipped in smaller quantities to the customers.
COMPETITION
The market for the Company's products is highly competitive. Some of the
Company's competitors may be larger or have greater financial resources than
the Company. The Company is one of the largest manufacturers of heavy rubber
matting in North America. Its principal competition in the agribusiness
market comes from North West Rubber located in British Columbia, Canada and
Kraiberg located in Germany; and in the fitness industry from Humane
Equipment in Wisconsin. The number of competitors within specific product
categories in the rubber mat industry has been decreasing, consequently the
remaining manufacturers, including the Company, have been increasing sales to
fulfill the demand and thereby increasing their market share.
Competitive factors include quality, service (including availability and
timely delivery), price and reliability. The Company believes that it
currently competes favorably with respect to these factors. There can be no
assurance, however, that competitors will not substantially increase their
resources devoted to the development and marketing of products competitive
with those of the Company.
3
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RAW MATERIALS
The Company's lowest cost raw material are tire chips, which were purchased
from WRI's Portland plant, and represented approximately 23 percent of the
Company's raw material supply in 1998 compared with approximately 33 percent
in 1997. The Company's acquisition of WRI's Portland plant gives the Company
greater control of its supply of tire chips going into 1999. The Company
relies primarily on tire grindings or "buffings" from tire recapping
operations and granulated rubber from tire chip reprocessing operations to
supply the remainder of its raw material requirements. Buffings and
granulated rubber require less processing before being used for mat or molded
product manufacturing, but are generally more costly. The Company continually
researches additional processing techniques that would allow it to process
tire chips, buffings and granulated rubber more efficiently, helping to
ensure an adequate supply of raw material in the future.
SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
Approximately 23 percent of the Company's net sales were to one customer
during 1998. This customer represented 34 percent of the accounts receivable
balance at December 31, 1998. The balance outstanding at December 31, 1998
for this customer was collected in the first quarter of 1999.
Approximately 22 percent of the Company's net sales were to one customer
during 1997. This customer represented 27 percent of the accounts receivable
balance at December 31, 1997. Two other customers represented approximately
14 percent and 8 percent of the accounts receivable balance at December 31,
1997. Balances outstanding at December 31, 1997 for all customers indicated
above were collected in the first quarter of 1998.
BACKLOG
The Company's customers generally order products for immediate delivery, and
the Company generally is able to meet such demand. However, at December 31,
1998, due to constrained capacity, the Company had a backlog of approximately
$440,000. This backlog turned during the first quarter of 1999. The stated
backlog is not necessarily indicative of Company sales for any future period
nor is a backlog any assurance that the Company will realize a profit from
filling the orders. The backlog at December 31, 1997 was approximately
$400,000.
INTELLECTUAL PROPERTY
The Company has chosen not to apply for patent protection for its products,
equipment or processes. The company's success and future revenue growth will
depend, in part, upon its ability to protect its trade secrets. The Company
relies on trade secret laws and confidentiality agreements to protect its
proprietary know-how. There can be no assurance that such measures will
provide meaningful protection for the Company's trade secrets or other
proprietary information. The Company's business may be adversely affected by
competitors that independently develop substantially equivalent products,
equipment and processes. The Company will attempt to keep its products,
equipment and processes, and the results of its research and development
programs proprietary, but it may not be able to prevent others from using
some or all of such information or technology without compensation to the
Company. The Company uses the following tradenames: R-B Rubber Products,
Arobitile, Tenderfoot and Bounce Back. The Company is not aware of any
conflicting or competing uses of its tradenames.
4
<PAGE>
RESEARCH AND DEVELOPMENT
The Company expensed $150,051 and $71,177 on research and development
activities during the years ended December 31, 1998 and 1997, respectively.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge
of pollutants in the environment and establish standards for the handling,
generation, emission, release, discharge, treatment, storage and disposal of
certain materials, substances and wastes. To the best of the Company's
knowledge, the Company's operations are in substantial compliance with the
terms of all applicable environmental laws and regulations as currently
interpreted. While historically the Company has not had to make significant
capital expenditures for environmental compliance, the Company cannot predict
with any certainty its future capital expenditures for environmental
compliance because of continually changing compliance standards and
technology. Furthermore, actions by federal, state and local governments
concerning environmental matters could result in laws or regulations that
could increase the cost of producing the products manufactured by the Company
or otherwise adversely affect the demand for its products. Additionally, the
Company does not currently have any insurance coverage for environmental
liabilities and does not anticipate a need to obtain such coverage in the
future.
EMPLOYEES
At December 31, 1998, the Company employed 72 persons, 70 of which were full
time employees and 2 of which were part time employees. None of the Company's
employees are covered by collective bargaining agreements, and the Company
believes its relations with its employees are good. The addition of RB
Recycling, Inc. added 18 full time employees, none of which are covered by a
collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters and manufacturing space are housed in
the same facility, which is located in McMinnville, Oregon, approximately 35
miles west of Portland, Oregon. The facility consists of approximately 34,000
square feet of space on approximately four acres of land, all of which is
owned by the Company. During 1998, the Company added approximately 10,000
square feet of manufacturing space to the existing facility to house the
Company's new molded products division, including equipment purchased from
Iowa Mat Company. At December 31, 1998, the Company had an outstanding note
collateralized by this facility payable at 7.97 percent interest, payable
$8,373 per month including interest, through August 15, 2008 at which time
the remaining balance of $695,954 becomes due.
RB Recycling, Inc. a newly formed 100 percent owned subsidiary of the
Company, is located on approximately 2 acres of land in north Portland. The
property includes a modular office space, processing facility and maintenance
shop. RB Recycling, Inc. leases the property under operating leases which
expire in 2004.
5
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ITEM 3. LEGAL PROCEEDINGS
As of the date of filing of this Form 10-K, there were no material, pending
legal proceedings to which the Company or its subsidiaries are a party. From
time to time, the Company becomes involved in ordinary, routine or regulatory
legal proceedings incidental to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
quarter ended December 31, 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System -Small Cap Market
("Nasdaq-Small Cap") under the symbol "RBBR." The following table sets forth
the high and low sales prices as reported by Nasdaq-Small Cap for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 High Low
-------------------------------------------- ---------- -----------
<S> <C> <C>
Quarter 1 $3.13 $1.75
Quarter 2 4.13 2.25
Quarter 3 4.88 2.84
Quarter 4 5.00 3.25
Year Ended December 31, 1998
--------------------------------------------
Quarter 1 $3.88 $3.00
Quarter 2 4.00 2.38
Quarter 3 3.13 1.56
Quarter 4 2.38 1.11
</TABLE>
The number of shareholders of record and approximate number of beneficial
holders on March 3, 1999 was 127 and 617, respectively. There were no cash
dividends declared or paid in fiscal years 1998 or 1997. The Company does not
anticipate declaring such dividends in the foreseeable future.
Pursuant to Section 4(2) of the Securities Act and according to the terms of
the Company's agreement to purchase certain assets of Iowa Mat Company, on
April 1, 1998, the Company issued 66,667 restricted shares of its Common
Stock to Iowa Mat Company.
6
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB, including Management's Discussion and
Analysis or Plan of Operation contains forward-looking statements that
involve a number of risks and uncertainties. Future market conditions are
subject to supply and demand conditions and decisions of other market
participants over which the Company has no control and which are inherently
very difficult to predict. Accordingly, there can be no assurance that the
Company's revenues or gross margins will improve. In addition, there are
other factors that could cause actual results to differ materially, including
competitive pressures, increased demand for the Company's raw materials,
unanticipated difficulties in integrating acquired technologies or businesses
and the risk factors listed from time to time in the Company's Securities and
Exchange Commission reports. The Company wishes to caution the reader that
these forward looking statements, such as the statements concerning new
product introductions and future tire chip processing capabilities, are only
predictions and are not statements of historical fact.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of sales, certain statement
of operations data for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Sales, net 100% 100%
Cost of sales 71 62
----------- ---------
Gross profit 29 38
Selling expenses 10 9
General and administrative expenses 15 16
Loss on impairment of goodwill 5 -
----------- ---------
Operating income (loss) (1) 13
Other expense (1) (2)
----------- ---------
Income (loss) before income taxes (2) 11
Income tax (expense) benefit 1 (4)
----------- ---------
Net income (loss) (1) 7
----------- ---------
----------- ---------
</TABLE>
SALES. Sales increased 15 percent to $8.6 million in 1998 from $7.4 million
in 1997. The increase is primarily attributable to efforts by the Company to
increase penetration and distribution in its primary markets, as well as
added sales from its newly created molded products division.
GROSS PROFIT. Gross profit decreased to $2.5 million (29 percent of net sales)
for 1998 from $2.8 million (38 percent of net sales) for 1997. The decrease in
the gross margin as a percent of net sales is primarily a result of higher
labor, maintenance and lease expenses and a negative margin related to the
operation of the molded products division. During 1998, the Company added
additional production and maintenance personnel in order to meet increased
production requirements resulting from increased demand for its products. The
Company also continued to add equipment in order to more efficiently process raw
materials and rubber mat products. Financing for the additional equipment was
obtained through sale/leaseback transactions utilizing State of Oregon Business
Energy Tax Credits. As a result, lease expense increased during 1998. The
negative margin for the molded
7
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products division was due to lower than expected sales volume in 1998. The
Company continues to evaluate and research new molded products and markets
for these products. The cost of the Company's raw materials, which include
tire chips from WRI's Portland plant, buffings and granulated rubber, had no
effect on gross profit percentages during 1998. Tire chips are the Company's
lowest cost raw material source and represented approximately 23 percent of
the Company's raw material supply during 1998 compared to 33 percent in 1997.
Because of a decreased supply of tire chips during 1998, the Company
augmented its tire chips more than anticipated with buffings. Buffings, which
are generally more expensive than tire chips, decreased in price during 1998
as a result of sourcing them closer to the Company. This decrease, however,
was offset by a slight increase in the price of tire chips. The Company
anticipates the need to continue to augment its tire chip supply with
buffings and granulated rubber in 1999. In January 1999, the Company acquired
certain assets related to a tire recovery and processing plant in Portland,
Oregon from Dallas, Texas based Waste Recovery, Inc., the Company's previous
vendor for its supply of tire chips. The Company believes that this purchase
will help to increase its supply of tire chips and therefore lower overall
raw material costs. In addition, the Company continues to make processing
improvements that would allow it to process and use more tire chips, helping
to ensure an adequate supply of lower cost raw material in the future.
SELLING EXPENSES. Selling expenses increased $191,000 to $872,000 (10 percent
of net sales) in 1998 from $681,000 (9 percent of sales) in 1997. The
increases in dollars and as a percent of net sales are primarily a result of
increased spending on product promotion and advertising, including costs for
the recently acquired molded products division. In addition, the Company has
increased marketing personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $121,000 to $1.3 million (15 percent of sales) in 1998 compared to
$1.2 million (16 percent of sales) in 1997, primarily as a result of one-time
costs related to the Iowa Mat acquisition, partially offset by efficiencies
gained as the Company grew.
IMPAIRMENT OF GOODWILL. Based on an analysis of the present value of
undiscounted expected future cash flows related to the Company's goodwill,
the Company realized an impairment charge of $396,000 in the fourth quarter
of 1998.
INCOME TAXES. The Company's effective tax rate in 1998 was a benefit of 39.8
percent compared to a provision of 38.3 percent in 1997, primarily as a
result of differences between book and tax treatment of goodwill impairment
charges.
NET INCOME. Net loss was $85,000 in 1998 compared to net income of $528,000
in 1997 due primarily to the goodwill impairment charge and effects of the
molded products division operations.
INFLATION. The Company believes that the impact of inflation on its results
of operations for the years ended December 31, 1998 and 1997 was not material.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and capital
expenditures through the private sale of equity securities, cash from
operations, conventional bank financings and leasing arrangements. Cash
decreased $257,000 during 1998 to $35,000 at December 31, 1998. This decrease
is primarily a result of $2.0 million used for the purchase of property and
equipment and $600,000 for the acquisition of certain assets from Iowa Mat
Company,
8
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offset by $803,000 provided by operations and $1,163,000 net proceeds from
long and short term debt.
Working capital at December 31, 1998 was $678,000, including $35,000 of cash
and $1.0 million of accounts receivable. The current ratios at December 31,
1998 and 1997 were 1.55:1 and 3.06:1, respectively.
Accounts receivable increased $115,000 to $1.0 million at December 31, 1998
compared to $910,000 at December 31, 1997, primarily as a result of increased
sales. Days sales outstanding decreased to 35 days at December 31, 1998
compared to 37 days at December 31, 1997.
Inventories increased $108,000 to $800,000 at December 31, 1998 from $692,000
at December 31, 1997 due primarily to the building of finished goods
inventory in order to help ensure adequate quantities are available to meet
anticipated demand. Inventory turned approximately 8 times during 1998
compared to 9 times during 1997.
Accounts payable increased $269,000 to $673,000 at December 31, 1998 from
$404,000 at December 31, 1997 primarily as a result in the build-up of
inventory and amounts related to the Company's building expansion.
Capital expenditures of $2.0 million during 1998 primarily resulted from 1)
the addition of equipment to automate the production and handling of the
Company's mat products; 2) continued expansion of the Company's rubber
processing facility; 3) updating of manufacturing equipment in order to
further increase production capacity; and 4) construction of a 10,000 square
foot manufacturing facility to house the Company's new molded products
division. The capital expenditures were financed primarily through the use of
leases utilizing existing tax credits available to the Company.
On April 1, 1998, the Company announced the acquisition of substantially all
of the assets of certain operations of Iowa Mat Company for $600,000 in cash
and 66,667 shares of the Company's Common Stock with a value on that date of
$217,000. The $600,000 cash payment was financed with new debt facilities.
Notes payable, both current and long-term, increased $1.2 million to $2.1
million at December 31, 1998 compared to $0.9 million at December 31, 1997,
as a result of borrowings for the Company's acquisition and plant expansion
for the molded products division operations.
At December 31, 1998, the Company had a $1,000,000 operating line of credit,
which bore interest at prime, 7.75 percent at December 31, 1998. The Company
had $261,000 outstanding under this line of credit at December 31, 1998.
Under the terms of this line-of-credit agreement, the Company is required to
maintain the following covenants:
Minimum current ratio of 1.5:1.0, calculated at the end of each quarter
Minimum tangible net worth $4,500,000, calculated at the end of each
quarter
Operating cash flow to total fixed charges (excluding capital
expenditures) ratio of not less than 1.3 to 1.0, calculated at the end
of each year for the preceding twelve month period
9
<PAGE>
At December 31, 1998, the Company was in compliance with all of its covenants.
The Company believes its existing cash, cash generated from operations and
available credit facilities will be sufficient to fund its operations for the
next 12 months.
YEAR 2000
INTERNAL SYSTEMS
The Company is in the process of analyzing and updating its internal systems,
including its personal computer systems and phone systems. All personal
computers and network hardware and software has been recently updated and/or
replaced in order to be Year 2000 compliant. The Company will be receiving,
free of charge, an upgrade from its phone system vendor, which will make the
phone systems Year 2000 compliant.
Like all businesses, the Company will be at risk from external infrastructure
failures that could arise from Year 2000 failures. It is not clear that
electrical power, telephone and computer networks, for example, will be fully
functional across the nation in the year 2000. Investigation and assessment
of infrastructures, like the nation's power grid, is beyond the scope and
resources of the Company. Investors should use their own awareness of the
issues in the nation's infrastructure to make ongoing infrastructure risk
assessments and their potential impact to a company's performance.
MANUFACTURING EQUIPMENT
The Company has assessed its manufacturing equipment and has determined that
it is Year 2000 compliant.
THIRD PARTIES
The Company has begun a Year 2000 supplier and customer audit program. It has
contacted all of its critical suppliers and customers to inform them of the
Company's Year 2000 expectations and has requested compliance programs and/or
Year 2000 compliance assurance. The Company is currently evaluating responses
received.
It should be noted that there have been predictions of failures of key
components in the transportation infrastructure due to the Year 2000 problem.
It is possible that there could be delays in rail, over-the-road and air
shipments due to failure in transportation control systems. Investigation and
validation of the nation's transportation infrastructure is beyond the scope
and the resources of the Company. Investors should use their own awareness of
the issues in the transportation infrastructure to make ongoing
infrastructure risk assessments and their potential impact to a company's
performance.
COST
The Company expects to incur nominal incremental costs related to Year 2000.
All costs to upgrade systems would have been incurred regardless of Year 2000
issues.
RISK
The failure to identify and correct a material Year 2000 problem could result
in an interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, the Company
is unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on the Company's results of operations,
liquidity or
10
<PAGE>
financial condition. The Company's efforts to help ensure Year 2000
preparedness have, and will continue to, significantly reduce the Company's
level of uncertainty about the Year 2000 problem. The Company believes that,
with completion of the above mentioned plans, the possibility of significant
interruptions of normal operations should be minimized, to the extent they
are within the control of the Company.
The Company is currently developing contingency plans in regard to its
internal systems and supplier issues, as well as for the more global
infrastructure issues.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes
standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. The
objective of SFAS 130 is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period other than transactions with owners. The Company adopted SFAS 130
during the first quarter of 1998. Comprehensive income (loss) does not differ
from currently reported net income (loss) in the periods presented.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"). SFAS 133 establishes accounting and reporting standards for all
derivative instruments. SFAS 133 is effective for fiscal years beginning
after June 15, 1999. The Company does not have any derivative instruments
and, accordingly, the adoption of SFAS 133 will have no impact on the
Company's financial position or results of operations.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item begins on page F-1 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
<TABLE>
<CAPTION>
HAS BEEN A
NAME AGE POSITION WITH COMPANY DIRECTOR SINCE
- ---- --- --------------------- --------------
<S> <C> <C> <C>
Ronald L. Bogh 55 Chairman of the Board and President 1985
Jerry K. Brown 50 Director, Secretary and Assistant Treasurer 1994
Edward DeRaeve 46 Director 1995
Douglas C. Nelson 60 Vice Chairman of the Board 1988
James V. Reimann 58 Director 1994
</TABLE>
There is no family relationship among any director or executive officer of
the Company.
RONALD L. BOGH founded the Company in 1985 and was named President of the
Company. Mr. Bogh was named the Chairman of the Board in 1995 and Chief
Executive Officer in May 1996. Prior to his acquisition of the Company in
1985, Mr. Bogh was the Southern U.S. Sales Manager for Cascade Steel in
McMinnville, Oregon. Mr. Bogh earned his B.A. degree from the Oregon College
of Education in 1971.
JERRY K. BROWN is an attorney and the sole shareholder in the law firm of
Jerry K. Brown, P.C. in McMinnville, Oregon. He received his J.D. degree in
1979 from Lewis and Clark's Northwestern School of Law, Portland, Oregon.
EDWARD DeRAEVE is the owner of D-N-D Electrical in McMinnville, Oregon, which
he founded in 1984. Prior to that time, Mr. DeRaeve worked for Cascade Steel
for twelve years in various supervisory capacities.
DOUGLAS C. NELSON joined the Company in 1988 as Director, Executive Vice
President, Finance and Chief Financial Officer. In 1995, he was named Senior
Vice President and Chief Financial Officer. In May 1996, he was named Vice
Chairman of the Board. In January 1998, he was named Vice Chairman of the
Board and ceased to be an employee of the Company. Mr. Nelson earned his
degree in pomology and agronomy from Cal Poly in 1960.
JAMES V. REIMANN is President and real estate broker at JVR, Inc., an Oregon
corporation specializing in real estate development. He is also Vice
President and a real estate broker at Pacific Management, Inc., an Oregon
corporation specializing in property management. Mr. Reimann attended Oregon
State University in Corvallis, Oregon and Willamette University in Salem,
Oregon.
12
<PAGE>
EXECUTIVE OFFICERS
The names, ages and positions of the Company's executive officers are as
follows:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION(S) WITH COMPANY SINCE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ronald L. Bogh 55 Chairman of the Board, President and Chief Executive Officer 1996
Paul M. Gilson 51 Senior Vice President, Chief Operating Officer and Secretary 1998
</TABLE>
For background information on Mr. Bogh, see "Directors" above.
PAUL M. GILSON joined the Company in 1990 as the Vice President of Operations
and has served as Secretary and Treasurer since February 1995. In May 1996,
Mr. Gilson was promoted to Senior Vice President, Chief Operating Officer,
Secretary and Treasurer. Prior to joining the Company, he was a commercial
account executive with Hagan Hamilton Insurance in McMinnville, Oregon. Mr.
Gilson attended Portland State University and graduated with a degree in
accounting from Northwest College of Business in Portland, Oregon in 1972.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's executive officers and Directors, and persons who own
more than ten percent of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC") and the National Association of
Securities Dealers, Inc. Executive officers, Directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on its review
of the copies of such forms received by it, or written representations from
certain reporting persons, the Company believes that, for the fiscal year
ended December 31, 1998, all executive officers, Directors and greater than
10% shareholders complied with all applicable filing requirements except for
the following: Mr. Doug Nelson, a Director of the Company, failed to timely
file two reports on Form 4, Statement of Changes in Beneficial Ownership,
relating to the sale of shares, and Mr. Bogh, an officer and Director of the
Company and Mr. Reimann, a Director of the Company each failed to timely file
one report on Form 4, Statement of Changes in Beneficial Ownership, relating
to the sale of shares.
13
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE OFFICER COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation awarded to, earned by or paid to the Company's Chief Executive
Officer and other executive officers of the Company whose total annual salary
and bonus exceeded $100,000 (collectively, the "named executive officers")
for fiscal years 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------------------
All Other
Name and Principal Position Other Annual Compensation
Year Salary($) Bonus($) Compensation($) ($)(1)
- ------------------------------ ------ --------- ---------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
Ronald L. Bogh (2) 1998 140,184 - - 2,008
Chairman of the Board, 1997 140,184 - - 6,378
President and CEO 1996 140,184 - - 6,961
</TABLE>
(1) Amounts include Company paid premiums on a life insurance policy
benefiting Mr. Bogh.
(2) No other individuals earned more than $100,000 in 1998, 1997 or 1996.
OPTIONS GRANTED IN LAST FISCAL YEAR
There were no stock options granted under the Company's 1995 Stock Option
Plan during 1998 to the named executive officer.
OPTION EXERCISES AND HOLDINGS
The named executive officer did not exercise any stock options during 1998,
nor does he hold any stock options at December 31, 1998.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS
TERMINATION AGREEMENT. In January 1998, the Company signed a Non-Competition,
Price Guaranty and Release Agreement (the "Agreement") with Mr. Doug Nelson,
the Company's former Chief Financial Officer. Mr. Nelson remains on the Board
of Directors. Pursuant to the Agreement, the Company is required to pay Mr.
Nelson an amount equal to the difference between the gross selling price per
share of the Company's Common Stock for up to 2,000 shares per month and
$4.00 per share for each share sold at less than $4.00 per share. The maximum
amount that the Company is obligated to pay Mr. Nelson is $59,000 in any
given calendar year. As of December 31, 1998, Mr. Nelson held 420,000 shares
of the Company's Common Stock. During 1998, Mr. Nelson sold 21,000 shares of
the Company's common Stock and the Company paid Mr. Nelson a total of $10,875
during 1998 under this Agreement. The Agreement was amended to allow Mr.
Nelson to sell an additional 3,000 shares under this Agreement during 1999.
The maximum amount to be paid to Mr. Nelson under this Agreement in 1999
remains at $59,000.
The Company has no other employment contracts or termination agreements with
any of its executive officers.
14
<PAGE>
In the event of a change in control of the Company, unless otherwise
determined by the Board of Directors prior to the occurrence of such change
in control, any options or portions of such options outstanding as of the
date such change in control is determined to have occurred, that are not yet
fully vested on such date, shall become immediately exercisable in full.
DIRECTOR COMPENSATION
Non-employee, non-salaried directors receive $250 per meeting they attend
where official Board action is taken, including special meetings, annual
meetings and telephonic meetings, plus out-of-pocket expenses associated with
attending such meetings. In addition, Mr. Nelson received $3,613 for health
insurance premiums and $2,701 for life insurance premiums paid by the Company
for Mr. Nelson's benefit. Employee, salaried directors receive no additional
compensation beyond their salaries for attending any Board meetings.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock of the Company as of February 26, 1999 as to (i) each
person who is known by the Company to own beneficially 5% or more of the
outstanding shares of Common Stock, (ii) each Director or Nominee for Director
of the Company, (iii) each of the executive officers named in the Summary
Compensation Table below and (iv) all Directors and executive officers as a
group. Except as otherwise noted, the Company believes the persons listed below
have sole investment and voting power with respect to the Common Stock owned by
them.
<TABLE>
<CAPTION>
COMMON STOCK
- ---------------------------------------------------------- --------------------------------------------
FIVE PERCENT SHAREHOLDERS, DIRECTORS, DIRECTOR SHARES APPROXIMATE
NOMINEES AND NAMED EXECUTIVE OFFICER BENEFICIALLY PERCENTAGE
OWNED (1) OWNED
- ---------------------------------------------------------- --------------------- ----------------------
<S> <C> <C>
Ronald L. Bogh (2) (3) 601,300 26.9%
Douglas C. Nelson (2) (4) 420,000 18.8%
James V. Reimann (2) (5) 55,000 2.5%
Edward DeRaeve (2) (6) 37,500 1.7%
Jerry K. Brown (2) (6) 14,500 *
All Directors and executive officers as a group (6
persons) (7) 1,171,766 51.1%
</TABLE>
* Less than 1%
(1) Applicable percentage of ownership is based on 2,239,167 shares of Common
Stock outstanding as of February 26, 1999 together with applicable options
for such shareholders. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission, and includes
voting and investment power with respect to such shares. Shares of Common
Stock subject to options or warrants currently exercisable or exercisable
within 60 days after February 26, 1999 are deemed outstanding for computing
the percentage ownership of the person holding such options or warrants,
but are not deemed outstanding for computing the percentage of any other
person.
15
<PAGE>
(2) The address for such person is 904 E. 10th Avenue, McMinnville, Oregon
97128.
(3) Includes 47,520 shares of the Company's Common Stock held by Mr. Bogh's
children for which Mr. Bogh has sole voting power pursuant to a voting
agreement dated April 15, 1995.
(4) Includes 9,000 shares held by Mr. Nelson's wife for which Mr. Nelson is
deemed to be the beneficial owner.
(5) Includes 2,500 shares held by Mr. Reimann's wife, 5,000 shares held by the
JVR, Inc. Pension & Profit Sharing Plan and 7,500 shares subject to options
granted pursuant to the Company's 1995 Stock Option Plan and exercisable
within 60 days of February 26, 1999.
(6) Includes 7,500 shares subject to options granted pursuant to the Company's
1995 Stock Option Plan and exercisable within 60 days of February 26, 1999.
(7) Includes 54,166 shares subject to options granted pursuant to the Company's
1995 Stock Option Plan and exercisable within 60 days of February 26, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1998, the Company paid a total of $206,947 to a contracting firm owned
by Mr. DeRaeve, a Director of the Company, for capital improvements to its
plant. The Company also paid $2,255 to Jerry Brown, Director and attorney,
for legal services provided. All related party transactions were conducted at
arms-length rates and conditions.
16
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are filed herewith and this list is intended to
constitute the exhibit index:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Reference is made to Exhibits 3.1 and 3.2 (1)
4.2 Form of Common Stock Certificate (1)
4.3 Form of Representative's Warrant (1)
10.1 R-B Rubber Products, Inc. 1995 Stock Option Plan (1)
10.2 Amendment No. 1 to R-B Rubber Products, Inc. 1995 Stock Option
Plan (6)
10.3 Form of Stock Option Agreement (1)
10.4 $285,000 Business Loan Agreement by and between Key Bank
National Association and R-B Rubber Products, Inc., dated April
1, 1998. (7)
10.5 $315,000 Business Loan Agreement by and between Key Bank
National Association and R-B Rubber Products, Inc., dated April
1, 1998. (7)
10.6 Loan modification agreement between the Company and Key Bank of
Oregon, dated October 21, 1996, regarding the conversion of the
Company's $750,000 equipment line of credit, dated September 1,
1995 into a term loan. (4)
10.7 $992,000 Business Loan Agreement by and between KeyBank National
Association and R-B Rubber Products, Inc., dated August 3, 1998.
(8)
10.8 $1,000,000 Line of Credit Agreement by and between KeyBank
National Association and R-B Rubber Products, Inc. dated July
31, 1998. (8)
10.9 Funding Agreement, dated May 12, 1997, by and between Keycorp
Leasing Ltd. And R-B Rubber Products, Inc. (5)
10.10 Master Equipment Lease, dated as of May 12, 1997 by and between
KeyCorp Leasing Ltd. and R-B Rubber Products, Inc. (6)
10.11 Amendment No. 1 to Master Equipment Lease dated as of May 12,
1997 by and between KeyCorp Leasing Ltd. and R-B Rubber
Products, Inc.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.12 Schedule, dated June 4, 1998, to Master Lease Agreement dated
May 12, 1997, by and between U.S. Bancorp and R-B Rubber
Products, Inc. (7)
10.13 Schedule, dated December 8, 1998, to Master Lease Agreement
dated May 12, 1997, by and between U.S. Bancorp and R-B Rubber
Products, Inc.
10.14 Schedule, dated February 2, 1999, to Master Lease Agreement
dated May 12, 1997, by and between U.S. Bancorp and R-B Rubber
Products, Inc.
10.15 Consent to Assignment and Agreement and Assignment of Purchase
Agreement, dated May 12, 1997, by R-B Rubber Products, Inc. to
Keycorp Leasing Ltd. (5)
10.16 Business Loan Agreement, dated January 19, 1999, by and between
KeyBank National Association and R-B Rubber Products, Inc. (9)
21 Subsidiaries of the Registrant
23 Consent of Morrison and Liebswager
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to Exhibits to Registrant's Registration
Statement on Form SB-2, as amended and filed with the Securities and
Exchange Commission on May 9, 1995 (Commission Registration No. 33-90376).
(2) Incorporated by reference to Exhibits to Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1995, as filed with the Securities
and Exchange Commission on March 30, 1996.
(3) Incorporated by reference to Exhibits to Registrant's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1996, as filed with the
Securities and Exchange Commission on August 14, 1996.
(4) Incorporated by reference to Exhibits to Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1996, as filed with the
Securities and Exchange Commission on November 8, 1996.
(5) Incorporated by reference to Exhibits to Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1997, as filed with the
Securities and Exchange Commission on November 5, 1997.
(6) Incorporated by reference to Exhibits to the Registrant's Annual Report on
Form 10-KSB for the year ended December 31, 1997, as filed with the
Securities and Exchange Commission on March 30, 1998.
(7) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1998, as filed with the
Securities and Exchange Commission on August 13, 1998.
(8) Incorporated by reference to Exhibits to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1998, as filed with the
Securities and Exchange Commission on November 12, 1998.
(9) Incorporated by reference to Exhibits to the Registrant's Form 8-K dated
January 29, 1999 and as filed with the Securities and Exchange Commission
on February 10, 1999.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1998.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: March 22, 1999
R-B RUBBER PRODUCTS, INC.
By: /s/ RONALD L. BOGH
---------------------------
Ronald L. Bogh
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in their capacities indicated on March 22, 1999:
Signature Title
- --------- -----
/s/ RONALD L. BOGH Chairman of the Board, President
- ------------------ and Chief Executive Officer
Ronald L. Bogh (Principal Executive Officer)
/s/ MICHAEL J. HIGHLAND Controller
- ------------------------ (Principal Financial and Accounting Officer)
Michael J. Highland
/s/ DOUGLAS C. NELSON Vice Chairman of the Board
- ------------------------
Douglas C. Nelson
/s/ JERRY K. BROWN Director
- ------------------------
Jerry K. Brown
/s/ EDWARD DERAEVE Director
- ------------------------
Edward DeRaeve
/s/ JAMES V. REIMANN Director
- ------------------------s
James V. Reimann
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
R-B Rubber Products, Inc.
McMinnville, Oregon
We have audited the accompanying consolidated balance sheets of R-B Rubber
Products, Inc., as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows
for the years ended December 31, 1998 and 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of R-B Rubber Products, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash
flows for the years ended December 31, 1998 and 1997, in conformity with
generally accepted accounting principles.
Morrison & Liebswager, P.C.
Certified Public Accountants
Dated: March 22, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,039 $ 291,990
Accounts receivable, net of allowance of $26,301 and $6,216 1,025,036 910,480
Inventories, net 800,002 692,073
Prepaid expenses and other 51,906 37,738
--------------- ---------------
Total current assets 1,911,983 1,932,281
Property, plant and equipment, net of accumulated
depreciation of $2,245,917 and $1,727,139 5,313,031 4,066,562
Other assets 481,534 276,693
--------------- ---------------
Total assets $7,706,548 $6,275,536
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 235,113 $ 134,507
Short-term debt 261,478 -
Accounts payable 672,663 404,210
Accrued expenses 57,996 73,110
Income taxes payable 7,035 19,180
--------------- ---------------
Total current liabilities 1,234,285 631,007
Long-term debt, net of current portion 1,573,456 772,866
Deferred income taxes 133,678 238,034
--------------- ---------------
Total liabilities 2,941,419 1,641,907
--------------- ---------------
Commitments and contingencies (Note 13)
Shareholders' equity:
Common stock, no par value, 20,000,000 shares authorized;
2,239,167 and 2,172,500 shares issued and outstanding 4,014,110 3,797,442
Additional paid-in capital 282,849 282,849
Retained earnings 468,170 553,338
--------------- ---------------
Total shareholders' equity 4,765,129 4,633,629
--------------- ---------------
Total liabilities and shareholders' equity $7,706,548 $6,275,536
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
R-B RUBBER PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Sales, net $8,592,368 $7,445,403
Cost of sales 6,059,269 4,625,670
----------------- -----------------
Gross profit 2,533,099 2,819,733
----------------- -----------------
Operating expenses:
Selling 871,883 680,820
General and administrative 1,288,459 1,167,019
Loss on impairment of goodwill 396,050 -
----------------- -----------------
2,556,392 1,847,839
----------------- -----------------
Operating income (loss) (23,293) 971,894
----------------- -----------------
Other income (expense):
Interest income 5,940 1,344
Interest expense (151,419) (125,113)
Loss on sale of equipment (5,979) (5)
Other income, net 33,238 8,054
----------------- -----------------
(118,220) (115,720)
----------------- -----------------
Income (loss) before income taxes (141,513) 856,174
Income tax (expense) benefit 56,345 (328,031)
----------------- -----------------
Net income (loss) $ (85,168) $ 528,143
================= =================
Basic net income (loss) per share $ (0.04) $ 0.24
================= =================
Shares used in basic net income (loss) per share 2,222,363 2,172,500
================= =================
Diluted net income (loss) per share $ (0.04) $ 0.24
================= =================
Shares used in diluted net income (loss) per share 2,222,363 2,235,343
================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
R-B RUBBER PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the two years in the period ended December 31, 1998
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Shareholders'
----------------------------------
Shares Amount Capital Earnings Equity
-------------- -------------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 2,172,500 $3,797,442 $282,849 $ 25,195 $4,105,486
Net income -- -- -- 528,143 528,143
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 2,172,500 3,797,442 282,849 553,338 4,633,629
Issuance of Common Stock (Note 6) 66,667 216,668 -- -- 216,668
Net loss -- -- -- (85,168) (85,168)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 2,239,167 $4,014,110 $282,849 $468,170 $4,765,129
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
R-B RUBBER PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ (85,168) $ 528,143
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 585,485 514,197
Goodwill impairment (Note 1) 396,050 -
(Gain) loss on disposal of equipment 5,979 (5)
Deferred income taxes (104,356) 175,051
Changes in current assets and liabilities:
Accounts receivable, net (114,556) (58,504)
Inventories, net (107,929) (306,831)
Prepaid expenses and other (14,168) (2,606)
Accounts payable 268,453 59,551
Accrued expenses (15,114) 8,042
Income taxes payable (12,145) 19,180
---------------- ----------------
Net cash provided by operating activities 802,531 936,218
---------------- ----------------
Cash flows from investing activities:
Additions to property, plant and equipment (1,995,460) (1,297,732)
Cash paid for acquisition (Note 6) (600,000) -
Proceeds from sale of equipment 13,100 5
Other, net 7,597 (74,674)
---------------- ----------------
Net cash used in investing activities (2,574,763) (1,372,401)
---------------- ----------------
Cash flows from financing activities:
Net borrowings (repayments) under short-term line of credit 261,478 (200,770)
Proceeds from long-term debt 1,592,000 16,000
Payments on long-term debt (690,804) (121,755)
Proceeds from sale/leaseback transactions 352,607 1,008,151
---------------- ----------------
Net cash provided by financing activities 1,515,281 701,626
---------------- ----------------
Increase (decrease) in cash and cash equivalents (256,951) 265,443
Cash and cash equivalents:
Beginning of year 291,990 26,547
---------------- ----------------
End of year $ 35,039 $ 291,990
================ ================
See Note 10 for supplemental cash flow disclosures.
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
R-B RUBBER PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. R-B Rubber Products, Inc. (the "Company") was incorporated in
Oregon in September 1986. The Company is a vertically integrated rubber
recycler that manufactures and sells high quality, durable rubber protective
surfaces for a variety of applications within the transportation,
agriculture, sports and fitness, playground and manufacturing industries
throughout the U.S.
The accompanying consolidated financial statements include the accounts of
the Company and of its previously wholly owned subsidiary, Strata Surfacing,
Inc. Intercompany transactions and balances have been eliminated in
consolidation. On July 1, 1997, the Company divested itself of its 100
percent owned subsidiary, Strata Surfacing, Inc. There was no gain or loss
associated with this transaction. In connection with its purchase of certain
assets related to a tire recovery and processing plant in January 1999, the
Company created a new wholly-owned subsidiary, RB Recycling, Inc.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
CONCENTRATIONS OF CREDIT RISK. Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist principally of
bank demand deposits and cash equivalents. Bank demand deposits are held by
high credit quality financial institutions, which have not historically
incurred any credit losses.
Approximately 23 percent of the Company's net sales were to one customer
during 1998. This customer represented 34 percent of the accounts receivable
balance at December 31, 1998. The balance outstanding at December 31, 1998
for this customer was collected in the first quarter of 1999.
Approximately 22 percent of the Company's net sales were to one customer
during 1997. Such customer represented 27 percent of the accounts receivable
balance at December 31, 1997. Two other customers represented approximately
14 percent and 8 percent of the accounts receivable balance at December 31,
1997. Balances outstanding at December 31, 1997 for all customers indicated
above were collected in the first quarter of 1998. Approximately 12 percent
of the Company's 1997 sales were derived from sales to ten major horse
trailer manufacturers in the U.S.
F-6
<PAGE>
CASH AND CASH EQUIVALENTS. Cash and cash equivalents consist of cash on hand
and highly liquid investments with original maturities of 90 days or less.
INVENTORIES. Inventories are stated at the lower of average cost, which
approximates the first-in, first-out method, or market (net realizable
value), and include materials, labor and manufacturing overhead. Unsalable or
unusable items are carried at scrap value and reprocessed.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. Maintenance and repairs are charged to expense as incurred, whereas
renewals and betterments are capitalized. Research and development costs
relating to processing and production equipment are capitalized. Depreciation
is provided using the straight-line method over the estimated useful lives of
the applicable assets as follows:
Buildings and Improvements: 30 years
Machinery and Transportation Equipment: 5 - 14 years
Office Furniture and Equipment: 3 - 7 years
Upon disposal of assets subject to depreciation, costs and accumulated
depreciation are removed from the accounts and the resulting gains and losses
are reflected in income.
GOODWILL. Goodwill, related to the purchase of certain assets of Iowa Mat
Company, is included in non-current assets and totaled $212,437, net of
accumulated amortization of $11,180, at December 31, 1998. Goodwill is
amortized on a straight-line basis over a 10-year period. The Company
assesses the recoverability of goodwill by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation.
The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are less than the carrying amount of
the goodwill. Based on this review, goodwill was written down by $396,050
during the fourth quarter of 1998.
LONG-LIVED ASSETS. Long-lived assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF, whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. Based on this review,
there were no impairments to the carrying value of long-lived assets, other
than an impairment of goodwill (see above), at December 31, 1998.
RESEARCH AND DEVELOPMENT. Included in general and administrative expense are
expenditures for research and development of $150,051 and $71,177 for the
years ended December 31, 1998 and 1997, respectively.
ADVERTISING COSTS. Advertising costs are expensed when incurred. Total
advertising costs expensed were $58,526 and $59,159 for the years ended
December 31, 1998 and 1997, respectively.
F-7
<PAGE>
INCOME TAXES. Deferred income tax assets and liabilities reflect the tax
effect of temporary differences between carrying amounts of assets and
liabilities for financial reporting purposes and amounts used for income tax
purposes. A valuation allowance is established for deferred tax assets if it
is more likely than not that all or some portion of the deferred tax asset
will not be realized. Income tax expense is the tax payable for the period
and the change during the period in net deferred tax assets and liabilities.
NET INCOME PER SHARE. Beginning December 31, 1997, basic earnings per share
(EPS) and diluted EPS are computed using the methods prescribed by Statement
of Financial Accounting Standard No. 128, EARNINGS PER SHARE. Basic EPS is
calculated using the weighted average number of common shares outstanding for
the period and diluted EPS is computed using the weighted average number of
common shares and dilutive common equivalent shares outstanding.
Following is a reconciliation of basic EPS and diluted EPS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997
- -------------------------------- --------- ------------- ----------- ---------- ------------ --------------
Per Share Per Share
BASIC EPS Loss Shares Amount Income Shares Amount
--------- ------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Income available to Common
Shareholders (85,168) 2,222,363 $(0.04) 528,143 2,172,500 $ 0.24
=========== ==============
EFFECT OF DILUTIVE SECURITIES
Stock Options - - - 62,843
--------- ------------- ---------- ------------
DILUTED EPS
Income available to Common
Shareholders (85,168) 2,222,363 $(0.04) 528,143 2,235,343 $ 0.24
=========== ==============
</TABLE>
152,500 and 97,000 shares issuable pursuant to stock options have not been
included in the above calculations for 1998 and 1997, respectively, since
they would have been antidilutive.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair value of financial instruments
are the amounts at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation
sale. The carrying amounts reflected in the consolidated balance sheets for
cash and cash equivalents, trade receivables, other current assets and
current liabilities approximate fair value because of the short maturity for
these instruments. The fair value approximates the carrying value of the
Company's borrowings under its long-term arrangements based upon interest
rates available for the same or similar loans.
RECLASSIFICATIONS. Certain reclassifications have been made in the prior year
to conform with current year presentation. These reclassifications had no
effect on previously reported net income or shareholders' equity.
2. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ---------------------------------- -------------- --------------
<S> <C> <C>
Raw Materials $108,416 $ 97,325
Finished Goods 636,521 575,435
Other 55,065 19,313
-------------- --------------
$800,002 $692,073
============== ==============
</TABLE>
F-8
<PAGE>
3. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ------------------------------------- ----------------- ----------------
<S> <C> <C>
Land $ 167,750 $ 167,750
Buildings and improvements 1,292,453 783,442
Machinery and equipment 5,605,756 4,605,969
Office furniture and equipment 260,729 196,434
----------------- ----------------
7,326,688 5,753,595
Less - accumulated depreciation (2,245,917) (1,727,139)
----------------- ----------------
5,080,771 4,026,456
Construction in progress 232,260 40,106
----------------- ----------------
$ 5,313,031 $ 4,066,562
================= ================
</TABLE>
Depreciation expense was $574,305 and $514,197 for the years ended December
t31, 1998 and 1997, respectively. Amounts included above recorded as capital
leases totaled $71,719 at December 31, 1998 and 1997.
4. SHORT-TERM DEBT
The Company has a $1,000,000 operating line of credit with a commercial bank,
which expires August 1, 1999 with interest at prime (7.75 percent at December
31, 1998). The line of credit is collateralized by accounts receivable and
inventory. The Company had $261,478 outstanding under the line of credit at
December 31, 1998.
Under the terms of this line-of-credit agreement, the Company is required to
maintain the following covenants:
Minimum current ratio of 1.5:1.0, calculated at the end of each quarter
Minimum tangible net worth $4,500,000, calculated at the end
of each quarter
Operating cash flow to total fixed charges (excluding capital expenditures)
ratio of not less than 1.3 to 1.0, calculated at the end of each year
for the preceding twelve month period
At December 31, 1998, the Company was in compliance with all of the covenants.
F-9
<PAGE>
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ------------------------------------------------------------------------------- -------------- -------------
<S> <C> <C>
Real estate mortgage at U.S. Treasury rate plus 2.5 percent (7.97 percent at
December 31, 1998) adjusted every 5 years, payable in monthly payments of
$8,373, including interest, with a balloon payment of $695,954 due on
August 15, 2008, collateralized by real estate $ 980,920 $ --
Real estate mortgage at 9.24 percent interest, payable in monthly amounts of
$6,895, including interest, through
October 5, 2005, collateralized by land and buildings -- 514,912
Bankterm note at 8.98 percent, payable in 59 payments of $8,555, including
interest, through September 5, 2001, collateralized by accounts
receivable, inventory and equipment 257,055 332,447
Bank term note at 8.42 percent, payable in monthly amounts of $5,836,
including interest, through April 5, 2003, collateralized by equipment 253,920 --
Bank term note at 7.92 percent, payable in monthly amounts of $6,375,
including interest, through April 5, 2003, collateralized by equipment 280,261 --
Bank term note at 8.58 percent, payable in monthly amounts of $505, including
interest, through December
5, 2000, collateralized by equipment 11,089 16,000
Capital leases payable in a monthly amount of $1,567 through December 13,
2000, collateralized by equipment 25,324 44,014
-------------- -------------
1,808,569 907,373
Less - current portion 235,113 134,507
-------------- -------------
$ 1,573,456 $ 772,866
============== =============
</TABLE>
As of December 31, 1998, principal maturities on long-term debt were due as
follows:
<TABLE>
<S> <C>
1999 $ 235,113
2000 245,207
2001 236,233
2002 165,460
2003 80,181
Thereafter 846,375
-----------------
$ 1,808,569
=================
</TABLE>
6. ACQUISITION
On April 1, 1998, the Company acquired substantially all of the assets of
certain operations of Iowa Mat Company for $600,000 in cash and 66,667 shares
of the Company's Common Stock with a value on the date of issuance of
$216,668. A majority of the $600,000 cash payment was financed with new debt
facilities. The acquisition was accounted for as a purchase.
F-10
<PAGE>
7. OPERATING LEASES
As a recycler of tires in the state of Oregon, many of the Company's capital
equipment purchases qualify for State of Oregon Business Energy Tax Credits. The
Company sells the related equipment to various commercial banks and leases the
equipment back, net of the related credits. All of the sale-leaseback
transactions are classified as operating leases. The following table summarizes
the sale-leaseback transactions:
<TABLE>
<CAPTION>
AMOUNT TO
EXERCISE BUY-
DATE OF PROCEEDS FROM MONTHLY BUY-OUT OPTION OUT OPTION
SALE SALE TERM DATE PAYMENT EXERCISE DATE (ESTIMATED FMV)
- --------------- --------------- -------------- ---------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C>
10/19/95 $ 549,160 11/10/02 $6,330 10/19/00 $176,778
12/19/97 1,008,151 12/01/04 11,218 12/19/03 131,655
06/04/98 247,118 04/10/06 2,224 06/04/03 74,136
12/08/98 105,489 11/10/06 1,154 12/08/03 35,195
--------------- ---------------- --------------------
$1,909,918 $20,926 $417,764
=============== ================ ====================
</TABLE>
The Company also leases certain vehicles, equipment and storage areas under
operating leases expiring in various years through 2002.
Future minimum lease payments under non-cancelable operating leases at
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 299,580
2000 291,750
2001 187,139
2002 178,200
2003 175,152
Thereafter 237,278
---------------
$ 1,369,099
===============
</TABLE>
Total rental expense related to operating leases was $272,743 and $89,598 for
the years ended December 31, 1998 and 1997, respectively.
F-11
<PAGE>
8. INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES. This statement requires that
deferred taxes be established for all temporary differences between the book
and tax basis of assets and liabilities.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997
- --------------------------------------- --------------- --------------
<S> <C> <C>
Current:
Federal $ 35,062 $ 145,610
State 12,949 7,370
--------------- --------------
48,011 152,980
Deferred:
Federal (104,356) 175,051
State - -
--------------- --------------
(104,356) 175,051
--------------- --------------
$ (56,345) $ 328,031
=============== ==============
</TABLE>
Total deferred tax assets at December 31, 1998 and 1997 were $127,924 and
zero, respectively. Total deferred tax liabilities at December 31, 1998 and
1997 were $261,602 and $238,034, respectively. No valuation allowance has
been established for deferred tax assets as management believes it is more
likely than not that future taxable income will be sufficient to realize the
benefit of deferred tax assets. Individually significant components of the
Company's deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 1997
- ---------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Goodwill $ 127,924 $ -
Tax depreciation greater than book depreciation (166,215) (134,408)
Capitalized research and development expenses (95,387) (103,626)
</TABLE>
A reconciliation between the federal statutory tax rate and the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
(Principal Executive Officer)
YEAR ENDED DECEMBER 31, 1998 1997
- ------------------------------------------------------------- ----------- ----------
<S> <C> <C>
Federal statutory income tax rate (34.0)% 34.0 %
State taxes, net of federal income tax benefit (6.6) 4.4
Other 0.8 (0.1)
----------- ----------
Effective income tax rate (39.8) % 38.3 %
=========== ==========
</TABLE>
F-12
<PAGE>
9. SEGMENT REPORTING
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. Based upon definitions contained within SFAS No. 131, the
Company has determined that it operates in two segments, matting products and
molded products. Detail information regarding the segments for 1998 is as
follows. During 1997, the Company only operated in one segment, matting
products, and therefore, segment information for 1997 is not presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 MATTING PRODUCTS MOLDED PRODUCTS TOTAL
- --------------------------------------- ---------------------- ----------------------- ----------------
<S> <C> <C> <C>
Revenues $8,162,482 $ 429,886 $8,592,368
Depreciation and amortization 543,871 41,614 585,485
Income (loss) before taxes 542,701 (684,214) (141,513)
<CAPTION>
DECEMBER 31, 1998
- ---------------------------------------
<S> <C> <C> <C>
Total assets $6,327,715 $1,378,833 $7,706,548
</TABLE>
The Company does not have any material transactions between segments.
10. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997
- -------------------------------------------------------------------- ------------ --------------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 143,058 $131,235
Cash paid for income taxes 97,680 133,800
SUPPLEMENTAL NON-CASH INVESTING ACTIVITIES:
Common Stock issued in connection with acquisition 216,668 -
</TABLE>
11. SHAREHOLDERS' EQUITY
WARRANTS. At December 31, 1998 and 1997, the Company had outstanding warrants
to purchase 95,000 shares of the Company's Common Stock at $5.10 per share
which expire May 9, 2000.
STOCK OPTION PLAN. In March 1995, the Company adopted its 1995 stock option
plan (the "1995 Plan"). The 1995 Plan provides for the issuance of incentive
stock options to employees of the Company and non-statutory stock options to
employees, directors and consultants of the Company. Options granted
generally vest over a three-year period, but may vest over a different period
at the discretion of the Plan Administrator. Options granted under the 1995
Plan are typically exercisable for a period of 10 years from the date of
grant. The exercise price of options granted under the 1995 Plan must be
equal to or greater than the fair market value of the Company's Common Stock
on the date of grant for incentive stock options under Section 422 of the
Code and not less than 85 percent of the fair market value on the date of
grant for non-statutory stock options. At December 31, 1998, the Company had
300,000 shares of Common Stock reserved for future issuance under the 1995
Plan. The exercise price of all options granted was equal to the market price
of the stock on the grant date.
F-13
<PAGE>
Activity under the 1995 Plan is summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Available Shares Subject Exercise Price
for Grant to Options Per Share
------------------- ------------------ --------------------
<S> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 46,500 103,500 $ 1.58
Options granted (101,000) 101,000 3.68
------------------- ------------------ --------------------
BALANCES, DECEMBER 31, 1997 95,500 204,500 2.61
Options granted (10,000) 10,000 2.25
Options canceled 62,000 (62,000) 2.72
------------------- ------------------ --------------------
BALANCES, DECEMBER 31, 1998 147,500 152,500 $ 2.55
=================== ================== ====================
</TABLE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. During 1995, the Financial Accounting Standards
Board issued SFAS No. 123 which defines a fair value based method of
accounting for an employee stock option and similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method of
accounting prescribed by Accounting Principals Board Opinion ("APB") No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Entities electing to remain with
the accounting in APB No. 25 must make pro forma disclosures of net income
and, if presented, earnings per share, as if the fair value based method of
accounting defined in SFAS No. 123 had been adopted.
The Company has elected to account for its stock-based compensation plans
under APB No. 25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during 1998 and 1997 using the
Black-Scholes option pricing model as prescribed by SFAS No. 123 using the
following weighted average assumptions for grants:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997
- ------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Risk-free interest rate 5.5% 6%
Expected dividend yield 0% 0%
Expected lives 6.5 years 6.5 years
Expected volatility 102.9% 112.5%
</TABLE>
Using the Black-Scholes methodology, the total value of options granted during
1998 and 1997 was $18,950 and $316,009, respectively, which would be amortized
on a pro forma basis over the vesting period of the options. The weighted
average fair value of options granted during 1998 and 1997 was $1.90 and $3.13,
respectively.
F-14
<PAGE>
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS No. 123, the Company's net income (loss) and net income
(loss) per share would approximate the pro forma disclosures below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 1997
- ---------------------------------------------- ------------------------------ ------------------------------
As Reported Pro Forma As Reported Pro Forma
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net income (loss) $ (85,168) $ (192,333) $ 528,143 $ 447,159
Net income (loss)per share - basic $ (0.04) $ (0.09) $ 0.24 $ 0.21
Net income (loss) per share - diluted $ (0.04) $ (0.09) $ 0.24 $ 0.21
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------- -----------------------------------
Weighted
Average Weighted Number of Weighted
Range of Exercise Number Remaining Average Shares Average
Prices Outstanding at Contractual Exercise Exercisable at Exercise
12/31/98 Life (Years) Price 12/31/98 Price
- -------------------- ---------------- ---------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
$ 1.50 40,500 7.8 $1.50 22,500 $1.50
1.625 33,000 4.0 1.625 31,000 1.625
1.875 2,000 5.0 1.875 - -
2.25 10,000 9.8 2.25 3,333 2.25
2.875 4,000 8.4 2.875 - -
3.75 63,000 8.9 3.75 24,328 3.75
- -------------------- ---------------- ---------------- -------------- ---------------- --------------
$ 1.50 - 3.75 152,500 7.5 $2.55 81,161 $2.25
==================== ================ ================ ============== ================ ==============
</TABLE>
At December 31, 1997 options to purchase 66,500 shares of the Company's
Common Stock were exercisable at an average exercise price of $1.74.
12. PROFIT SHARING PLAN
The Company has a defined contribution profit sharing plan (the "Plan"),
which covers all employees who have completed 90 days of service. The Plan is
qualified under section 401 of the Internal Revenue Code. Participants may
voluntarily elect to reduce their compensation by up to 15 percent of their
annual compensation. The Company may contribute to the Plan a discretionary
amount determined by its Board of Directors. No contributions were made to
the Plan by the Company for 1998 or 1997.
13. RELATED PARTY TRANSACTIONS
PLANT IMPROVEMENTS. During 1998 and 1997 the Company paid $206,947 and
$120,675, respectively, to a contracting firm owned by Mr. DeRaeve, a
Director of the Company, for capital improvements to its plant.
LEGAL SERVICES. During 1998 and 1997, the Company paid Mr. Brown, a Director
of the Company, $2,255 and $1,589, respectively, for legal services provided.
F-15
<PAGE>
TERMINATION AGREEMENT. In January 1998, the Company signed a Non-Competition,
Price Guaranty and Release Agreement (the "Agreement") with Mr. Doug Nelson,
the Company's former Chief Financial Officer. Mr. Nelson remains on the Board
of Directors. Pursuant to the Agreement, the Company is required to pay Mr.
Nelson an amount equal to the difference between the gross selling price per
share of the Company's Common Stock for up to 2,000 shares per month and
$4.00 per share for each share sold at less than $4.00 per share. The maximum
amount that the Company is obligated to pay Mr. Nelson is $59,000 in any
given calendar year. As of December 31, 1998, Mr. Nelson held 420,000 shares
of the Company's Common Stock. During 1998, Mr. Nelson sold 21,000 shares of
the Company's Common Stock and the Company paid Mr. Nelson a total of $10,875
during 1998 under this Agreement. The Agreement was amended to allow Mr.
Nelson to sell an additional 3,000 shares under this Agreement during 1999.
The maximum amount to be paid to Mr. Nelson under this Agreement in 1999
remains at $59,000.
All related party transactions were conducted at arms-length rates and
conditions.
14. SUBSEQUENT EVENTS
RB RECYCLING, INC. On January 29, 1999, the Company, through its newly
created, 100 percent owned subsidiary RB Recycling, Inc., purchased certain
assets related to a tire recovery and processing plant in Portland, Oregon
from Dallas, Texas based Waste Recovery, Inc. ("WRI"). The total purchase
price was $750,000, consisting of $450,000 in cash from a new five-year note
with a commercial bank, $160,000 in cash from the Company's existing
operating line of credit and $140,000 in cash from existing cash balances.
The acquisition was accounted for as a purchase. Pro forma results of
operations are not presented as they are not materially different from actual
results.
BUSINESS LOAN AGREEMENT. On January 19, 1999, the Company entered into a
business loan agreement (the "Agreement") with a commercial bank for the
purpose of funding the acquisition of WRI's Portland operation. The original
principal amount was $450,000 at the bank's prime lending rate (7.75 percent
upon consummation of the Agreement). The Agreement calls for 60 monthly
payments, including interest, of $9,096 through January 2004. The Agreement
is collateralized by equipment. Pursuant to the terms of the Agreement, the
Company must maintain a current ratio of 1.50 and tangible net worth of not
less than $4.5 million, both measured quarterly, and operating cash flow to
total fixed charge ratio of not less than 1.3 to 1.0, calculated a the end of
each year for the preceding twelve month period.
F-16
<PAGE>
SALE/LEASEBACK. On February 2, 1999, the Company entered into a
sale/leaseback transaction with a commercial bank for certain equipment
related to the Company's molded products division and tire chip processing
facility for $802,400. The proceeds were used to pay off two term notes with
a commercial bank totaling $534,181 at December 31, 1998. The terms of the
lease are for 84 monthly payments of $8,634 each. The lease contains an early
buyout option at 60 months for a payment of $200,760, the estimated fair
market value of such property at that time. In addition, the Master Lease
Agreement, which this sale/leaseback is a part of, was amended to include the
following financial covenants (which are the same as the financial covenants
on the Company's line of credit):
1. Minimum current ratio of 1.5:1.0, calculated at the end of each
quarter
2. Minimum tangible net worth $4,500,000, calculated at the end of each
quarter
3. Operating cash flow to total fixed charges (excluding capital
expenditures) ratio of not less than 1.3 to 1.0, calculated a the end
of each year for the preceding twelve month period
F-17
<PAGE>
EXHIBIT 10.11
AMENDMENT TO MASTER EQUIPMENT LEASE AGREEMENT
- --------------------------------------------------------------------------------
THIS AMENDMENT dated as of February 2, 1999 amends that certain Master
Equipment Lease Agreement dated as of May 12, 1997 between KEYCORP LEASING, A
DIVISION OF KEY CORPORATE CAPITAL INC., as Lessor, and R-B RUBBER PRODUCTS,
INC., as Lessee (the "Master Lease"). Unless otherwise specified herein, all
capitalized terms shall have the meanings ascribed to them in the Master Lease.
Lessor and Lessee hereby agree that the Master Lease will be amended, with
respect to each Equipment Schedule executed in connection therewith, to add the
following section:
LESSEE'S FINANCIAL COVENANTS. Lessee hereby covenants with Lessor as follows:
1. TANGIBLE NET WORTH: Lessee shall maintain a Tangible Net Worth of not less
than $4,500,000; calculated at end of each quarter.
2. CURRENT RATIO: Lessee shall maintain a ratio of current assets to current
liabilities in excess of 1.50 to 1.00; calculated at end of each quarter.
3. DEBT SERVICE COVERAGE RATIO: its Debt Coverage Ratio shall not be less than
1.30 to 1.00, as measured on a fiscal basis.
DEFINITIONS:
a) "CURRENT ASSETS" shall be defined by GAAP, minus prepaid expenses.
b) "CURRENT LIABILITIES" shall be defined by GAAP.
c) "DEBT" means all of the Lessee's liabilities excluding Subordinated
Debt.
d) "TANGIBLE NET WORTH " means Lessee's total assets excluding all
intangible assets (i.e. goodwill, trademarks, patents, copyrights,
organizational expenses and similar intangible items, but including
leaseholds and leasehold improvements) less total Debt.
e) "DEBT SERVICE COVERAGE RATIO" shall mean the ratio of (1) the sum of
net income before taxes, interest expense, depreciation, amortization
and other non-cash expenses, excluding any extraordinary gains or
losses, to (2) the sum of interest expense and current maturities of
long term debt and capital lease obligations.
Except as modified hereby, all of the terms, covenants and conditions of
the Master Lease shall remain in full force and effect and are in all respects
hereby ratified and affirmed.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Amendment as of
the date first above written.
LESSOR: LESSEE:
KEYCORP LEASING, R-B RUBBER PRODUCTS, INC.
A DIVISION OF KEY CORPORATE
CAPITAL INC.
By: By: [Illegible]
-------------------------------- -----------------------------------
Name: Name:
Title: Title: SR. V.P.
- --------------------------------------------------------------------------------
Page 1 of 1
<PAGE>
SCHEDULE TO MASTER LEASE AGREEMENT
EXHIBIT 10.13
U.S. BANCORP
Schedule Number 10809.003
---------
THIS SCHEDULE made as of December 8, 1998, by and between U.S.
BANCORP LEASING & FINANCIAL ("Lessor"), having its principal place of
business at P.O. Box 2177, 7659 S.W. Mohawk Street, Tualatin, Oregon
97062-2177, and R-B Rubber Products, Inc. ("Lessee"), having its principal
place of business located at 904 East Tenth Avenue, McMinnville, Oregon
97128, to the Master Lease Agreement dated as of October 19, 1995 between the
Lessee and the Lessor (the "Lease"). Capitalized terms used but not defined
herein are used with the respective meanings specified in the Lease.
LESSOR AND LESSEE HEREBY COVENANT AND AGREE AS FOLLOWS:
(a) The following specified equipment (the "Property") is hereby made and
constituted Property for all purposes pursuant to the Lease:
One (1) Horizontal Splitter as described on the Exhibit "A" attached
hereto and made a part hereof.
(b) The cost of the Property is $105,489.24;
Please Initial Here:______
(c) This Schedule shall commence on December 10, 1998 and shall continue
for 95 months thereafter.
(d) Lessee shall owe 95 basic monthly rental payments in arrears each in
the amount of $1,154.38 (plus applicable sales/use taxes). The first
such payment shall be due on January 10, 1999 and shall continue on the
same day of each month thereafter until the end of the term of this
Schedule.
(e) The Property will be installed or stored at the following address:
904 East Tenth Avenue, McMinnville, Oregon 97128, COUNTY: Yamhill;
(f) The record owner of the premises at which the Property will be
installed or stored is:___________________;
1. LATE CHARGE. If any installment of Rent shall not be received by Lessor
or Lessor's Assignee within ten (10) days after such amount is due, Lessee shall
pay to Lessor a late charge equal to five percent (5.0%) of such overdue amount.
2. TITLE PASSAGE. a. As long as no event of default has occurred under the
Lease, Lessee shall have the options, to purchase all, but not part, of the
Property at the end of 60 months hereinafter called the "Mid-Term Option Date",
and "Mid-Term Option" or at the end of the Term or any renewal thereof
(hereinafter called the "End of Term Option Date" and "End of Term Option").
b. The above Options may only be exercised by Lessee by written
notice of such exercise to Lessor, which notice must be received by Lessor not
later than one hundred eighty (180) days prior to: 1) the Mid-Term Option Date
to exercise the Mid-Term Option; or 2) the End of Term Option Date to exercise
the End of Term Option. Payment of the purchase price must be received by Lessor
on or before the Mid-Term Option Date or the End of Term Option Date as
appropriate.
c. The Mid-Term Option purchase price for the Property shall be
$35,194.73. The End of Term purchase price for the Property shall be the fair
market value of the Property at the time of such exercise as mutually agreed
upon by Lessor and Lessee. If such parties cannot agree thereon after good faith
negotiation, the purchase price of the Property shall be the value determined by
an appraisal of the Property made by a reputable independent equipment appraiser
certified for the type of Property being appraised. The appraiser shall be
selected by Lessor and the cost of the appraisal shall be paid by Lessee.
<PAGE>
d. The Mid-Term Option purchase price shall only be applicable in
the event that the Mid-Term Option is exercised in accordance with its Terms.
Such purchase price shall not be deemed to be equal to the "anticipated residual
value" as such phrase is used in the Lease.
e. Upon receipt of payment of the purchase price together with any
and all applicable sales or other taxes due in connection therewith, and any and
all remaining sums or other amounts payable under this Schedule, Lessor shall
transfer all its right, title and interest in and to the Property to Lessee. The
Property shall be transferred "As Is" and "Where Is" without any express or
implied representations or warranties.
f. Should Lessee fail to either return the Property in accordance
with the Lease or exercise the End of Term Option in accordance with its terms,
then Lessor, at its sole option, shall have the right to: a) declare the End of
Term Option terminated and demand immediate return of the Property; or, b)
extend the Term for an additional six (6) months (the "Extended Term"). Should
Lessor elect to extend the Term, Lessee shall be irrevocably obligated to remit
basic monthly rent for the period beginning on the day immediately succeeding
the last day of the original Term (the "Holdover Date") and ending at the end of
the sixth (6) month thereafter. A payment of such rent being due on the Holdover
Date and on the same day of each consecutive month thereafter. Each payment of
such rent shall be in the amount of the basic monthly rent for the last month of
the Term in accordance with the provisions of this Schedule. All Lessee's other
obligations under the Lease shall remain in full force and effect for so long as
Lessee shall continue to possess the Property. Upon the expiration of each
Extended Term, Lessor, at its sole option, shall have the right to: a) permit
Lessee to exercise the End of Term Option in accordance with its Terms; b)
declare the End of Term Option terminated and demand immediate return of the
Property; or, c) extend the Term for an additional six (6) month Extended Term.
Any and all rental payments pursuant to this Paragraph shall be deemed for all
intents and purposes to be payments for possession and use of the Property after
the expiration of the Term, and shall not be credited to any other obligation of
Lessee to Lessor. Lessor's invoicing and/or accepting any such payment shall not
give rise to any right, title or interest of Lessee other than to possession and
use of the Property during the period to which such rent applies in accordance
with this Paragraph. The aforesaid right to charge Lessee rent for possession
and use of the Property is not in limitation or derogation of any of Lessor's
rights pursuant to the Lease.
3. MAINTENANCE, USE, AND RETURN PROVISIONS. One hundred eighty (180) days
prior to return of the Property, and at any other time, in Lessor's discretion,
Lessee must be able to demonstrate that the Property can perform at its
performance specifications according to the manufacturer's standards. An
independent certified technician chosen by Lessor shall demonstrate the
performance of the property and the Property's physical condition. If it is
determined that improvements are needed in order to meet the manufacturer's
performance standards, Lessee shall cause such improvements to be made at
Lessee's expense. A certification letter from such technician as to the working
condition and performance of the Property shall be provided to Lessor. The cost
of the technical inspection, assessment and certification shall be borne by
Lessee.
Any special transportation devices, such as metal skids, lifting
slings, brackets, etc., which were with the Property when it originally arrived
must be used to assist with deinstallation and delivery. Blocking of sliding
members, securing of swinging doors, pendants, and their swinging components,
wrapping, boxing, bending and labeling of all components and documents must be
done in a conscientious and meticulous manner to facilitate the efficient
reinstallation. At no time are materials which would be considered "Hazardous
Waste" by any regulatory authority to be shipped with the machinery. Replacement
parts must be purchased from sources approved by the original manufacturer. No
components, tools or attachments are to be removed from the Property.
4. DEPRECIATION. Lessor will be entitled to modified accelerated cost
recovery depreciation based on 100% of Property Cost using the 200% declining
balance method, switching to straight line, for 7 year Property, and zero
salvage value.
5. TAX INDEMNITY. Lessee hereby represents, warrants, and covenants to
Lessor as follows:
(a) This Lease will be a lease for purposes of Oregon Revised
Statutes ("ORS") 469.185-225. Lessor will be treated as the purchaser, owner,
lessor, and original user of the Property and Lessee will be treated as the
Lessee of the Property for such purposes.
(b) Lessor shall be entitled to the Business Energy Tax Credit
("BETC") with respect to each item of Property as provided by ORS 469.185-225.
The applicable BETC available to Lessor in connection with this Schedule is
$36,921.23.
(c) In the event that, pursuant to ORS 469.185-225, Lessee is deemed
to be the party eligible to receive the BETC, then Lessee irrevocably transfers
to Lessor all right, title and interest which Lessee has or may have to such
BETC and agrees to cooperate with Lessor in any manner necessary to ensure that
Lessor continue to receive the benefit of such BETC.
<PAGE>
If for any reason whatsoever any of the representations, warranties, or
covenants of Lessee contained in the Lease or in any other agreement relating to
the Property shall prove to be incorrect and (i) Lessor shall determine that it
is not entitled to claim all or any portion of the BETC in the amount specified
(b) above, or (ii) such BETC is disallowed, adjusted, recomputed, reduced, or
recaptured, in whole or in part, by the Director of the Oregon Department of
Energy or his designee (such determination, disallowance, adjustment,
recomputation, reduction, or recapture being herein called a "Loss"), then
Lessee shall pay to Lessor as an indemnity and as additional rent such amount as
shall, in the reasonable opinion of Lessor, cause Lessor's after-tax economic
yield (the "Net Economic Return") to equal the Net Economic Return that would
have been realized by Lessor if such Loss had not occurred. The amount payable
to Lessor pursuant to this section shall be payable on the next succeeding
rental payment date after written demand therefor from Lessor, accompanied by a
written statement describing in reasonable detail such Loss and the computation
of the amount so payable.
Further, in the event (i) there shall be any change, amendment,
addition, or modification of any provision of Oregon law or regulations
thereunder or interpretation thereof with respect to the matters set forth in
this section effective prior to the commencement date of the term of this Lease
with respect to any Property or (ii) if at any time there shall be any change,
amendment, addition, or modification of any provision of Oregon law or
regulations thereunder or interpretation thereof with respect to the maximum
applicable BETC which results in a decrease in lessor's Net Economic Return,
then Lessor shall recalculate and submit to Lessee the modified rental rate
required to provide Lessor with the same net Economic Return as it would have
realized absent such change and the lease shall thereupon automatically be
deemed to be amended to adopt such rental rate and values.
IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this
Schedule to be duly executed as of the day and year first above written.
R-B Rubber Products, Inc.
By: /s/ Ralph L. Bogh
---------------------------
Ronald L. Bogh
President
U.S. BANCORP LEASING & FINANCIAL
By:
---------------------------
An Authorized Officer Thereof
Address for All Notices:
U.S. BANCORP LEASING & FINANCIAL
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177
Machine Tool Finance Group General Equipment Group
(800) 225-8029 (503) 797-0222 (800) 253-3468 (503) 797-0200
<PAGE>
DELIVERY AND ACCEPTANCE CERTIFICATE U.S. BANCORP
AND LEASE AMENDMENT
Schedule Number 10809.003
---------
This Certificate is delivered to and for the benefit of Lessor and
pertains to the following personal property (the "Property") which is the
subject of Schedule Number 10809.003, dated as of December 8, 1998, to Master
Lease Agreement, dated as of October 19, 1995, between U.S. BANCORP LEASING &
FINANCIAL as Lessor and R-B Rubber Products, Inc. as Lessee (the "Lease"):
One (1) Horizontal Splitter as described on the Exhibit "A" attached
hereto and made a part hereof.
To the extent that the above description has been altered by us or
differs from the Property description set forth in the Lease (including, but not
limited to, changes to model or serial numbers), we certify that such
alterations or differences are accurate and we acknowledge that, based upon this
certification: 1) the Lease is hereby amended to reflect the above Property
description; and 2) Lessor is hereby authorized to execute on our behalf and to
file amendment(s) to any Financing Statements filed under the Uniform Commercial
Code in connection with the Lease, provided that all such amendments are
consistent with the above Property description.
WE HEREBY CERTIFY AND ACKNOWLEDGE THAT: a) the Property has been
delivered to us; b) any necessary installation of the Property has been fully
and satisfactorily performed; c) after full inspection thereof, we have accepted
the Property for all purposes as of the date hereof; d) Lessor has fully and
satisfactorily satisfied all its obligations under the Lease; e) any and all
conditions to the effectiveness of the Lease or to our obligations thereunder
have been satisfied; f) we have no defenses, set-offs or counterclaims to any
such obligations; g) the Lease is in full force and effect; and, h) no Event of
Default has occurred under the Lease.
WE HEREBY REPRESENT AND WARRANT THAT: a) any right we may have now or
in the future to reject the Property or to revoke our acceptance thereof has
terminated as of the date of hereof; b) we hereby waive any such right by the
execution hereof; c) the date of this Certificate is the earliest date upon
which the certifications, acknowledgments, representations and warranties made
herein could be correctly and properly made. We hereby acknowledge that Lessor
is relying on this Certificate as a condition to making payment for the
Property.
IN WITNESS WHEREOF, we have executed this Certificate as of the 28th
day of December, 1998.
R-B RUBBER PRODUCTS, INC.
Upon satisfactory installation and
delivery please sign, date and return to:
U.S. BANCORP LEASING & FINANCIAL
7659 S.W. Mohawk Street By:/s/ Ronald L. Bogh
---------------------------
Tualatin, Oregon 97062-2177 Ronald L. Bogh
President
<PAGE>
LEASE AMENDMENT, IF APPLICABLE (MAY BE DISCARDED IF NO AMENDMENT IS NECESSARY)
This Lease Amendment pertains to Schedule Number 10809.003, dated as of
DECEMBER 8, 1998, to Master Lease Agreement, dated as of OCTOBER 19, 1995,
between U.S. BANCORP LEASING & FINANCIAL as Lessor and R-B RUBBER PRODUCTS, INC,
as Lessee (the "Lease"):
TO THE EXTENT THAT THE INFORMATION SET FORTH IN THE ABOVE SCHEDULE REQUIRES
MODIFICATION, SUBJECT TO THE APPROVAL OF LESSOR, THE LEASE IS HEREBY AMENDED AS
FOLLOWS:
The Property Cost is $___________________.
The Basic Monthly Rental Payment is $___________________.
The Purchase Option is $___________________.
The Model Number of the Property is______________________.
The First Monthly Rental Payment is due on____________________.
Other:
_____________________________________________________________________
_____________________________________________________________________
All provisions of the Lease other than those which are inconsistent
with the provisions of this Amendment are hereby ratified and confirmed. If no
information has been inserted above the terms of the Schedule shall remain in
full force and effect.
IN WITNESS WHEREOF, we have executed this Lease Amendment as of the
_____ day of__________, 19_____.
[EXECUTION OF THIS PAGE IS ONLY REQUIRED IF
AMENDMENT INFORMATION HAS BEEN INSERTED ABOVE]
R-B RUBBER PRODUCTS, INC.
If execution is required, please sign,
date and return this page along with Page
One of this Certificate to:
U.S. BANCORP LEASING & FINANCIAL
7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177 By:/s/ Ronald L. Bogh
---------------------------
Ronald L. Bogh
President
AMENDMENTS TO THE LEASE AS SET FORTH ABOVE ARE ACKNOWLEDGED AND APPROVED BY
LESSOR.
U.S. BANCORP LEASING & FINANCIAL
By:
--------------------------------
An Authorized Officer Thereof
ADDRESS FOR ALL NOTICES:
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177
<PAGE>
WARNING
Unless you provide us (U.S. Bancorp Leasing & Financial) with evidence of the
insurance coverage as required by our contract or loan agreement, we may
purchase insurance at your expense to protect our interest. This insurance may,
but need not, also protect your interest. If the collateral becomes damaged, the
coverage we purchase may not pay any claim you make or any claim made against
you. We may later cancel this coverage if you provide evidence that you have
obtained property coverage elsewhere.
You are responsible for the cost of any insurance purchased by us. The cost of
this insurance may be added to your contract or loan balance. If the cost is
added to your contract or loan balance, the interest rate on the underlying
contract or loan will apply to this added amount. The effective date of coverage
may be the date your prior coverage lapsed or the date you failed to provide
proof of coverage.
The coverage we purchase may be considerably more expensive than insurance you
can obtain on your own and may not satisfy any need for property damage coverage
or any mandatory liability insurance requirements imposed by applicable law.
RECEIPT ACKNOWLEDGED:
R-B Rubber Products, Inc.
By: /s/ Ronald L. Bogh
- ----------------------------------
Ronald L. Bogh, President
Date: _______________
ADDRESS FOR ALL NOTICES:
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177
<PAGE>
U.S. BANCORP
Note/Schedule Number 10809.003
Internal Use: dsi/GEG
R-B Rubber Products, Inc.
904 East Tenth Avenue
McMinnville, Oregon 97128
INVOICE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------
Documentation Fee $ 500.00
- ------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------
$
- ------------------------------------------------------------------------------
TOTAL DUE AT EXECUTION OF DOCUMENTS $ 500.00
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
This invoice does not include extraordinary charges, such as documentation
filing and/or recordation or legal review fees pertaining to additional
collateral.
ADDRESS FOR ALL NOTICES:
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177
<PAGE>
U.S. BANCORP
PLEASE RETURN THIS PORTION WITH YOUR PAYMENT
ACCOUNT: 10809.003 CREATE DATE: December 8, 1998
DUE DATE: January 10, 1999 AMOUNT DUE: $1,154.38
<TABLE>
<S> <C>
R-B Rubber Products, Inc. U.S. BANCORP LEASING & FINANCIAL
904 East Tenth Avenue P.O. Box 2177, 7659 S.W. MOHAWK STREET
McMinnville, Oregon 97128 TUALATIN, OREGON 97062-2177
</TABLE>
Attention: Ronald L. Bogh, President
Customer Phone Number: (503) 472-4691
- ------------------------------------------------------------------------------
PLEASE RETAIN THIS PORTION FOR YOUR RECORDS
<TABLE>
<S> <C> <C>
U.S. BANCORP LEASING & FINANCIAL ACCOUNT: 10809.003
P.O. Box 2177, 7659 S.W. MOHAWK STREET AMOUNT DUE: $1,154.38
TUALATIN, OREGON 97062-2177 DUE DATE: January 10, 1999
CREATE DATE: December 8, 1998
</TABLE>
QUESTIONS? PLEASE CALL 800-253-3468
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
INVOICE SUMMARY
<TABLE>
<S> <C>
CURRENT CHARGES [(PAYMENT ONE (1)] $1,154.38
SALES TAX [if applicable] $ -0-
ADDITIONAL CHARGES DUE [None] $ -0-
---------
TOTAL CURRENT CHARGES $1,154.38
</TABLE>
TOTAL AMOUNT DUE THIS INVOICE MUST BE PAID WITHIN TEN (10) DAYS OF DUE DATE
TO AVOID LATE CHARGES
ADDRESS FOR ALL NOTICES:
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177
<PAGE>
December 14, 1998
Key Bank, National Association
Willamette Valley Corp. Banking
416 State Street
Salem, OR 97301
Attn: Tom Corry, Vice President
Re: R-B Rubber Products, Inc. ("Customer")
U.S. Bancorp Leasing & Financial (USBLF) has filed a UCC-1 financing statement
for the Customer for certain equipment (the "Equipment") described as follows:
ONE (1) HORIZONTAL SPLITTER AS DETAILED ON THE EXHIBIT "A" ATTACHED HERETO AND
MADE A PART HEREOF.
Our lien search found one or more filings by your company under which you might
claim an interest in the Equipment. Rather than presenting to you individual
partial or full release form(s) for filing, we ask that you agree, by signing
below on a copy of this letter, to release any and all interest in the
above-described Equipment you have or may claim at any time by virtue of any
filings executed by the Customer in your favor.
If you agree with the above, please sign in the space indicated below and return
a copy of this letter to me as soon as possible, via facsimile (360) 834-1157.
Please forward the original executed copy via Federal Express mail to our Oregon
office: 7650 S.W. Mohawk Street, Tualatin, Oregon 97062, Attn: Ellen Meeuwsen.
Feel free to use our Federal Express account number, #1029-3990-5, for this
purpose.
If you do not agree, please contact me immediately at (360) 834-0759.
Very truly yours,
John Fjellman
Vice President
ACKNOWLEDGED AND AGREED:
KEY BANK, NATIONAL ASSOCIATION
By: __________________________________
Title: _______________________________
ADDRESS FOR ALL NOTICES:
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177
<PAGE>
MUST BE SIGNED BY DEBTOR-I
UNIFORM COMMERCIAL CODE-FINANCING STATEMENT
FORM UCC-1(1)
This Financing Statement is presented to filing officer pursuant to the
Uniform Commercial Code. This statement remains effective for a period of
five years from the date of filing, subject to extensions
for additional periods of five years by refiling or filing a
continuation statement (UCC-3)
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------
1a. Debtor(s): 2a. Secured party(ies)
(if individual(s) last name first)
U.S. Bancorp Leasing & Financial
R-B Rubber Products, Inc. Tax I.D. #930594454
Tax I.D. 930967413
1b. Mailing address(es) 2B. Address of Secured Party from which
Security Information is obtainable
904 East Tenth Avenue P.O. Box 2177, 7659 S.W. Mohawk
McMinnville, Oregon 97128 Street Tualatin, Oregon 97062-2177
Phone # 503 797-0200 Reserved For Filing Officer Use Only
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
3. This financing statement covers the following types (or items) of collateral No. of additional sheets attached ______.
One (1) Horizontal Splitter as described on the Exhibit "A" attached hereto and
made a part hereof.
TOGETHER WITH ALL REPLACEMENTS, PARTS, REPAIRS, ADDITIONS, ACCESSIONS AND
ACCESSORIES INCORPORATED THEREIN OR AFFIXED OR ATTACHED THERETO AND ANY AND ALL
PROCEEDS OF THE FOREGOING, INCLUDING, WITHOUT LIMITATION, INSURANCE RECOVERIES.
-------------------------------------
4A. Assignee of Secured Party if any:
4b. Address of Assignee:
- -------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
This statement is filed without the Debtor's signature to perfect a security
interest in collateral. (Check [x] if so)
[ ] already subject to a security interest in another jurisdiction when it was brought into this state.
[ ] which is proceeds of the original collateral described above in which a security interest was perfected:
- -------------------------------------------------------------------------------------------------------------------------------
Check[x] if covered: [X] Proceeds of collateral are also covered. [ ] Products of collateral are also covered.
- -------------------------------------------------------------------------------------------------------------------------------
Filed with: Secretary of State - OR
- -------------------------------------------------------------------------------------------------------------------------------
R-B Rubber Products, Inc. U.S. BANCORP LEASING & FINANCIAL
- -------------------------------------------------------------- -----------------------------------------------------------
By: /s/ Ronald L. Bogh By:
---------------------------- -------------------------------------
Ronald L. Bogh, President Documentation Specialist
Signature(s) of Debtors Signature(s) of Secured Party(ies)
STANDARD FORM - FORM UCC-1.
- -------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
RETURN TO:
U.S. BANCORP LEASING & FINANCIAL
ATTEN: COLLATERAL REVIEW DEPT.
P.O. Box 2177, 7659 S.W. MOHAWK STREET
TUALATIN, OREGON 97062-2177
RE. LEASE# 10809.003/CCAN #13642A
<PAGE>
MUST BE SIGNED BY DEBTOR-1
UNIFORM COMMERCIAL CODE-FINANCING STATEMENT
FORM UCC-1(1)
This Financing Statement is presented to filing officer pursuant to the
Uniform Commercial Code. This statement remains effective for a period of
five years from the date of filing, subject to extensions
for additional periods of five years by refiling or filing a
continuation statement (UCC-3)
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------
1A. Debtor(s): 2A. Secured party(ies)
(if individual(s) last name first)
U.S. Bancorp Leasing & Financial
R-B Rubber Products, Inc. Tax I.D. #930594454
Tax I.D. 930967413
2B. Address of Secured Party from which
1B. Mailing address(es) Security Information is obtainable
904 East Tenth Avenue P.O. Box 2177, 7659 S.W. Mohawk Street
McMinnville, Oregon 97128 Tualatin, Oregon 97062-2177
Phone # 503 797-0200 Reserved For Filing Officer Use Only
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
3. This financing statement covers the following types (or items) of collateral No. of additional sheets attached ______.
One (1) Horizontal Splitter as described on the Exhibit "A" attached hereto and made a part hereof.
TOGETHER WITH ALL REPLACEMENTS, PARTS, REPAIRS, ADDITIONS, ACCESSIONS AND
ACCESSORIES INCORPORATED THEREIN OR AFFIXED OR ATTACHED THERETO AND ANY AND ALL
PROCEEDS OF THE FOREGOING, INCLUDING, WITHOUT LIMITATION, INSURANCE RECOVERIES.
-------------------------------------
4A. Assignee of Secured Party if any:
4b. Address of Assignee:
- -------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
This statement is filed without the Debtor's signature to perfect a security interest in collateral. (Check [x] if so)
[ ] already subject to a security interest in another jurisdiction when it was brought into this state.
[ ] which is proceeds of the original collateral described above in which a security interest was perfected:
- -------------------------------------------------------------------------------------------------------------------------------
Check [x] if covered: [X] Proceeds of collateral are also covered. [ ] Products of collateral are also covered.
- -------------------------------------------------------------------------------------------------------------------------------
Filed with: Secretary of State - OR
- -------------------------------------------------------------------------------------------------------------------------------
R-B Rubber Products, Inc. U.S. BANCORP LEASING & FINANCIAL
- -------------------------------------------------------------- -----------------------------------------------------------
By: /s/ Ronald L. Bogh By:
---------------------------- -------------------------------------
Ronald L. Bogh, President Documentation Specialist
Signature(s) of Debtors Signature(s) of Secured Party(ies)
STANDARD FORM - FORM UCC-1.
- -------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
RETURN TO:
U.S. BANCORP LEASING & FINANCIAL
ATTEN: COLLATERAL REVIEW DEPT.
P.O. Box 2177, 7659 S.W. MOHAWK STREET
TUALATIN, OREGON 97062-2177
RE. LEASE# 10809.003/CCAN #13642A
<PAGE>
MUST BE SIGNED BY DEBTOR-1
UNIFORM COMMERCIAL CODE-FINANCING STATEMENT
FORM UCC-1(1)
This Financing Statement is presented to filing officer pursuant to the
Uniform Commercial Code. This statement remains effective for a period of
five years from the date of filing, subject to extensions
for additional periods of five years by refiling or filing a
continuation statement (UCC-3)
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
1a. Debtor(s): 2a. Secured party(ies)
(if individual(s) last name first)
U.S. Bancorp Leasing & Financial
R-B Rubber Products, Inc. Tax I.D. #930594454
Tax I.D. 930967413
2b. Address of Secured Party from which
1b. Mailing address(es) Security Information is obtainable
904 East Tenth Avenue P.O. Box 2177, 7659 S.W. Mohawk Street
McMinnville, Oregon 97128 Tualatin, Oregon 97062-2177
Phone # 503-797-0200
Reserved For Filing Officer Use Only
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
3. This financing statement covers the following types (or items) of collateral No. of additional sheets attached____.
One (1) Horizontal Splitter as described on the Exhibit "A" attached hereto and
made a part hereof.
TOGETHER WITH ALL REPLACEMENTS, PARTS, REPAIRS, ADDITIONS, ACCESSIONS AND
ACCESSORIES INCORPORATED THEREIN OR AFFIXED OR ATTACHED THERETO AND ANY AND ALL
PROCEEDS OF THE FOREGOING, INCLUDING, WITHOUT LIMITATION, INSURANCE RECOVERIES.
-------------------------------------
4A. Assignee of Secured Party if any:
4b. Address of Assignee:
- -------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
This statement is filed without the Debtor's signature to perfect a security
interest in collateral. (Check [x] if so)
[ ] already subject to a security interest in another jurisdiction when it was brought into this state.
[ ] which is proceeds of the original collateral described above in which a security interest was perfected:
- -------------------------------------------------------------------------------------------------------------------------------
Check [x] if covered: [X] Proceeds of collateral are also covered. [ ] Products of collateral are also covered.
- -------------------------------------------------------------------------------------------------------------------------------
Filed with: Secretary of State - OR
- -------------------------------------------------------------------------------------------------------------------------------
R-B Rubber Products, Inc. U.S. BANCORP LEASING & FINANCIAL
- -------------------------------------------------------------- -----------------------------------------------------------
By:/s/ Ronald L. Bogh By:
---------------------------- -------------------------------------
Ronald L. Bogh, President Documentation Specialist
Signature(s) of Debtors Signature(s) of Secured Party(ies)
STANDARD FORM - FORM UCC-1.
- -------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
RETURN TO:
U.S. BANCORP LEASING & FINANCIAL
ATTEN: COLLATERAL REVIEW DEPT.
P.O. Box 2177, 7659 S.W. MOHAWK STREET
TUALATIN, OREGON 97062-2177
RE: LEASE# 10809.003/CCAN #13642A
<PAGE>
EXHIBIT "A" U.S. BANCORP
Note/Schedule Number 10809.003
---------
Reference is made to that certain Master Lease Agreement, Schedule No.
10809.003, and all other ancillary documents (the "Agreements") dated December
8, 1998 wherein U.S. BANCORP LEASING & FINANCIAL is the Lessor and R-B Rubber
Products, Inc. is the Lessee.
The "Property" and/or "Collateral" (as defined and used in the above Agreements
and any and all related documents) includes the following:
One (1) Horizontal Splitter as detailed below and on invoices held in
Lessor's file.
<TABLE>
<CAPTION>
ODOE Reference Area GAC Date Invoice Vendor Description
App. # # # #
- ------ ----------- ---- ----- ---- --------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
7406-2 200.1 MS 910 04/08/98 John L. Fowle John L. Fowle 1/3 deposit on
splitting machine
7406-2 200.2 MS 910 08/12/98 John L. Fowle Belt knives for splitter
7406-2 200.3 MS 910 08/14/98 13017 John L. Fowle 1/3 payment on splitter
7406-2 200.4 MS 910 09/22/98 Hampton Power Vari-speed drive control
7406-2 200.5 MS 910 09/07/98 1314134 Manufactures Cons. Service frt on splitter
7406-2 200.6 MS 910 09/16/98 13166 John L. Fowle 106th back strips
7406-2 200.7 MS 910 09/24/98 94636 Steelyard mtng plates
7406-2 200.8 MS 910 09/29/98 12718 Material Flow Infeed and outfeed rolls
7406-2 200.9 MS 910 10/01/98 10853 Ram Steel Tubing for framework
7406-2 200.10 MS 910 10/05/98 139122-00 Mill Supply 1140rpm motor to slow down
splitter drive
7406-2 200.11 MS 910 10/08/98 9414 Hill Bros Machine 1 1/4" split shaft coupling
7406-2 200.12 MS 910 10/15/98 89009 Cascade Southern Acculube unit for splitter
7406-2 200.13 MS 10/15/98 9449 Hill Bros Machine manufacture tilt table
7406-2 200.14 Splitter 7/17/98 John L. Fowle Co. 1/3 down payment on splitter
7406-2 200.15 CRSYS 563 7/30/98 Forsberg Inc 30% down payment on destoner
7406-2 200.16 CRSYS 561 7/31/98 USF Reddaway Frt on 40' conveyor
7406-2 200.17 CRSYS 7/31/98 Platt Electric Destoner loop installation
7406-2 200.18 CRSYS 8/4/98 Platt Electric Destoner loop installation
7406-2 200.19 CRSYS 8/4/98 Platt Electric Destoner loop installation
7406-2 200.20 CRSYS 8/4/98 Platt Electric Destoner loop installation
7406-2 200.21 CRSYS 8/5/98 5637277 Platt Electric Destoner loop installation
7406-2 200.22 CRSYS 8/5/98 5641871 Platt Electric Destoner loop installation
7406-2 200.23 CRSYS 8/5/98 5642097 Platt Electric Destoner loop installation
7406-2 200.24 CRSYS 8/5/98 5636299 Platt Electric Destoner loop installation
7406-2 200.25 CRSYS 561 8/10/98 137718-00 Mill Supply 40ft - 9" conveyor with drive
7406-2 200.26 CRSYS 8/19/98 5704615 Platt Electric Destoner loop installation
7406-2 200.27 CRSYS 8/21/98 169583 Davisons Auto Parts drive belts for feeder
7406-2 200.28 CRSYS 8/26/98 136401-00 Mill Supply uhrrw for slope sheets and chute
7406-2 200.29 CRSYS 561 8/4/98 5011713492 USF Reddaway Incoming frt on 40ft scraw conveyor
7406-2 200.30 CRSYS 563 8/18/98 0070568-IN Forsberg Inc. Balance on destoner
7406-2 200.31 CRSYS 563 8/20/98 5703114 Platt Electric Parts to wire up destoner.
7406-2 200.32 CRSYS 563 8/24/98 5724528 Platt Electric Parts to wire up destoner
7406-2 200.33 CRSYS 563 8/26/98 275235 Steelco Destoner mounting plate
7406-2 200.34 8/28/98 7049 Kizer Sheet Metal Destoner to baghouse ducting
installation
7406-2 200.35 CRSYS 563 8/28/98 4803 Ram Trucking Incoming frt on Forsberg destoner
</TABLE>
Each of the above units is complete as equipped including, but not limited to,
all attachments, accessories and replacements relating thereto.
R-B RUBBER PRODUCTS, INC.
BY: /s/ Ronald L. Bogh
--------------------------
Ronald L. Bogh, President
ADDRESS FOR ALL NOTICES:
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177
<PAGE>
INSURANCE AUTHORIZATION (Page 1 of 2)
U.S. BANCORP
Schedule Number: 10809.003
---------
Date: December 8, 1998
To: Sedgwick of Washington, Inc., Attn: Margaret (the "Agent")
P.O. Box 1200
Wenatchee, WA 98807
509/662-5157 [phone] 509/663-5368 [fax]
From: R-B Rubber Products, Inc.
904 East Tenth Avenue
McMinnville, Oregon 97128
We have entered into one or more financing arrangements, (the "Transactions")
with U.S. BANCORP LEASING & FINANCIAL ("USBLF") which require that USBLF's
insurable interest be described as "USBLF and it successors and assigns shall be
covered as Additional Insured and Loss Payee with regard to all equipment
financed or leased by Policy Holder through or from USBLF." (Please see the
Property description as described on attached Exhibit "A".) The required
coverage is to be as set forth in the Transactions, including, without
limitation, fire, extended coverage, vandalism, theft and general liability. If
such coverage is not provided within 30 days of your receipt of this letter,
USBLF has the right under the Transactions to purchase such insurance at our
expense.
In lieu of a certificate of insurance, USBLF requests completion and return of
this letter as indicated below. In addition, the policy and subsequent renewals
must be endorsed, as appropriate, to reflect this coverage.
Should you have any questions, please contact the Insurance Dept. of USBLF at
(503) 797-0277 or 797-0474.
Insurable Value: $105,489.24
R-B RUBBER PRODUCTS, INC.
-------------------------
By: /s/ Ronald L. Bogh
----------------------
Ronald L. Bogh
President
- ------------------------------------------------------------------------------
PLEASE EXECUTE THIS LETTER AS INDICATED BELOW AND PROMPTLY FAX IT TO USBLF:
(503) 797-0287 The Agent hereby verifies that the above requirements have been
met.
Acknowledged & Agreed to this ____ day of _____________, 19______
Sedgwick of Washington, Inc., Attn: Margaret
By: ___________________________
Print Name: ___________________________
Title: ___________________________
Phone No: ___________________________
ADDRESS FOR ALL NOTICES:
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177
<PAGE>
ACORD EVIDENCE OF PROPERTY INSURANCE OP ID KT DATE (MM/DD/YY)
12/22/98
THIS IS EVIDENCE THAT INSURANCE AS IDENTIFIED BELOW HAS BEEN ISSUED, IS IN
FORCE, AND CONVEYS ALL THE RIGHTS AND PRIVILEGES AFFORDED UNDER THE POLICY
<TABLE>
- ------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
PRODUCER PHONE/FAX COMPANY
(A/C, No. Ex) 503-472-2165
- ---------------------------------------------------------
Hagan-Hamilton Insurance
448 South Baker American States
P.O. Box 847 6021 244th St. SW
McMinnville OR 97128 Mount Lake Terrace WA 98043-5453
Dale Moore
- ---------------------------------------------------------
CODE 36-33044-291 SUB CODE
- ---------------------------------------------------------
AGENCY CUSTOMER ID RBRUB-1
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
INSURED LOAN NUMBER POLICY NUMBER
<S> <C> <C> <C>
10809.003 02CC8809030
-----------------------------------------------------------------
EFFECTIVE DATE EXPIRATION DATE CONTINUED UNTIL
R B Rubber Products, Inc 10/10/98 10/10/99 [ ] TERMINATED IF CHECKED
904 E 10th
McMinnville OR 97128 THIS REPLACES PRIOR EVIDENCE DATED.
- --------------------------------------------------------------------------------------------------------------------------
PROPERTY INFORMATION
LOCATION/DESCRIPTION
001
904 E 10th
McMinnville OR 97128
- --------------------------------------------------------------------------------------------------------------------------
COVERAGE INFORMATION
</TABLE>
<TABLE>
<CAPTION>
COVERAGE/PERILS/FORMS AMOUNT OF INSURANCE DEDUCTIBLE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Scheduled Equipment $105,489.24 $250.00
All Risk. Direct physical loss unless loss is
Excluded or limited
Actual Cash Value
- --------------------------------------------------------------------------------------------------------------------------
REMARKS (Including Special Conditions)
- --------------------------------------------------------------------------------------------------------------------------
CANCELLATION
THE POLICY IS SUBJECT TO THE PREMIUMS, FORMS, AND RULES IN EFFECT FOR EACH
POLICY PERIOD. SHOULD THE POLICY BE TERMINATED, THE COMPANY WILL GIVE THE
ADDITIONAL INTEREST IDENTIFIED BELOW 30 DAYS WRITTEN NOTICE, AND WILL SEND
NOTIFICATION OF ANY CHANGES TO THE POLICY THAT WOULD AFFECT THAT INTEREST, IN
ACCORDANCE WITH THE POLICY PROVISIONS OR AS REQUIRED BY LAW.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL INTEREST
<S> <C> <C>
NAME AND ADDRESS MORTGAGEE X ADDITIONAL INSURED
X LOSS PAYEE
---------------------------------------------------
US Bancorp Leasing & LOANS
Financial 10809.003
6579 SW Mohawk ---------------------------------------------------
Tualatin OR 97062 AUTHORIZED REPRESENTATIVE
Dale Moore
ACORD 27 (3/93)
ACORD CORPORATION 1993
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT "A" (Page 2 of 2)
U.S. BANCORP
Lease/Loan Schedule Number 10809.003
---------
Reference is made to that certain Schedule to Master Lease/Loan
Agreement (the "Agreement") dated December 8, 1998 wherein U.S. BANCORP LEASING
& FINANCIAL is the Lessor/ Secured Party and R-B Rubber Products, Inc. is the
Lessee/Debtor.
The "Property" and/or "Collateral" (as defined and used in the above Agreements
and any and all related documents) includes the following:
One (1) Horizontal Splitter as described on the Exhibit "A" attached hereto and
made a part hereof.
ADDRESS FOR ALL NOTICES:
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177
<PAGE>
USBANCORP.
U.S. BANCORP LEASING & FINANCIAL
GENERAL EQUIPMENT GROUP
7659 S.W. Mohawk Street
Tualatin, OR 97062-9190
503-797-0200
January 5, 1999
Mr. Mike Highland
R-B Rubber Products, Inc.
904 E. 10th Avenue
McMinnville, OR 97128
Dear Mike:
RE: Lease Transaction
Schedule No. 10809.003 - $105,489.24
In reviewing our file, we noticed that the Schedule to the Master Lease
Agreement dated December 8, 1998 needs to be amended.
On Page 2 of the Schedule, the Depreciation section, should read 7-year property
instead of 5-year property. Additionally, on Page 2, Tax Imdemnity Section, the
amount of the Business Energy Tax Credit ("BETC") available to Lessor is
incorrect. It should read "The applicable BETC available to Lessor in connection
with this Schedule is $36,921.23 instead of $105,489.24."
All other terms and conditions remain in full force and effect.
If you agree with these Amendments, please acknowledge by signing below and
returning the Amendment to my attention at the above address.
If you do not agree, please call me at (503) 797-0451.
Sincerely,
/s/ Ellen Meeuwsen
- ------------------------
Ellen Meeuwsen
Documentation Specialist
ACKNOWLEDGED AND ACCEPTED:
R-B Rubber Products, Inc.
By: /s/ Ronald L. Bogh
- ----------------------------------
Ronald L. Bogh, President
<PAGE>
USBANCORP.
U.S. BANCORP LEASING & FINANCIAL
GENERAL EQUIPMENT GROUP
7659 S.W. Mohawk Street
Tualatin, OR 97062-9190
503-797-0200
December 29, 1998
R-B Rubber Products, Inc.
904 East 10th Ave
McMinnville, OR 97128
Attn: Mike Highland
Re: Schedule 10809.003
Dear Mr. Highland:
While reviewing the documents for funding on the above noted schedule I
discovered that an incorrect amount was entered for the Business Energy Tax
Credit. The amount entered was the total amount of the equipment on schedule 003
($105,489.24). The tax credits to USBLF should have been shown as $36,921.23,
which is 35% of the $105,489.24 equipment cost.
This letter is to simply notify you that I am correcting the tax credit amount
to reflect the correct dollar amount of $36,921.23.
If you have any questions, please do not hesitate to call me on my direct line
(503) 797-0224.
Thank you.
Sincerely,
U S Bancorp Leasing & Financial
/s/ Carol Taunt
- ---------------
Carol A. Taunt
AVP
<PAGE>
RB RUBBER PRODUCTS INCORPORATED
December 22, 1998
U.S. Bancorp Leasing & Financial
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Or 97062-2177
To whom it may concern;
Please wire money to the following:
Key Bank of Oregon
Branch #013
McMinnville, Or. 97128
for RB Rubber Products, Inc.
ABA# 123002011
Account# 370131000645
Please deduct the $500.00 fee from any monies owed to us when the wire transfer
is completed.
If you have any questions please give me a call.
Sincerely,
/s/ Mike Highland
- --------------------
Mike Highland
Corporate Controller
904 East 10th Avenue
McMinnville, OR 97128
(503) 472-4691 FAX (503) 435-1685
<PAGE>
EXHIBIT 10.14
EQUIPMENT SCHEDULE NO. 02
- -------------------------------------------------------------------------------
EQUIPMENT SCHEDULE NO. 02 dated as of February 2, 1999 (this "Schedule")
between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. ("Lessor"),
and R-B RUBBER PRODUCTS, INC., an Oregon corporation ("Lessee").
INTRODUCTION:
Lessor and Lessee have heretofore entered into that certain Master
Equipment Lease Agreement dated as of May 12, 1997 (the "Master Lease"; the
Master Lease and this Schedule hereinafter collectively referred to as, this
"Lease"). Unless otherwise defined herein, capitalized terms used herein shall
have the meanings specified in the Master Lease. The Master Lease provides for
the execution and delivery of a Schedule substantially in the form hereof for
the purpose of confirming the acceptance and lease of the Equipment under this
Lease as and when delivered by Lessor to Lessee in accordance with the terms
thereof and hereof.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
EQUIPMENT & INVOICING TERMS
1. EQUIPMENT. Pursuant to the terms and conditions of this Lease, Lessor
hereby leases to Lessee, and Lessee hereby leases from Lessor, the equipment
listed on EXHIBIT A attached hereto (the "Equipment"). The aggregate Total Cost
of such Equipment is $802,400.00.
2. TERM. The Initial Term of this Lease with respect to the Equipment
described on this Schedule shall commence on the date on which such Equipment is
delivered to Lessee, and, unless earlier terminated as provided herein, shall
expire on a date which is eighty-four (84) months after the Rent Commencement
Date (the "Initial Term Expiration Date").
3. RENT PAYMENT DATES; RENT. Lessee hereby agrees to pay Rent for the
Equipment throughout the Initial Term in eighty-four (84) consecutive monthly
installments payable in advance on the Rent Commencement Date and on the same
day each month thereafter (each, a "Rent Payment Date"). Each such installment
of Rent shall be in an amount equal to $8,633.62.
4. EQUIPMENT LOCATION; BILLING ADDRESS. The Equipment described on this
Schedule shall be located at, and except as otherwise provided in this Lease,
shall not be removed from, the following address: 904 East 10th Avenue,
McMinnville, OR 97128. The billing address of Lessee is as follows: R-B RUBBER
PRODUCTS, INC., 904 East 10th Avenue, McMinnville, OR 97128.
TRANSACTION TYPE TERMS
5. PURCHASE, RENEWAL AND OPTION TERMS.
a. FMV. With respect to the Equipment described on this Schedule, Section
32 of the Master Lease ("Renewal and Purchase Options") is hereby deleted in its
entirety and the following is substituted in its place:
So long as no Default or Event of Default shall have occurred and be
continuing and Lessee shall have given Lessor at least ninety (90) days but
not more than one hundred eighty (180) days prior written notice (the
"Option Notice"), Lessee shall have the following purchase and renewal
options at the expiration of the Initial Term, or any Renewal Term, to:
- --------------------------------------------------------------------------------
<PAGE>
(i) purchase all, but not less than all, Items of Equipment for a purchase
price (the "Purchase Option Price") equal to the then Fair Market Sale
Value thereof; (ii) renew this Lease on a month to month basis at the same
Rent payable at the expiration of such Initial Term or Renewal Term, as the
case may be; (iii) renew this Lease for a minimum period of not less than
twelve (12) consecutive months at the then current Fair Market Rental
Value; or (iv) return such Equipment to Lessor pursuant to, and in the
condition required by, the Lease. If Lessee fails to give Lessor the Option
Notice, Lessee shall be deemed to have chosen option (ii) above.
Payment of the Purchase Option Price, applicable sales taxes, together with
all other amounts due and owing by Lessee under the Lease (including, without
limitation, Rent) during such Initial Term and Renewal Term shall be made on the
last day of the Initial Term or Renewal Term, as the case may be, in immediately
available funds against delivery of a bill of sale transferring to Lessee all
right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE
IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. LESSOR MAY
SPECIFICALLY DISCLAIM ANY SUCH REPRESENTATIONS AND WARRANTIES.
a. Early Buyout Option. So long as no Default or Event of Default
shall have occurred and be continuing, Lessee shall have the option to
purchase all, but not less than all, Items of Equipment on the date which is
sixty (60) months after the Rent Commencement Date (the "EBO Date") at a
price (the "EBO Price") equal to twenty-five and two hundredths percent
(25.02%) of the Total Cost of the Equipment, plus any applicable sales taxes.
For Lessee to exercise its option hereunder, Lessee shall notify Lessor in
writing of its desire to effect such option at least ninety (90) days (but
not more than one hundred eighty (180) days) prior to the EBO Date. Such
notice shall be irrevocable. The EBO Price represents the parties present
best estimate of the fair market value of the Equipment on the EBO Date
determined by using commercially reasonable methods which are standard in the
industry. Payment of the EBO Price, applicable sales taxes, together with all
other amounts due and owing by Lessee under the Lease (including, without
limitation, Rent) on or before the EBO Date, shall be made on the EBO Date in
immediately available funds. Thereafter, upon Lessee's written request,
Lessor shall deliver to Lessee a bill of sale transferring to Lessee all
right, title and interest of Lessor in and to the Equipment ON AN "AS IS"
"WHERE IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY
MATTER WHATSOEVER. If Lessee shall fail to pay all amounts required to be
paid under the Lease on the EBO Date, the Lease shall continue in full force
and effect and Lessee agrees to reimburse Lessor for all reasonable costs,
expenses and liabilities incurred in connection therewith.
6. NATURE OF TRANSACTION; TRUE LEASE. (a) It is the express intent of
the parties that this Lease constitute a true lease and not a sale of the
Equipment. Title to the Equipment shall at all times remain in Lessor, and
Lessee shall acquire no ownership, title, property, right, equity, or
interest in the Equipment other than its leasehold interest solely as Lessee
subject to all the terms and conditions hereof. To the extent that Article 2A
("Article 2A") of the Uniform Commercial Code ("UCC") applies to the
characterization of this Lease, the parties hereby agree that this Lease is a
"Finance Lease" as defined therein. Lessee acknowledges: (i) that Lessee has
selected the "Supplier" (as defined in the UCC) and has directed Lessor to
purchase the Equipment from the Supplier in connection with this Lease, and
(ii) that Lessee has been informed in writing in this Lease, before Lessee's
execution of this Lease, that Lessee is entitled under Article 2A to the
promises and warranties, including those of any third party, provided to
Lessor by the Supplier in connection with or as part of the Purchase
Agreement, and that Lessee may communicate with the Supplier and receive an
accurate and complete statement of those promises and warranties, including
any disclaimers and limitations of them or of remedies. The filing of UCC
financing statements pursuant to Section 34 of the Master Lease is
precautionary and shall not be deemed to have any effect on the
characterization of this Lease. NOTWITHSTANDING THE FOREGOING, LESSOR HAS NOT
MADE, AND HEREBY DISCLAIMS ANY ADVICE, REPRESENTATIONS, WARRANTIES AND
COVENANTS, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO ANY LEGAL, ECONOMIC,
ACCOUNTING, TAX OR OTHER EFFECTS OF THE LEASE AND THE TRANSACTION(S)
CONTEMPLATED THEREBY, AND LESSEE HEREBY DISCLAIMS ANY RELIANCE ON ANY SUCH
WARRANTIES, STATEMENTS OR REPRESENTATIONS MADE BY LESSOR WITH RESPECT THERETO.
- --------------------------------------------------------------------------------
<PAGE>
(b) Notwithstanding the express intent of Lessor and Lessee that this
agreement constitute a true lease and not a sale of the Equipment, should a
court of competent jurisdiction determine that this agreement is not a true
lease, but rather one intended as security, then solely in that event and for
the expressly limited purposes thereof, Lessee shall be deemed to have hereby
granted Lessor a security interest in the Equipment and all accessions,
substitutions and replacements thereto and therefor, and proceeds (cash and non-
cash), including, without limitation, insurance proceeds thereof (but without
power of sale), to secure the prompt payment and performance as and when due of
all obligations and indebtedness of Lessee, now existing or hereafter created,
to Lessee pursuant to this Lease or otherwise. In furtherance of the foregoing,
Lessee shall execute and deliver to Lessor, to be filed at Lessee's expense,
Uniform Commercial Code financing statements, statements of amendment and
statements of continuation as reasonably may be required by Lessor to perfect
and maintain perfected such security interest.
(c) In the event that the Supplier erroneously invoices Lessee for the
Equipment, Lessee agrees to forward said invoice to Lessor immediately.
Lessee acknowledges that the Equipment is, and shall at all times remain, the
property of Lessor, and that Lessee has no right, title or interest therein
or thereto except as expressly set forth in this Lease.
7. TAX INDEMNIFICATION. (a) Lessee acknowledges that Lessor has
executed this Lease, and that the Rent payable by Lessee under this Lease has
been computed, upon the assumptions that Lessor will (i) be entitled to
depreciation or cost recovery deductions ("MACRS Deductions") for Federal
income tax purposes under the Modified Accelerated Cost Recovery System
provided for in Section 168 of the Internal Revenue Code of 1986, as amended
(the "Code"), and depreciation or cost recovery deductions ("State
Depreciation Deductions") for state income tax purposes for the Equipment
Location, in each case on the basis that (1) each Item of Equipment
constitutes "7-year property" within the meaning of Section 168(e) of the
Code, (2) the initial tax basis for each Item of Equipment will be equal to
the Total Cost, (3) deductions for each Item of Equipment will be computed by
using the method specified in Section 168(b)(1) of the Code over the 7-year
recovery period described in Section 168(c) of the Code, and (4) the
applicable convention for each Item of Equipment under Section 168(d) of the
Code is the half-year convention; (ii) be entitled to deductions for Federal
income tax purposes (available in the manner and as provided by Section 163
of the Code) for interest payable with respect to any indebtedness incurred
by Lessor in connection with any financing by Lessor of any portion of the
Total Cost of each Item of Equipment ("Interest Deductions"); and (iii) be
subject to tax for each year at a composite Federal and New York corporate
income tax rate equal to the then highest marginal rate for corporations
provided for under the Code and the laws of New York (the "Highest Marginal
Tax Rate"). The MACRS Deductions, State Depreciation Deductions and Interest
Deductions are hereinafter collectively referred to as the "Tax Benefits".
(b) Lessee represents and warrants to Lessor that (i) each Item of
Equipment constitutes "7-year property" within the meaning of Section 168(e)
of the Code, (ii) Lessee shall not attempt to claim such Tax Benefits, (iii)
at and after the time of delivery of the Equipment to Lessee pursuant to this
Lease the Lessee shall not claim any ownership or title in and to the
Equipment, and (iv) Lessee has not, and will not, at any time after such
delivery throughout the Term of this Lease, take any action or omit to take
any action (whether or not the same is permitted or required hereunder) which
will result in the loss by Lessor of all or any part of such Tax Benefits.
(c) If, as a result of any act, omission or misrepresentation of Lessee,
(x) the Tax Benefits are lost, disallowed, deferred, eliminated, reduced,
recaptured, compromised or otherwise unavailable to Lessor, (y) for Federal,
foreign, state or local income tax purposes, any item of income, loss or
deduction with respect to any Item of Equipment is treated as derived from, or
allocable to, sources outside the United States, or (z) there shall be included
in the gross income of Lessor for Federal, state or local income tax purposes
any amount on account of any addition, modification, substitution or improvement
to or in respect of any Item of Equipment made or paid for by Lessee (any of the
foregoing being hereinafter a "Tax Loss"), then, within thirty (30) days of
Lessee's receipt of written notice from Lessor that such a Tax Loss has
occurred, Lessee shall pay to Lessor an amount which, after deduction therefrom
of all taxes to be paid in respect of the receipt thereof, will enable Lessor to
receive the same Net Economic Return (as hereinafter defined) that Lessor would
have realized on this Lease had such Tax Loss
- --------------------------------------------------------------------------------
<PAGE>
(together with any interest, penalties or additions to tax) not occurred. Any
event which, by the terms of this Lease, requires payment by Lessee to Lessor of
the Stipulated Loss Value of the Equipment shall not constitute the act of
Lessee for purpose of the foregoing sentence.
(d) As used in this Section, the term "Net Economic Return" shall mean
Lessor's net after-tax yield, aggregate after-tax cash flow and return on
assets, based on (i) the assumptions used by Lessor in originally calculating
Rent and Stipulated Loss Value percentages, including the assumptions set
forth above (as such assumptions may have been revised pursuant to the last
sentence of this subsection) and (ii) the Highest Marginal Tax Rate actually
in effect during each year from the date of such original calculations to the
date of such Tax Loss, both dates inclusive. In the event Lessor shall suffer
a Tax Loss with respect to which Lessee is required to pay an indemnity
hereunder, and the full amount of such indemnity has been paid or provided
for hereunder, the aforesaid assumptions, without further act of the parties
hereto, shall thereupon be and be deemed to be amended, if and to the extent
appropriate, to reflect such Tax Loss.
(e) For purposes of this Section, the term "Lessor" shall include the
entity or entities, if any, with which Lessor consolidates any tax return.
Lessee acknowledges that it has neither sought nor received tax advice from
Lessor as to the availability to Lessee of any tax benefits with respect to the
Equipment. All of Lessor's rights and privileges arising from the indemnities
contained in this Lease will survive the expiration or other termination or
cancellation of this Lease. Such indemnities are expressly made for the benefit
of, and are enforceable by, Lessor and its successors and assigns.
8. STIPULATED LOSS VALUE; DISCOUNT RATE. (a) The Stipulated Loss Values
applicable to the Equipment and this Lease are as set forth on a supplement (the
"Stipulated Loss Value Supplement") prepared by Lessor.
(b) Any provision of this Lease to the contrary notwithstanding, all
present value calculations to be made with respect to the Equipment described
on this Schedule shall be made using a discount rate equal to three percent
(3%).
9. PERSONAL PROPERTY TAX. Unless otherwise directed in writing by
Lessor or required by Applicable Law, Lessee will not list itself as owner of
any Item of Equipment for property tax purposes. Upon receipt by Lessee of
any property tax bill pertaining to such Item of Equipment from the
appropriate taxing authority, Lessee will promptly forward such property tax
bill to Lessor. Upon receipt by Lessor of any such property tax bill (whether
from Lessee or directly from the taxing authority), Lessor will pay such tax
and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee
will promptly reimburse Lessor for such expense.
10. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described
on this Schedule, the Master Lease shall be modified as follows:
(a) Section 22(b)(7) of the Master Lease ("Events of Default; Remedies"),
is hereby amended by deleting all of the Section up to the colon, and replacing
the deleted language with the following:
by written notice to Lessee specifying a payment date (the "Remedy Date"),
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the
Remedy Date, as liquidated damages for loss of a bargain and not as a
penalty, any unpaid Rent due prior to the Remedy Date plus whichever of the
following amounts Lessor, in its sole discretion, shall specify in such
notice (together with interest on such amount at the Default Rate from the
Remedy Date to the date of actual payment)
(b) Section 31 of the Master Lease ("Representations and Warranties of
Lessee"), is hereby amended by adding the following additional representation:
- --------------------------------------------------------------------------------
<PAGE>
Lessee has conducted a comprehensive review and assessment of the Lessee's
computer applications and made inquiry of the Lessee's key suppliers,
vendors and customers with respect to the "year 2000 problem" (that is, the
risk that computer applications may not be able to properly perform
date-sensitive functions after December 31, 1999) and based on that
review and inquiry, the Lessee does not believe the year 2000 problem will
result in a material adverse change in the Lessee's business condition
(financial or otherwise), operations, properties or prospects, or ability
to perform the obligations of Lessee under this Lease.
CONFORMING MODIFICATIONS. With respect to the Equipment described on this
Schedule, the Master Lease shall be modified as follows:
(c) The definitions of "Equipment" and "Term" in Section 4 of the Master
Lease ("Definitions") are hereby deleted in their entirety and the following
definitions are substituted in their place:
"EQUIPMENT" shall mean an item or items of personal property designated
from time to time by Lessee which are described on an Equipment Schedule
and which are being or will be leased by Lessee pursuant to a Lease,
together with all replacement parts, additions and accessories incorporated
therein or affixed thereto including, without limitation, any software that
is a component or integral part of, or is included or used in connection
with, any Item of Equipment, but with respect to such software, only to the
extent of Lessor's interest therein, if any.
"TERM" shall mean the Initial Term or any Renewal Term, each as defined in
Section 8 hereof, and any Extended Lease Term or Interim Term as defined in
an Equipment Schedule.
(d) The following shall be inserted as the penultimate sentence of Section
11 of the Master Lease ("Use; Alterations"):
All such alterations, additions, modifications or improvements shall
immediately, and without further act, be deemed to constitute Items of
Equipment and be fully subject to this Lease as if originally leased
hereunder.
(e) The following shall be inserted as the penultimate sentence of Section
12 of the Master Lease ("Repairs and Maintenance"):
Upon installation, attachment or incorporation in, on or into such Item of
Equipment, such replacement part shall immediately, and without further
act, be deemed to constitute an Item of Equipment and be fully subject to
this Lease as if originally leased hereunder.
(f) Section 22 of the Master Lease ("Events of Default") is hereby amended
as follows:
(i) with respect to Section 22(a), the term "Event of Default" shall also
mean any of the following which are hereby added as new subparts: (10)
Lessee merges or consolidates with any other corporation or entity, or
sells, leases or disposes of all or substantially all of its assets without
the prior written consent of Lessor; (11) a change in control occurs in
Lessee or any Guarantor; or (12) the death or dissolution of Lessee or any
Guarantor;
(ii) with respect to Section 22(b)(4), the word "terminate" is hereby
deleted and the words "cancel or terminate" are hereby substituted in its
place;
(iii) with respect to Section 22(b)(5), the existing section is hereby
deleted in its entirety and the following is substituted in its place:
(5) demand that Lessee, and Lessee shall, upon written demand of
Lessor and at Lessee's expense forthwith return all Items of Equipment
to Lessor in the manner and condition required by Section 13 hereof,
provided, however, that Lessee shall remain and be liable to Lessor
for any amounts provided for herein or other damages resulting from
the Equipment not being in the condition
- --------------------------------------------------------------------------------
<PAGE>
required by Section 12 hereof, and otherwise in accordance with all of
the provisions of this Lease, except those provisions relating to
periods of notice;
(iv) with respect to Section 22(b)(6), the word "termination" is hereby
deleted and the words "cancellation or termination" are hereby substituted
in its place; and
(v) Beginning with Section 22(b)(7) inclusive, the remainder of Section
22(b) is hereby deleted in its entirety and the following is substituted in
its place:
(7) by written notice to Lessee specifying a payment date (the "Remedy Date")
demand that Lessee forthwith return all Items of Equipment to Lessor in the
manner and condition required by Section 22(b)(5) hereof and, in addition,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the
Remedy Date, as liquidated damages for loss of a bargain and not as a
penalty, any unpaid Rent due prior to the Remedy Date plus whichever of the
following amounts Lessor, in its sole discretion, shall specify in such
notice (together with interest on such amount at the Default Rate from the
Remedy Date to the date of actual payment): (i) an amount, with respect to an
Item of Equipment, equal to the Rent payable for such Item of Equipment for
the remainder of the then current Term thereof, after discounting such Rent
to present worth as of the Remedy Date on the basis of a per annum rate of
discount equal to three percent (3%) from the respective dates upon which
such Rent would have been paid had this Lease not been canceled or
terminated; or (ii) the Stipulated Loss Value, computed as of the Remedy Date
or, if the Remedy Date is not a Rent Payment Date, the Rent Payment Date next
following the Remedy Date (provided, however, that, with respect to any
proceeds actually received by Lessor for any Item of Equipment returned to or
repossessed by Lessor, Lessor agrees that it shall first apply such proceeds
to satisfy Lessee's obligation to pay the Stipulated Loss Value or, if Lessor
has received payment in full of the Stipulated Loss Value from Lessee, Lessor
shall remit such proceeds to Lessee (after first deducting any Lessor
Expense) up to the amount of the Stipulated Loss Value; (8) cause Lessee, at
its expense, to promptly assemble any and all Items of Equipment and return
the same to Lessor at such place as Lessor may designate in writing; and (9)
exercise any other right or remedy available to Lessor under applicable law
or proceed by appropriate court action to enforce the terms hereof or to
recover damages for the breach hereof or to rescind this Lease. In addition,
Lessee shall be liable, except as otherwise provided above, for any and all
unpaid Rent due hereunder before or during the exercise of any of the
foregoing remedies, and for reasonable legal fees and other costs and
expenses incurred by reason of the occurrence of any Event of Default or the
exercise of Lessor's remedies with respect thereto. If an Event of Default
occurs, Lessee hereby agrees that ten (10) days prior notice to Lessee of (A)
any public sale or (B) the time after which a private sale may be negotiated
shall be conclusively deemed reasonable and, to the extent permitted by
Applicable Law, Lessee waives all rights and defenses with respect to such
disposition of the Equipment. None of Lessor's rights or remedies hereunder
are intended to be exclusive of, but each shall be cumulative and in addition
to any other right or remedy referred to hereunder or otherwise available to
Lessor at law or in equity, and no express or implied waiver by Lessor of any
Event of Default shall constitute a waiver of any other Event of Default or a
waiver of any of Lessor's rights.
MISCELLANEOUS TERMS & CONDITIONS
11. ADDITIONAL MAINTENANCE REQUIREMENTS. Section 13 of the Lease ("Return
of Equipment") shall be deleted in its entirety and the following substituted in
its place:
13. RETURN OF EQUIPMENT. (a) Upon the expiration of the Term of any Lease
or upon demand by Lessor pursuant to Section 22 hereof, Lessee, at its sole
expense, shall return all of the Equipment leased under the Lease by
delivering it in a manner consistent with the manufacturer's
recommendations and practices to such place or on board such carrier
(packed properly and in accordance with the manufacturer's instructions)
as Lessor shall specify. Lessee agrees that the Equipment, when returned,
shall be free and clear of all Liens, and in the same condition as when
delivered to Lessee, reasonable wear and tear excepted. Reasonable wear
and tear shall mean that each item of the Equipment has been maintained
by Lessee in "Average Saleable Condition" (as hereinafter defined) and
that all components of the Equipment have been properly serviced,
following the manufacturer's written operating and servicing procedures,
such that the Equipment is eligible
- --------------------------------------------------------------------------------
<PAGE>
for a manufacturer's standard, full service maintenance contract without
Lessor's incurring any expense to repair or rehabilitate the Equipment. If, in
the opinion of Lessor, any item of the Equipment fails to meet the standards set
forth in this Section 13, Lessee agrees to pay on demand all costs and expenses
incurred in connection with repairing the Equipment, restoring it to such
condition so as to meet such standards and assembling and delivering such Item
of Equipment pursuant to Lessor's instructions. If Lessee fails to return any
Item of Equipment as required hereunder, then, all of Lessee's obligations under
this Lease (including, without limitation, Lessee's obligation to pay Rent for
such Item of Equipment at the rental then applicable under this Lease) shall
continue in full force and effect until such Item of Equipment shall have been
returned in the condition required hereunder.
(b) Lessee shall give Lessor at least ninety (90), but not more than one
hundred eighty (180) days written notice that Lessee is returning the Equipment
as provided for above (the "Return Notice") and shall include with such notice,
all of the following:
(i) a detailed inventory of all components of the Equipment including
without limitation all of the model and serial numbers of any components;
(ii) a complete set of current and up to date service and operating
manuals for each Item of Equipment;
(iii) a complete set of current and up to date maintenance logs and
other appropriate documentation detailing the Equipment's then current
configuration (including a description of all replacements and additions
thereto made during the Term of the Lease) and all operating requirements
and technical data regarding the setup, use and operation of the Equipment;
(iv) an in-depth field service report (the "Report") detailing the
results of an inspection conducted by a representative of the manufacturer
or a qualified equipment maintenance provider acceptable to Lessor
certifying that the Equipment has been properly inspected, examined,
tested and is operating within the manufacturer's specification and
addressing, at a minimum the following areas:
(A) comprehensive physical inspection;
(B) testing of all material and workmanship of the Equipment; and
(C) conformation of all Equipment operations to Applicable Law and
confirming that the Equipment is otherwise in Average Saleable
Condition (as hereinafter defined).
If the Report discloses that any of the material, workmanship or Equipment
does not meet or, does not operate within, the manufacturer's
specifications or any Applicable Law, Lessee shall, at its sole expense,
take all necessary corrective measures and submit a second Report from the
same inspector evidencing that the Equipment has been brought into
conformity with the manufacturer's specifications and Applicable Law.
(c) "Average Saleable Condition" shall mean that all of the following minimum
standards have been met:
MACHINE TOOL EQUIPMENT
(i) The Equipment has been or will be disassembled according to
manufacturer's recommendations and by a licensed rigger/erector
specializing in the Equipment, with any transportation devices, such
as metal skids, lifting slings, and brackets which were with the
machine when it originally arrived, included, and, in addition, all
proper blueprinting, mapping, tagging and labeling of each individual
part including cables, electrical apparatus and wires have been
included, all process fluids and/or any hazardous materials have been
removed from the Equipment and disposed of in accordance with
Applicable Law.
(ii) All manuals, maintenance records, log books, plans, drawings and
schematics, inspection and overhaul records, operating requirements or
other materials pertinent to the Equipment's operation, maintenance,
assembly and disassembly have been assembled and are ready to be
returned to Lessor.
- -------------------------------------------------------------------------------
<PAGE>
(iii) There is no structural or mechanical damage, and all frames,
structural members, accessories and attachments are structurally
sound without breaks or cracks and in compliance with all federal,
state, local and other regulatory requirements.
(iv) The Equipment is able to perform its required tasks effectively
without repair including but not limited to electronic, electrical and
mechanical controls, pumps, motors, belts, hoses, pins, bushings,
measuring devices, screws, barrels, ways, rams, and clamps, and is
operational and in compliance with all Applicable Law and is within
manufacturer's design performance characteristics and tolerances.
(v) The Equipment is clean and rust free, and sumps and tanks are clean
and dry.
(vi) Equipment with predictable or scheduled replacements or overhaul lives
has not less than 50% useful life remaining before the next such
replacement, overhaul, recalibration or rebuild.
(vii) All major components and all wear points, including, but not limited
to electronic and mechanical controls and pumps, motors, belts, hoses,
pins, bushings, measuring devices, screws, barrels, ways, cams, clamps
and supports, are within manufacturer's design performance
characteristics and tolerances and are capable of performing as
originally intended by the manufacturer and in a safe manner.
(viii) The Equipment is complete, with no missing components or attachments.
(ix) The Equipment has been lubricated according to the maintenance manual
and/or lubrication schedule recommended by the manufacturer, and
written records of the lubrication service have been kept, dated, and
signed by the appropriate authority.
(x) All internal fluids, such as lube oil and hydraulic oil, have been
filled to operating levels, all filler caps have been secured and all
disconnected hoses have been sealed to avoid accidental spillage.
(d) In addition to all other rights of Lessor under the Lease, Lessor shall
have the right to attempt to resell or auction the Equipment from Lessee's
facility with the Lessee's full cooperation and assistance, for a period
commencing with Lessor's receipt of the Return Notice and ending one hundred
eighty (180) days after the Initial Term Expiration Date. Lessee agrees to
pay the reasonable costs and expenses of such sale or auction (and all
storage prior thereto), and agrees that the Equipment shall remain capable of
operation during this period. Lessee shall provide adequate electrical power,
lighting, heat, water and all other requirements sufficient to allow for
normal maintenance and for demonstrations of the Equipment to any potential
buyer.
12. GOVERNING LAW. This Schedule is being delivered in the State of New
York and shall be governed by, and construed in accordance with, the laws of the
State of New York, including all matters of construction, validity and
performance without giving effect to any choice of law or conflict of laws
provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS
MADE BY A BANK AFTER OCTOBER 3,1989, CONCERNING LOANS AND OTHER CREDIT
EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED
SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND
BE SIGNED BY THAT BANK TO BE ENFORCEABLE.
13. COUNTERPARTS. This Schedule may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together one and the same instrument.
14. MORE THAN ONE LESSEE. If more than one person or entity executes this
Schedule, or any other Lease Documents executed in connection herewith, as
"Lessee," the obligations of "Lessee" contained herein and therein shall be
deemed joint and several and all references to "Lessee" shall apply both
individually and jointly.
- --------------------------------------------------------------------------------
<PAGE>
15. RELATIONSHIP TO MASTER LEASE; FURTHER ASSURANCES. This Schedule shall
be construed in connection with and as part of this Lease, and all terms
contained in the Master Lease are hereby incorporated herein by reference with
the same force and effect as if such terms were fully stated herein. By
execution of this Schedule, Lessee and Lessor reaffirm all terms of the Master
Lease except as they may be modified hereby. To the extent that any of the terms
of this Schedule are contrary to or inconsistent with any terms of the Master
Lease, the terms of this Schedule shall govern. LESSEE HEREBY CERTIFIES TO
LESSOR THAT THE REPRESENTATIONS AND WARRANTIES MADE BY LESSEE IN THE MASTER
LEASE (INCLUDING, WITHOUT LIMITATION, SECTION 31 THEREOF) ARE TRUE AND CORRECT
IN ALL MATERIAL RESPECTS AS OF THE DATE OF THIS SCHEDULE WITH THE SAME EFFECT AS
THOUGH MADE ON AND AS OF SUCH DATE. Lessee shall take such additional actions
and execute and deliver such additional documents as Lessor shall deem necessary
from time to time to effectuate the terms of this Lease.
16. OREGON BUSINESS ENERGY TAX CREDIT INDEMNITY. In addition to the
assumptions set forth in Section 5(a)(i-iii) of this Equipment Schedule, Lessor
has assumed that Lessor will be entitled to the BETC (as defined below). The
BETC shall be included in the definition of "Tax Benefits" set forth in Section
5(a) of this Equipment Schedule. With respect to the BETC, Lessee hereby
represents, warrants and covenants to Lessor as follows:
(a) This Lease will be a lease for purposes of Oregon Revised Statutes
("ORS") 469.185 - 225. Lessor will be treated as the purchaser, owner,
lessor, and original user of the Property and Lessee will be treated as the
lessee of the Equipment for such purposes. Lessee shall deliver its final
certification of eligibility of the BETC (defined below) for Application No.
7491 on or before March 15, 1999 and in the event Lessee fails to do so, the
Rent due under this Equipment Schedule shall be adjusted in the same manner
as if an Oregon Tax Loss (as defined below) had occurred.
(b) Lessor shall be entitled to the Business Energy Tax Credit ("BETC")
with respect to each item of Equipment as provided by ORS 469.185 - 225. The
applicable BETC available to Lessor in connection with this Schedule is
$280,840.00.
(c) In the event that, pursuant to ORS 469.185 - 225, Lessee is deemed to
be the party eligible to receive the BETC, then Lessee hereby irrevocably
transfers to Lessor all right, title and interest which Lessee has or may have
to such BETC and agrees to cooperate with Lessor in any manner necessary to
ensure (at Lessee's expense) that Lessor continues to receive the benefit of
such BETC.
If for any reason whatsoever any of the representations, warranties, or
covenants of Lessee contained in this Section or in any other agreement relating
to this Section and to the Equipment shall prove to be incorrect and (i) Lessor
shall determine that it is not entitled to claim all or any portion of the BETC
in the amount specified (b) above, or (ii) such BETC is disallowed, adjusted,
recomputed, reduced, or recaptured, in whole or in part, by the Director of the
Oregon Department of Energy or his designee, (each, an "Oregon Tax Loss"), (such
determination, disallowance, adjustment, recomputation, reduction, or recapture
being deemed herein an additional "Tax Loss" pursuant to Section 5(c) of this
Equipment Schedule), then Lessee shall pay to Lessor as an indemnity and as
additional Rent the amounts set forth in Section 5(c) of this Equipment
Schedule.
Further, in the event (i) there shall be any change, amendment, addition,
or modification of any provision of Oregon law or regulations thereunder or
interpretation thereof with respect to the matters set forth in this Section
effective prior to the Rent Commencement Date of the Initial Term of this Lease
with respect to any Equipment, or (ii) if at any time there shall be any change,
amendment, addition, or modification of any provision of Oregon law or
regulations thereunder or interpretation thereof with respect to the maximum
applicable BETC, either of which results in a decrease in Lessor's Net Economic
Return, then Lessor shall recalculate and submit to Lessee the modified Rent or
rental rate required to provide Lessor with the same Net Economic Return as it
would have realized absent such change and the Lease shall thereupon
automatically be deemed to be amended to adopt such Rent or rental rate and
related Stipulated Loss Value.
- --------------------------------------------------------------------------------
<PAGE>
17. POWER OF ATTORNEY. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS
ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST,
TO EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN
LESSOR'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN
THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS. Lessee hereby ratifies, to the
extent permitted by law, all that Lessor shall lawfully and in good faith do or
cause to be done by reason of and in compliance with this paragraph.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be duly
executed and delivered on the day and year first above written.
LESSOR: LESSEE:
KEYCORP LEASING, R-B RUBBER PRODUCTS, INC.
A DIVISION OF KEY CORPORATE
CAPITAL INC.
By: By: /s/ [Illegible]
------------------------------- --------------------------------
Name: Name:
Title: Title: SR. V.P
COUNTERPART NO. 01 OF 01 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS.
TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM
COMMERCIAL CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH THE TRANSFER AND
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT A
---------
EQUIPMENT DESCRIPTION
LESSOR: KEYCORP LEASING,
A DIVISION OF KEY CORPORATE CAPITAL INC.
LESSEE: RB Rubber Products
LEASE: Equipment Schedule No. 2 dated as of February 2, 1999 to Master
Equipment Lease Agreement Dated as of May 12, 1997
- --------------------------------------------------------------------------------
SHIP TO: RB Rubber Products, Inc.
904 East 10th Avenue
McMinnville, OR 97128
<TABLE>
<CAPTION>
QUANTITY: IOWA MATT ASSETS SERIAL # INVOICE #
- -------- ---------------- --------- ---------
<S> <C> <C> <C>
1 HYDRAULIC HOT PRESS, WILLIAMS & WHITE, 200 TON
8' X 8' CAPACITY, SINGLE OPENING, 4-POST, 150-250
DEGREE, DIGITAL CONTROLS, ESTIMATED YEAR 1970
**1 HYDRAULIC POWER UNIT, 40 HP, 14" X 27" X 48"
RESERVOIR
**1 JIB CRANE, 13', 360 DEGREE SWING, PRESS
MOUNTED
**1 1/2 TON PNEUMATIC CHAIN HOIST
1 WEIGHT SLEEVE PRESS, WILKENSON MACH., YR. 1995
2" DIAMETER RAM X 8" STOKE, 3' X 3' FRAME,
HYDRAULIC NO POWER UNIT
1 SINGLE STATION HYDRAULIC
WEIGHT PRESS, WILKENSON, HILL BROS. MACH. MODIFIED
IN 1998 24" DIAMETER RAM X 12" STROKE, 250 PSI,
150-300 DEGREE F., DIGITAL TEMPERATURE CONTROLS,
HYDRAULIC PRODUCT EJECTOR AND 18" MOLD FEED TABLE
**1 PORTABLE HYDRAULIC POWER UNIT, JSB, 5 HP,
14" X 13" X 22" RESERVOIR
1 3 STATION HYDRAULIC WEIGHT PRESS, HILL BROS.
MACH., 24" DIAMETER CAPACITY, EST. 40 TON, YEAR 1995,
3.5: DIAMETER RAM X 12: STROKE, 250 PSI, 150-300 DEGREE F.,
DIGITAL TEMPERATURE CONTROLS, HYDRAULIC PRODUCT EJECTOR AND
18" MOLD FEED TABLE
- --------------------------------------------------------------------------------
<PAGE>
**1 PORTABLE HYDRAULIC POWER UNIT, JSB, 5 HP, 14" X 13" X 22"
RESERVOIR
1 CONTINUOUS MIXER, HONEY CREEK MFG., YEAR 1995 10,000 POUND PER
HOUR CAPACITY, 34" X 96", DUAL AUGER RIBBON TYPE, 5 HP, MILD STEEL
(NOT INSTALLED)
1 GRANULATOR, HONEY CREEK MFG., YEAR 1995,1500 POUNDS PER HOUR
CAPACITY, 50 HP 9" DIAMETER X 22.5" DISK, (8) KNIFE
(NOT INSTALLED)
5 PAVER MOLDS, WILKINSON MACHINE, YEAR 1997, ALUMINUM,
(2) 41" X 46", (2) 40" X 45", (1) NOT PRESENT ASSUMED TO BE
SIMILAR TO OTHERS
6 LARGE WEIGHT MOLDS, WILKINSON MACHINE, YEAR 1997, 18' DIA.
VARIABLE DEPTH CAST AND MACHINED ALUMINUM, 2 PIECE
1 SMALL WEIGHT MOLD, WILKINSON MACHINE, YEAR 1997, 10" DIAMETER,
VARIABLE DEPTH CAST AND MACHINED ALUMINUM, MULTIPLE PIECE
1 LOT MISCELLANEOUS EQUIPMENT CONSISTING OF:
**155 LF 12" WIDE SKATE WHEEL INFEED/OUTFEED
CONVEYOR WITH STEEL STAND
**1 LOT WEIGHT MOLD RING INSERT LETTERS
**2 FLOOR BEAM SCALES, 1000 FOUND CAPACITY
**4 WORK BENCHES WITH OVERSHELF, 5' L X 3' W, WOOD
**2 URETHANE BINS, 255 GALLON, WITH STEEL STAND
</TABLE>
<TABLE>
<CAPTION>
QUANTITY: OTHER ASSETS SERIAL INVOICE
- -------- ------------ ------ -------
<S> <C> <C> <C>
2 HYDRAULIC HOT PRESS, HPM, 60" X 100.5" CAPACITY 818895
SINGLE OPENING, 200 TON, 4-POST, S/N 818895 DIGITAL
CONTROLS, REBUILT 1998
**1 HYDRAULIC POWER UNIT, (2) 50 HP PUMPS, (1) 2 HP PUMP,
(1) RESERVOIR 4' W X 3' H X 76" L
**30 LF DEAD ROLL OUTFEED CONVEYOR 12" WIDE
**90 LF MONO RAIL HOIST WITH 4 LINE BUS, 11' H
**2 1/2 TON ELECTRIC CHAIN HOIST
1 BATCH MIXER, MARION, MODEL SRY 1848, YEAR 1998 98019
S/N 98019, 4' L X 18" W, STAINLESS STEEL, 3 HP,
NOT INSTALLED
1 LOT MISCELLANEOUS EQUIPMENT CONSISTING OF:
**1 DIGITAL PLATFORM BENCH SCALES, OHAUS, 100
POUND CAPACITY, MODEL 15S
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<S> <C> <C>
**5 SETS WEIGHT MOLDING RINGS (3) "YORK" LABEL,
(2) NO LABEL
**96 WEIGHT MOLD RING WEIGHT STAMPS
**3 DIGITAL PLATFORM BENCH SCALES, OHAUS, 50#
CAPACITY
**1 PALLET TRUCK, BIRSHAMON, 5500 POUND
CAPACITY
**1 LOT MISCELLANEOUS HAND TOOLS AND METAL
STORAGE BOX FOR IOA MAT PROCESS
1 PLAYGROUND MAT IMPACT TESTER UNIT,
PLAYGROUND CLEARING HOUSE, MODEL TRIAX
GHIC, YEAR 1998
4 MOBILE MORTAR MIXER, MULTIQUIP MQ MODEL WM-
700PE15, 1.5 HP, PLASTIC TUB, 7 CU. FT/100 POUND
CAPACITY, YEAR 1998
1 VERTICAL FOOD QUALITY MIXER, CENTURY, 8 QUART U73191
CAPACITY, S/N U73191, 3 HP, (5) MIXING BOWLS
1 LOT MOLDED PRODUCTS ELECTRICAL INCLUDING: 75
KVA TRANSFORMER, MOTOR CONTROL CENTER, 2000
AMP MAIN SERVICE, MOTOR STARTERS, DISCONNECT
SWITCHES, WRITING AND CONDUIT
1 CRACKER MILL, ADAMSON, REBUILT IN 1998 BY 090998
NORAMEX, C.ORD#1301, S/N 090998, MO 21-25-36,200
HP, GEAR DRIVE, SIZE 21" X 25" X 36"
**1 CENTRIFUGAL GEAR OIL PUMP, 3/4 HP, 1.5"X1.5"
**1 CENTRIFUGAL WATER PUMP, 3/4 HP, 1.5"X1.5"
**25 LF 1.5" PVC PIPING
**1 HYDRAULIC POWER UNIT, 3 HP
**1 HORIZONTAL DISCHARGE AUGER CONVEYOR, 12"
DIAMETER X 13' LIFT, 7.5 HP, YEAR 1998
**1 VERTICAL AUGER CONVEYOR, 12" DIAMETER X 13"
LIFT, 7.5 HP, YEAR 1998
**8 LF 8" DIAMETER BLOW PIPE TO ROTEX SCREEN
**1 ROTEX VIBRATING SCREEN, MODEL 522,5' X 12', 7.5
HP, YEAR 1998
*1 FINISH AUGER, 9" DIAMETER X 10'L, 2 HP, YEAR 1998
*1 OVERS AUGER, 12" DIAMETER X 20'L, 5 HP, YEAR 1998
**1 INFEED AUGER, 12" DIAMETER X 24 L, 7.5 HP, YEAR 1998
**1 FINISH TAKE AWAY AUGER, 12" DIAMETER X 60' L,
10 HP, YEAR 1998
- --------------------------------------------------------------------------------
<PAGE>
1 BAGHOUSE, ULTRA INDUSTRIES, YEAR 1998, MODEL BBX-
BBX-169M144-84 IIIG, S/N BX-4105, STEEL SUPPORT 4105
STRUCTURE
**1 ROTARY AIRLOCK, WILLIAM W. MEYERS & SONS,
MODEL 18" X 18" HD 193058-1,3 HP
**1 20" DIAMETER 90 DEGREE ELBOW
**1 20" DIAMETER 45 DEGREE ELBOW
**15 LF 20" DIAMETER BLOW PIPE
**2 TRANSITIONS, BLOWER AND BAGHOUSE
**1 BLOW FAN, CLARAGE, MODEL 270 BC SW ARREARS
9R CCW UBD, S/N 980524,20 HP
1 LOT CRACKER MILL & BAG HOUSE ELECTRICAL
INCLUDING:
**600 AMP MOTOR CONTROL CENTER, MOTOR
STARTERS
**350 AMP DISCONNECT SWITCH, WIRING AND
CONDUIT
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
1. RB Recycling, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation of our report dated March 22, 1999, included in
this Form 10-KSB into the Company's previously filed Registration Statement No.
33-90376 on Form S-8.
Morrison & Liebswager, P.C.
March 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 35,039
<SECURITIES> 0
<RECEIVABLES> 1,051,337
<ALLOWANCES> 26,301
<INVENTORY> 800,002
<CURRENT-ASSETS> 1,911,983
<PP&E> 7,558,948
<DEPRECIATION> 2,245,917
<TOTAL-ASSETS> 7,706,548
<CURRENT-LIABILITIES> 1,234,285
<BONDS> 2,070,047
0
0
<COMMON> 4,014,110
<OTHER-SE> 751,019
<TOTAL-LIABILITY-AND-EQUITY> 7,706,548
<SALES> 8,592,368
<TOTAL-REVENUES> 8,592,368
<CGS> 6,059,269
<TOTAL-COSTS> 6,059,269
<OTHER-EXPENSES> 2,556,392
<LOSS-PROVISION> 23,815
<INTEREST-EXPENSE> 151,419
<INCOME-PRETAX> (141,513)
<INCOME-TAX> (56,345)
<INCOME-CONTINUING> (85,168)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (85,168)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
