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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended February 29, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ...................to .......................
Commission file number 0-21753
SERVICE SYSTEMS INTERNATIONAL, LTD.
Name of Small Business Issuer in Its Charter
NEVADA 88-0263701
State of Incorporation I.R.S. Employer
Identification No.
2800 INGLETON AVE.,
BURNABY, B.C., CANADA V5C 6G7
Address of Principal Executive Offices Zip code
604-541-1069
Issuer's Telephone Number
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
Title of class
Check whether the issuer: (1) filed all reports required to be filed by
Section13 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 whether the registrant filed all documents and reports required to be
filed by section 12, 13, or 15(d) of the .Exchange Act after the distribution of
securities under a plan confirmed by court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 21,402,712 as of April 13, 2000.
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INDEX
================================================================================
PART I Financial Information
<TABLE>
<S> <C>
Item 1. CONSOLIDATED FINANCIAL STATEMENTS.........................................................................
Consolidated Balance Sheets as of February 29, 2000
and 1999 (unaudited) ....................................................................................3
Consolidated Statements of Operations for the three months ended
February 29, 2000 and 1999 (unaudited)...................................................................4
Consolidated Statements of Cash Flows for the three months ended
February 29, 2000 and 1999 (unaudited)...................................................................5
Notes to the Financial Statements............................................................................6 to 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS............10 to 13
Part II OTHER INFORMATION................................................................................
1. LEGAL PROCEEDINGS................................................................................
2. CHANGES IN SECURITIES............................................................................
3. DEFAULT UPON SENIOR SECURITIES...................................................................
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................................
5. OTHER INFORMATION................................................................................
6. EXHIBITS AND REPORTS ON FORM 8K..................................................................
Signatures.........................................................................................................
</TABLE>
2
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Part 1. Financial Information
Item 1.Financial Statements (unaudited)
3
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Service Systems International, Ltd.
Consolidated Balance Sheet
As of February 29, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
November 30, November 30,
2000 1999
<S> <C> <C>
Assets
Current Assets
Cash and short-term investments $ 11,774 $ 2,145
Short-term investments - restricted (Note 3) 268,346 265,722
Accounts receivable 115,538 199,493
Inventory and contract work in progress 315,991 276,645
Prepaid expenses and deposits 33,802 23,233
----------- -----------
Total Current Assets 745,451 767,238
Property, Plant and Equipment (Note 4) 83,709 98,590
Other Assets
Goodwill ( net of amortization of $1,576,513) 848,895 1,333,976
Patents and trademarks (Note 5) 288,289 102,593
----------- -----------
Total Assets $ 1,966,344 $ 2,302,397
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Bank demand loan (Note 6) $ 3,320 $ 59,690
Accounts payable 205,726 147,897
Accrued liabilities 25,733 35,035
Vacation pay payable 19,443 12,521
Customer deposits 17,654 0
Loans payable- other (Note 6 ) 593,612 0
Loans payable-minority shareholders of subsidiary 0 23,251
Amounts owing to related parties (Note 7) 62,393 182,460
----------- -----------
Total Current Liabilities 927,881 460,854
Long Term Debt (Note 8)
Amounts owing to related parties 206,230 0
Loan payable -minority shareholders of subsidiary 0 2,412,584
----------- -----------
Total Liabilities $ 1,134,111 $ 2,873,438
----------- -----------
Stockholders' Equity (Deficit)
Common stock , $.001 par value,
50,000,000 shares authorized, 14,981,090
and 12,773,988 issued and outstanding respectively 14,981 12,774
Additional paid-in capital 3,566,371 3,084,608
Allotment for Future Issuance (Note 8)
Allotment for future issuance (4,213,832 shares) 2,449,383 0
Deficit (5,198,502) (3,668,423)
----------- -----------
Total Stockholders' Equity (Deficit) 832,233 (571,041)
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,966,344 $ 2,302,397
=========== ===========
</TABLE>
See accompanying notes to financial statements
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Service Systems International, Ltd.
Consolidated Statements of Operations and Deficit
For the Six months ended February 29, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
ended ended
Feb. 29, 2000 Feb. 28, 1999
<S> <C> <C>
Project Revenue $ 49,124 $ 158,357
Project Costs 35,441 130,716
------------ ------------
Gross Profit 13,683 27,641
Manufacturing Costs Not Applied 57,730 39,060
------------ ------------
(44,047) (11,419)
------------ ------------
Expenses
Selling 115,468 119,822
General and administrative 260,773 169,763
Research and development 59,728 82,657
Amortization of goodwill 242,540 242,540
Interest, net of interest income and interest recovered (Note 8) (117,710) 42,701
Foreign exchange loss 55,294 74,322
------------ ------------
616,093 731,805
------------ ------------
Net Loss for the period 660,140 743,224
Deficit - Beginning of period 4,538,362 2,925,199
------------ ------------
Deficit - End of period $ 5,198,502 $ 3,668,423
============ ============
Net Loss per share $ (0.04) $ (0.06)
============ ============
Weighted average shares outstanding 14,900,183 12,681,488
============ ============
</TABLE>
See accompanying notes to financial statements
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Service Systems International, Ltd.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
ended ended
Feb 29, 2000 Feb. 28, 1999
<S> <C> <C>
Cash Flows to Operating Activities
Net loss ($ 660,140) ($ 743,224)
Adjustments to reconcile net loss to cash
Amortization of goodwill 242,540 242,540
Depreciation 22,312 21,359
Foreign exchange loss 55,294 74,322
Common stock issued for expenses 40,074 0
Recovery of interest on Long Term Debt (119,670) 0
Change in non-cash working capital items
Decrease (Increase) in accounts receivable 194,587 (88,536)
(Increase) in inventory and contract work in progress (41,399) (38,364)
Decrease in prepaid expenses and deposits 3,364 12,942
(Decrease) Increase in accounts payable, accrued
liabilities, vacation pay payable
and customers' deposits (47,008) 70,325
----------- -----------
Net Cash Used in Operating Activities (310,046) (448,636)
----------- -----------
Cash Flows (to) from Investing Activities
Acquisition of short-term investment - restricted (5,444) (16,405)
Additions to patents and trademarks (104,901) (10,109)
(Acquisition) Disposal of Capital assets (14,508) 21,448
----------- -----------
Net Cash (Used in) Provided by Investing Activities (124,853) (5,066)
----------- -----------
Cash Flows from (to) Financing Activities
(Decrease) in bank demand loan (206,061) 59,690
Common stock issued 395,746 11,100
Increase in loans payable - other 165,376 0
Increase in amounts
Owing to related parties 60,924 87,018
(Decrease) Increase in borrowing from
Minority shareholder (2,426,680) 90,987
Allotment for future issuance 2,449,383 0
----------- -----------
Net Cash Provided by Financing Activities 438,688 248,795
----------- -----------
Increase (Decrease) in Cash and Cash Equivalents 3,789 (204,907)
Cash and Cash Equivalents - Beginning of Period 7,985 207,052
----------- -----------
Cash and Cash Equivalents - End of Period $ 11,774 $ 2,145
=========== ===========
</TABLE>
See accompanying notes to financial statements
6
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Service Systems International, Ltd.
Notes to the Consolidated Financial Statements
1. Nature of Operations and Continuance of Business
The Company was incorporated in the State of Nevada in August, 1990 and
remained inactive until September 1, 1995. The initiation of the Company's
current business was accompanied by a change of ownership and acquisition
of UV Systems Technology Inc. (UVS) on December 1, 1996, a Canadian
company. Through UVS, the Company manufactures and markets its Ultra
Guard(R) ultra-violet based patented water treatment system.These products
and systems are sold primarily for municipal waste disinfection, treatment
of process and industrial waste water, and for potable water, bottled
products and agriculture and aquaculture water treatment.
During fiscal 1998 the Company emerged from, for accounting purposes, a
development stage company to an operating company. Even though its status
has changed to an operating company, the operating activities have not yet
produced significant revenue and the Company has experienced significant
losses to date. The ability of the Company to continue operations is
dependent upon its successful efforts to raise additional equity financing
in the long term, continue developing the market for its products, and/or
the attainment of profitable operations.
2. Significant Accounting Policies
CONSOLIDATED FINANCIAL STATEMENTS
These financial statements include the accounts of the Company, and its
Canadian subsidiary, UVS, of which the Company owned 50.7% until
February 14, 2000, when it acquired 100% of UVS' capital stock.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, in banks and all highly
liquid investments with a maturity of three months or less when purchased.
Cash equivalents are stated at cost which approximates market.
PROPERTY, PLANT, AND EQUIPMENT
Property, Plant, and Equipment are recorded at cost. Depreciation is
computed on a straight-line method using an estimated useful life of five
years.
GOODWILL
Goodwill represents the excess of purchase consideration over fair market
value of net identifiable assets acquired, and is amortized on a
straight-line basis over five years. Goodwill is evaluated in each
reporting period to determine if there were events or circumstances which
would indicate inability to recover the carrying amount. Such evaluation is
based on various
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analyses, including discounted cash flows and profitability projections,
which necessarily involve management judgement.
PATENTS AND TRADEMARKS
Patents and trademarks will be amortized to operations over their estimated
useful lives of twenty years.
REVENUE RECOGNITION
Product sales will be recognized at the time goods are shipped. System and
project revenue will be recognized utilizing the percentage of completion
method which recognizes project revenue and profit during construction
based on expected total profit and estimated progress towards completion
during the reporting period. All related costs are recognized in the period
in which they occur.
ESTIMATES
The preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from these estimates.
EARNINGS PER SHARE
The earnings per share is computed by dividing the net income (loss) for
the period by the weighted average number of common shares outstanding for
the period. Common stock equivalents are excluded from the computation if
their effect would be anti-dilutive.
FOREIGN CURRENCY
i) Translation of foreign currency transactions and balances:
Revenue, expenses and non-monetary balance sheet items in foreign
currencies are translated into US dollars at the rate of exchange
prevailing on the transaction dates. Monetary balance sheet items are
translated at the rate prevailing at the balance sheet date. The
resulting exchange gain or loss is included in general and
administration expenses.
ii) Translation of foreign subsidiary balances:
Monetary balance sheet items of UVS are translated into US dollars at
the rates of exchange on the balance sheet date. Non-monetary balance
sheet items are translated into US dollars at the rate of exchange
prevailing on the transaction dates. The foreign subsidiary's operating
results are translated into US dollars using the average exchange rate
for the year with any translation gain or loss and is included
separately in operations.
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3. Restricted Cash
In connection with a letter of credit, required under a long-term project
to be completed in fiscal 2000, the company purchased a C$391,000 face
value Bankers' Acceptance to be held as a bond for the letter of credit of
C$390,809.
4. Property, Plant, and Equipment
Property, Plant, and Equipment are stated at cost less accumulated
depreciation.
<TABLE>
<CAPTION>
2000 1999
Accumulated Net Book Net Book
Cost Depreciation Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer equipment 45,209 25,590 19,619 19,183
Computer software 7,293 3,683 3,610 2,727
Display equipment 33,016 25,537 7,479 12,735
Office furniture and equipment 32,480 22,424 10,056 12,685
Plant jigs, dies, moulds, tools and equipment 104,076 64,391 39,685 42,798
Leasehold improvements 26,724 23,464 3,260 8,462
-------- -------- -------- ---------
248,798 165,089 83,709 98,590
======== ======== ======== =========
</TABLE>
Depreciation per class of asset:
<TABLE>
<CAPTION>
$ $
<S> <C> <C>
Computer equipment 3,984 3,522
Computer software 811 507
Display equipment 3,134 3,183
Office furniture and equipment 2,906 2,917
Plant jigs, dies, moulds, tools and equipment 8,947 8,557
Leasehold improvements 2,530 2,673
------------- -----------
22,312 21,359
============= ===========
</TABLE>
5. Patents and Trademarks
Patents and trademarks represent legal costs associated with designing,
registering and protecting certain patents and trademarks associated
with the Ultra Guard(R) System. These costs are amortized over twenty
years. Components of the Ultra Guard(R) System were patented in the
United States on April 12, 1996. Applications have been approved for
patent protection under the International Patent Protection Treaty
covering 13 European countries. Translations and other requirements to
formalize these patents will continue through Year 2000.
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6. Demand Loans
a) The bank demand loan of $3,320 is from Toronto Dominion Bank of
Canada and bears interest at Toronto Dominion Bank prime plus 2%.
b) Of the $341,940 loans payable owing to Athe Elco Bank Group located
in Nassau, Bahamas, as of August 31, 1999, the company repaid $289,256
of this loan with the exercise of Class E warrants for the issuance of
1,446,281 shares @ $0.20 per share and the issuance of 1,446,281 Class
E warrants exercisable at $0.40 each expiring September 13, 2002,
leaving a balance owing of $52,683. During the first quarter, proceeds
were received in the amount of $258,753, during the second quarter
additional loans in the amount of $250,080, were received, plus accrued
interest amounting to $12,065, bringing the loans payable balance to
$5,736,112. The loans payable to Elco Bank Group are unsecured, interest
bearing at 10% per annum and due on demand.
7. Amounts Owing to Related Parties
<TABLE>
<CAPTION>
Current Liabilities 2000 1999
$ $
<S> <C> <C>
(a) Amounts owing to two directors, due on demand,
unsecured and non-interest bearing $62,393 $182,460
</TABLE>
8. Long-term Debt
Before fiscal 1998, UV Systems Technology Inc. (UVS) issued 2,000 Class
A preferred shares at C$1,000 per share for proceeds of C$2,000,000
(US$1,356,392). Until February 14, 2000, the holders of these shares
also owned 49.3% of the common shares of UVS ("minority shareholders").
Class "A" Preferred Shares are retractable once sales reach C$10,000,000
and net income reaches C$1,000,000, and are to be redeemed by June 30,
2000.
During fiscal 1998, minority shareholders advanced C$631,000 to UVS.
Interest accrued to June 29, 1998, at 20% per annum, totalled C$280,000.
Pursuant to an interim refinancing agreement ("the Agreement"), dated
June 29, 1998, all accrued interest was waived. The principal repayment
of C$631,000 was deferred to June 29, 2003, and interest at 10% accrued
until December 29, 2000, after which it was paid monthly. The Company
waived interest of C$217,000 accrued on its loan to UVS of C$1,287,000.
Under the Agreement one of the minority shareholders advanced C$909,000
to UVS. This advance was secured by a subordinated debenture on all of
UVS' assets, bore interest at 10%, payable monthly, was due in 2003, and
ranked ahead of the minority shareholder loans and Class A Preferred
Shares.
The Company's subsidiary, UVS, completed its debt and share
restructuring subject to completion of documentation and regulatory
approval. Class X Preferred Shares were to be a new class of shares
added to the authorized capital stock of UVS. 500 Class A Preferred
Shares, representing 50% of the Class A preferred shares held by one
of UVS' minority shareholders
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were to be replaced with 500,000 Class X Preferred Shares retractable
at C$1.00 per share. The Company's loan to UVS of C$1,287,000 was to be
transferred into 1,287,379 Class X Preferred Shares retractable at
C$1.00 per share. These Class X Preferred Shares were to be retractable
by the holders only if there were a sale of UVS or an initial public
offering of its securities which valued UVS, excluding Class X Preferred
Shares, at C$20 million. If not retracted by June 29, 2002, the Class X
Preferred Shares were to be redeemable by UVS for C$1 in total.
During the second quarter of fiscal year 2000, negotiations were
concluded and a letter agreement was signed on February 14, 2000 to
restructure all of these arrangements. Under the terms on this letter
agreement, the minority shareholders forgave all accrued loan
interest in the amount of C$221,583; loan principal in aggregate
amounting to C$1,576,098 was converted into 2,159,036 shares of
Regulation S, restricted common stock of Service Systems at C$0.73
(US$0.50) per share. Class A preferred shares of UVS in the amount of
C$2,000,000 were converted into 2,054,794 shares of Regulation S,
restricted common stock of Service Systems at C$0.9733 (US$0.6667)
per share. In aggregate $2,449,383, was agreed to be converted into a
total share allotment for issuance of 4,213,832 shares, at an average
price of $0.58 per share. All Class A Preferred shares and Class B
Common shares of the subsidiary, UVS, were transferred to Service
Systems. The proposed issuances of Class X Preferred Shares was
canceled.
Amounts owing to Related Parties
During the quarter ended February 29, 2000, two directors agreed to
defer loan payment of their loans amounting to $ 206,230 until June 30,
2001.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS AND FINANCIAL CONDITION
Our company was incorporated in the State of Nevada in August 1990, and remained
inactive until September 1995. The initiation of the current business was
accompanied by a change of ownership. Through UVS, Service Systems manufactures
and markets its Ultra Guard(R) ultra violet-based patented water treatment
system. These products are sold primarily for municipal wastewater disinfection;
however, the system can also be adapted for treatment of process and industrial
wastewater ( where it is currently being applied through UVS's Japanese agent)
and for potable water, bottled products and agriculture and aquaculture water
treatment.
In September 1995 Service Systems initiated a marketing distribution agreement
with UV Systems Technology Inc., a manufacturer of equipment using proprietary
ultraviolet light technology for the microbiological disinfection of industrial
and municipal wastewater. In July 1996 Service Systems entered into a funding
agreement with UV Systems Technology Inc., (UVS) whereby Service Systems
provided 50% of UVS's operating cash needs for a six-month period. On December
1, 1996, Service Systems acquired 50.69% of the common stock of UVS from two
principals and the minority stockholders. On December 6, 1996, Service Systems
entered into an agreement with the remaining two minority stockholders, Working
Opportunity Fund (EVCC) Ltd. (WOF) and MDS Ventures Pacific Inc.(MDS), to
acquire the remaining 49.31% common stock and their preferred stock (Purchase
Agreement). Any funds advanced under this agreement would be forfeit should
Service Systems be unsuccessful in raising C$2.0 million. In June 1998 this
agreement was not renewed as Service Systems was unable to raise the C$2.0
million required to complete the transaction, and WOF agreed to loan UVS
additional funds (see details following) and agreed to allow conversion of the
funds advanced under the Purchase Agreement.
In June 1998, UVS entered an interim agreement with WOF (Agreement) to provide
$579,535 of additional funding and reduced debt by requiring MDS and Service
Systems to convert their loans receivable into Class X Preferred shares,
retractable by the holder only if there is a sale or IPO which values the equity
of UVS, including the Class X preferred
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shares, but excluding the Class X Preferred shares, at C$20.0 million. If not
retracted within 4 years from the closing date of this Agreement, the Class X
Preferred shares will be redeemable by UVS for C$1.00.
In January 2000, our Company began negotiations with WOF and MDS to purchase
the remaining 49.31 % of UVS. The negotiations were concluded and a letter
agreement was signed on February 14, 2000. Under the terms of this letter
agreement, WOF and MDS forgave all accrued loan interest in the amount of
C$221,583, loan principal in aggregate amounting to C$1,576,098 was converted
into 2,159,036 shares of Regulation S, restricted common stock of the Company
at C$0.73 (US$0.50) per share, Class A preferred shares of UVS in the amount
of C$2,000,000 were converted into 2,054,794 shares of Regulation S,
restricted common stock at C$0.9733 (US$0.6667) per share. All shares Class A
Preferred shares and Class B Common shares were transferred to Service
Systems.
During the period from December 1, 1996 to September 30, 1997, Service Systems
continued with UVS's system development and testing programs. These programs
included the development of both a mechanical and electronic automatic quartz
sheath cleaning system, to remove the fouling build-up due to suspended solids
and chemical prevalent in wastewater. The program of development on the
mechanical cleaner determined that the method chosen was viable and performed
the function desired.
Field testing of the mechanical wiper cleaning system was concluded during
October and November, 1997, at a PDU test site at Ville de Repentigney near
Montreal, Quebec. The test results concluded that the cleaning system
performed above anticipated levels, and the system has now been incorporated
into current products sold. The temperature control system for the UVS System
was also tested at the Ville de Repentigney test site during temperatures
ranging down to minus 8 degrees Celsius and up to plus 8 degrees Celsius. The
test showed that with temperature control, infinite variable lamp UV output
intensity was stable and controllable. This feature is now included on all
product sales. The benefits of the temperature control are, instant response
to changes in power settings, consistent UV output, infinite controllability
through a full range of UV settings, and expected longer lamp-in-service
life. To our knowledge, no other UV equipment supplier can offer this degree
of control of a UV lamp. Research and development of an electronic ultrasonic
cleaning system are in process.
Negotiations continue on finalizing a project delivered to New Zealand in
1995 by UVS and release of hold back funds. Testing of the system is ongoing
to determine if the equipment is in compliance at times of correct effluent
flow conditions. During the 1999 fiscal year, the client ordered changes to
its UV system amounting to C$31,200, all of which was prepaid by the client.
Fifty percent of the work had been completed by August 31, 1999. The balance
of the work will be shipped in April 2000. Due to design changes that will
increase the flow at this site, additional upgrades will be conducted in the
future.
A 6-lamp Ultra Guard(R) UV system capable of disinfecting a wastewater flow of
3.5 million gallons per day was sold to Hamilton, Alabama and was installed in
March, 1999. Successful final performance testing was conducted in July 1999.
This UV project is the first full scale operating Ultra Guard(R) UV system
installed in North America. We expect that the Ultra Guard(R) UV system in
Hamilton will provide significant equipment exposure to others contemplating
upgrading their Wastewater Treatment Plant discharges by replacing chlorine as
the disinfecting means with environmentally friendly ultraviolet disinfection.
In September 1999, a formal order for a UV system for a project in Toronto,
Canada was secured for about C$685,000. The project was scheduled for
delivery in June 2000 but has been delayed by the contractor until October
2000. This project is currently in the design and approval phase.
Manufacturing has as well been delayed from the scheduled February 2000 start
and now will commence in May 2000. The UV system will be delivered to the
City of Toronto to be used for disinfection of combined storm overflows (CSO)
and is part of a C$50 million project (the world's largest submersible CSO
pumping station).
In September 1999, the Company received an order valued at over C$1,100,000 for
the City of Peterborough wastewater treatment plant. Design approval is
currently ongoing. The client has delayed the wastewater plant construction
project and has now scheduled it for completion in April 2001. Manufacturing of
the UV equipment will not commence until May - June, 2000, with delivery of our
equipment scheduled for January 2001. The UV system will disinfect effluent flow
in excess
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of 36 million gallons per day.
Purchase orders for two additional UV systems valued at approximately
C$150,000 were received in the 1999 fiscal year. The systems will be produced
during the 2000 fiscal period and will be delivered into the Province of
Ontario. Drawing review is currently ongoing as well as manufacturing. One
project at Deep River, Ontario, manufactured for Thorburn Penny Ltd, an
Azurix Company, was delivered in March 2000. The second project, to be
manufactured for the Mohawk Council of Akwesasne in Cornwall, Ontario, will
be produced for delivery in July 2000.
In January 1999, a PDU was installed at the County Sanitation Districts of Los
Angeles County (the County). The testing program was presented at the Energy
Efficiency Forum held in San Diego on August 30-31, 1999. Testing was completed
in July 1999 and was conducted and paid for by the County. The purpose of the
test was to determine the Ultra Guard(R) UV system's ability to disinfect
wastewater to Title 22 Guidelines, a stringent test protocol required as a
precursor to the use of a company's UV product in reuse of wastewater for
agriculture and other purposes. The County reported that the findings of the
five-month testing program confirmed the ability of the Ultra Guard(R) UV system
to achieve Title 22 design objectives at fifty percent of the dose required by
low pressure, low intensity technology previously tested. A substantial saving
in energy usage, 12.7%, was achieved by using the Ultra Guard(R) system. The
same safeties are applied to both types of lamps. On February 28, 2000, the
Company was advised by the Department of Health Services that Title 22 approval
had been granted.
In October 1999, the Company signed an agreement with a leading Australian UV
equipment manufacturer to market its product in North America. The products
provided through this agreement would permit the Company to sell into market
areas not currently serviced. These products will service small to intermediate
scale projects for municipal and industrial clients in the area of potable
water, food processing and recreational services. In addition, the product is
used by clients requiring treatment solutions beyond disinfection, such as
oxidation of chemical and organic by-products occurring in nature as well as
those occurring as a result of production processes.
During the quarter ended February 29, 2000, the Company produced the prototype
of a new UV product line. This product, with a designed disinfection capacity of
up to 1.0 million gallons per day per lamp, will incorporate the Company's
patented flow reactor chamber, the proprietary low pressure, high intensity UV
lamp and the patented flow balanced weir. Additional features include full
password protected, internet based, web monitored, microprocessor control which
will permit monitoring of any UVS, UV system from the Company's plant or from
any location with a internet connection.
In December, 1999, the Company adopted a 1999 Long-Term Equity Incentive Plan
covering 3,000,000 shares of the Company's common stock.
RESULTS OF OPERATIONS
Six Months Ended February 29, 2000 compared to the Six months ended February 28,
1999.
REVENUES. During the second quarter of fiscal 2000, we reported
revenues of $49,124, a decrease of $109,233 or 45%, from the $158,357 reported
in the second quarter of fiscal 1999. This decrease resulted from delayed
completion of projects in process, which did not provide for payment during that
period. Revenue from the additional projects awarded during the period will be
realized during subsequent quarters.
DIRECT PROJECT COSTS. For the second quarter of fiscal 2000, we
reported $35,441 direct project costs, a decrease of $98,275 or 75%, from the
$130,716 reported in the second quarter of fiscal 1999. This decrease resulted
from delays in putting projects into manufacturing and from non-completion of
contract work from sub-contractors.
GROSS PROFIT. For the second quarter of fiscal 2000, we reported
$13,683 gross profit, a decrease of $13,958, or 50%, from the $27,641 reported
in the second quarter of fiscal 2999. This decrease resulted from delays in
putting projects into manufacturing and delayed completion of projects.
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<PAGE>
MANUFACTURING COSTS NOT APPLIED. Manufacturing costs not applied are
annual plant overhead costs not being charged against specific contracts. For
the second quarter of fiscal 2000, we reported manufacturing costs not applied
of $57,730, an increase of $18,670, or 48%, from $39,060 reported in the
comparable period of the prior year. This increase resulted from the decrease in
project manufacturing progress and resultant decrease in manufacturing overhead
utilization.
SELLING EXPENSES. For the second quarter of fiscal 2000, we reported
selling expenses of $115,468, a decrease of $4,354, or 4%, from the $119,822
reported in the comparable period of the prior year. This decrease primarily
resulted from a decrease in brochure and presentation materials.
GENERAL AND ADMINISTRATIVE EXPENSE. For the second quarter of fiscal
2000, we reported general and administrative expense of $260,773, an increase of
$91,010, or 54% from the $169,763 reported in the comparable period of the prior
year. This increase resulted primarily from increases in expenses relating to
investor relations, administrative management, legal fees, advertising and
promotion, and consulting fees due to securing of new projects. Part of the
increase is also due to accounting office help for the audit work.
RESEARCH AND DEVELOPMENT. For the second quarter of fiscal 2000, we
reported general and administrative expense of $59,728, a decrease of $22,929,
or 28%, from the $82,657 reported in the comparable period of the prior year.
This decrease was due to the reduction of engineering and prototyping expenses.
AMORTIZATION OF GOODWILL. For the second quarter of fiscal 2000, we
reported amortization of goodwill of $242,540, the same figure for the
comparable period of the prior year.
INTEREST, NET OF INTEREST INCOME. For the second quarter of fiscal
2000, we reported interest recovery, net of interest income and interest waived,
of $117,710, an increase of $160,411, or 376%, over interest expense of $42,701
reported in the comparable period of the prior year. The increase in interest
recovery is as a result of interest waived by minority shareholders and Service
Systems, a provision included in the purchase of the minority shareholders'
49.31% ownership of the Company's subsidiary, UV Systems Technology Inc.
FOREIGN EXCHANGE TRANSLATION LOSS. For the second quarter of fiscal
2000, we reported foreign exchange translation loss of $55,294, a decrease of
$19,028, or 26%, from the $74,322 reported in the comparable period of the prior
year. This decrease resulted from the decrease in the value of the Canadian
dollar as compared to the second quarter of the prior year.
NET LOSS FOR THE PERIOD. For the second quarter of fiscal 2000, we
reported a net loss for the period of $660,140, a decrease of $83,084, or 11%
over $743,224 reported in the comparable period of the prior year. The decrease
in net loss was due primarily to the effect of interest forgiven as described
above.
NET LOSS PER SHARE. For the second quarter of fiscal 2000, we reported
a net loss per share for the period of $0.04, a decrease of $0.02, or 33% over
the net loss per share of $0.06, reported for the comparable period of the prior
year. The net loss per share reduced as a result of the decrease in net loss
reported above and the loss being allocated over an increased number of
outstanding shares and share equivalents.
LIQUIDITY
The nature of our business may be expected to include a normal lag time between
the incurring of operating expenses and the collection of contract receivables,
which may be expected to be due largely from governments, if and when sales are
made. In addition, we are dependent on sales to a licensee, which is obligated
to purchase agreed upon system components, and on awards of water treatment
system contracts for non-recurring projects. Many of our contracts may be
expected to include provision for hold back, entitling the other party to the
contract to withhold a specified portion of the payment for a given period of
time until after completion of a project. For these and other reasons, we may
experience periods of limited working capital and may be expected to require
financing for working capital during those periods.
14
<PAGE>
Our sales of Ultra Guard(R) systems to governmental entities may be expected to
occur on an intermittent rather than consistent basis as requests for proposal
("RFP") are issued and awards made. Sales on both an annual and quarterly basis
are subject to fluctuations which are often beyond our control.
In addition, we will require financing over and above our current resources to
sustain our operations and expand our marketing efforts. We cannot assure that
the additional financing can be obtained on a timely basis, on terms which are
acceptable or if at all.
We financed our operations during the second quarter of the fiscal 2000, in
part, from sales of restricted common stock, loans from Elco Bank, and loans
from related parties.
We expect that during fiscal 2000, even as sales at UVS increase, we will
continue to depend on receipt of additional funds through public or private
equity or debt sales or other lender financing to fund the manufacturing of
products sold and general operational and sales expenses. Except as previously
indicated, no arrangements are currently in place to raise funds, although we
actively continue to seek sources. Failure to receive these funds may be
expected to have a material adverse effect on our company.
15
<PAGE>
Part II OTHER INFORMATION
Item 1. Legal Proceedings
On October 20, 1998 a suit was filed in the Supreme Court of British Columbia by
Thomas O'Flynn against the Company, Kenneth Fielding (the Company's President
and Director), and Charles P Nield (a former Director and Vice President of the
Company). O'Flynn alleges that in April of 1996, he purchased shares of the
Common Stock based on a representation that they would be free trading in 40
days of Athe filing of a prospectus. He further alleges that in September of
1996 he purchased additional shares of Common Stock based on the representation
that the shares would be free trading within 40 days of the Common Stock
becoming free trading. O'Flynn alleges that the representation was a warranty
and was incorrect. He further alleges that he suffered a loss because the share
price decreased while he was holding the shares. He seeks damages for breach of
warranty, negligence, misrepresentation and breach of fiduciary duty. The amount
claimed is not specified. The Company filed an answer denying the claims and
continues to actively defend the suit. Examination for discovery of Charles P
Nield was conducted in June 1999; since then there has been no further activity.
Item 2. Changes in Securities
During the period, 51,798 shares of Service System common stock were issued
to nine minority shareholders, resident in Canada, (ADissidents@) of UV
Systems Technology Inc (UVS) in exchange for their common stock holdings in
UVST. The number of shares issued was based on the formula used in the
December 1, 1996 transaction when Service Systems acquired its 50.69 % of
UVS. At the time of that transaction, the Dissidents were not shareholders
of UVS. They were shareholders of UV Waterguard Systems Inc (UVWG), a company
purchased by UVS in 1995. The Dissidents had disputed that purchase. To
settle the matter and to avoid long and potentially expensive litigation, UVS
and the Dissidents agreed in October 1998 that UVS would issue one share of
UVS common stock for each UVWG share held. In December, 1999 Service Systems
agreed to issue .22514 shares of common stock of Service Systems in exchange
one UVS shares and one UVWG share. In total, 230,030 shares of UVS and UVWG
shares were tendered in exchange for 51,798 Service Systems shares. The
Service System shares were issued under the exemption provided by Regulation S.
Each of the Dissidents was a sophisticated, knowledgeable investor with access
to all information required in order to invest in restricted shares of Service
Systems as contemplated by the agreement between the Dissidents and Service
Systems.
Service Systems issued to 2 Canadian investors, each of whom were previous
shareholders of the Company, 119,100 shares of restricted common stock valued
at a total of $37,000 and warrants to purchase 119,100 shares of common stock
exercisable at $.30 per share, pursuant to Regulation S. In addition, the
Company issued to 2 Canadian consultants, pursuant to Regulation S, warrants
to purchase a total of 100,000 class "A" warrants to purchase common stock
for their services as consultants.
Service Systems also issued to 2 consultants 31,750 shares of common stock
pursuant to Section 4(2) of the Securities Act, for services valued at $9,525.
During the quarter, class "A" warrants for 25,000 shares of the Company's
common stock were exercised by each of 2 Canadian investors. These investors
were issued warrants for an additional 25,000 shares each at an exercise
price of $.40 per share under Regulation S.
All of these investors were informed of the risks involved in an investment
in the Company and had all information about the Company that they needed to
make an informed investment in the Company. All shares bear restrictive
legends.
In addition, the Company issued, after the end of the quarter, 2,819,723 shares
to WOF, and 1,404,109 shares to MDF pursuant to the Letter Agreement dated
February 14, 2000 discussed above.
Item 3. Defaults upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (exhibit reference numbers refer to Item 601 of
Regulation SB)
Exhibit Number Description
(3)(i) Articles of Incorporation(1)
(3)(ii) Bylaws(2)
- ----------------------------------
1 Incorporated by reference to the Registrant's Form 10-SB effective
1/17/97
2 Incorporated by reference to the Registrant's Form S-8 effective
10/6/97
16
<PAGE>
<TABLE>
<S> <C> <C>
(4) Statement re: computation of per share earnings Filed electronically herewith
(10)(vi) 1999 Long Term Equity Incentive Plan Filed electronically herewith
(10)(vii) Letter Agreement with WOF and MDS Filed electronically herewith
(27) Financial Data Schedule Filed electronically herewith
</TABLE>
17
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
SERVICE SYSTEMS INTERNATIONAL, LTD.
Date: April 14, 2000 /s/ Kenneth R. Fielding
---------------------------------------
Kenneth R. Fielding, President
Date: April 14, 2000 /s/ John R. Gaetz
---------------------------------------
John R. Gaetz, Chief Financial Officer
18
<PAGE>
Exhibit 4
Service Systems International, Ltd.
Computation of Per-Share Income
Treasury Stock Method
As Modified for 20% Test
<TABLE>
<CAPTION>
PERIOD ENDED FEB. 29, 2000
SIX MONTHS
<S> <C>
Weighted average number of shares outstanding 14,900,183
----------
Total common and common equivalent shares 14,981,183
==========
Net income (loss) for the period $ (660,140)
=============
Total common and common equivalent shares 14,981,090
==========
Loss per common and common equivalent shares $ (0.04)
=============
</TABLE>
Earnings per share:
The earnings per share is computed by dividing the net income (loss) for the
period by the weighted average number of common shares outstanding for the
period. Common stock equivalents are excluded from the computation if their
effect would be anti-dilutive.
<PAGE>
Exhibit 10(i)
Service Systems International, Ltd.
1999 Long-Term Equity Incentive Plan
Section 1. Purpose
Service Systems International, Ltd. (hereinafter referred to as the
"Company"), a Nevada corporation, hereby establishes the 1999 Long-Term
Equity Incentive Plan (the "Plan") to promote the interests of the Company
and its shareholders through the (i) attraction and retention of directors,
executive officers and other key employees essential to the success of the
Company; (ii) motivation of executive officers and other key employees using
performance related and stock based incentives linked to longer range
performance goals and the interests of Company shareholders; and (iii)
enabling of these directors and employees to share in the long term growth
and success of the Company. The Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options (intended to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended), Restricted Stock, and
Performance Shares, subject to the provisions of this Plan document and
applicable law.
Section 2. Effective Date and Duration
The Plan was approved by the Committee and the Board of Directors on December
17, 1999. The Plan shall be effective on December 17, 1999; however, any Award
granted under this Plan before the Plan is approved by shareholders, shall be
granted subject to shareholder approval of the Plan if that approval is, in the
sole determination of the Board of Directors, required for any reason. The Plan
shall expire on December 17, 2009; however, all Awards made before, and
outstanding on that date, shall remain valid in accordance with their terms and
conditions.
Section 3. Definitions
Except as otherwise defined in the Plan, the following terms shall have the
meanings set forth below:
3.1 "Affiliate" shall have the meaning ascribed to such term in Rule 12b 2 under
the Exchange Act.
3.2 "Award" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, Restricted Stock, or
Performance Shares.
3.3 "Award Date" or "Grant Date" means the date on which an Award is made by the
Committee under this Plan.
<PAGE>
3.4 "Award Agreement" or "Agreement" means a written agreement implementing the
grant of each Award signed by an authorized officer of the Company and by the
Participant.
3.5 "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d
3 under the Exchange Act.
3.6 "Board" or "Board of Directors" means the Board of Directors of the Company.
3.7 "Cashless Exercise" means the exercise of an Option by the Participant
through the use of a brokerage firm to make payment to the Company of the
exercise price either from the proceeds of a loan to the Participant from the
brokerage firm or from the proceeds of the sale of Stock issued pursuant to the
exercise of the Option, and upon receipt of such payment, the Company delivers
the exercised Shares to the brokerage firm. The date of exercise of a Cashless
Exercise shall be the date the broker executes the sale of exercised Shares, or
if no sale is made, the date the broker receives the exercise loan notice from
the Participant to pay the Company for the exercised Shares.
3.8 "Change in Control" means a change in control of the Company of a nature
that would be required to be reported in response to Item 1(a) of the Current
Report on Form 8 K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Exchange Act; provided, that without limitation, such a Change in
Control shall be deemed to have occurred at such time as a "person" (as used in
Section 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d 3 under the Exchange Act), directly or indirectly, of 15% or
more of the combined voting power of the Company's outstanding securities
ordinarily having the right to vote in elections of directors; or (b)
individuals who constitute the Board of Directors of the Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a Director subsequent to the
date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the Directors
comprising the Incumbent Board shall be, for purposes of this subsection (b),
considered as though such person were a member of the Incumbent Board.
Notwithstanding the foregoing definition, no Change in Control shall be deemed
to have occurred unless and until the Participant has actual knowledge from one
of the following sources: a report filed with the Securities and Exchange
Commission, a public statement issued by the Company, or a periodical of general
circulation, including but not limited to The New York Times or The Wall Street
Journal.
3.9 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
3.10 "Committee" means the Compensation Committee of the Board which will
administer the Plan pursuant to Section 4 herein.3.11 "Common Stock" or "Stock"
means the Common Stock of the Company, or such other security or right or
instrument into which such Common Stock may be changed or converted in the
future.
2
<PAGE>
3.12 "Company" means Service Systems International, Ltd., including all
Affiliates and Subsidiaries, or any successor thereto.
3.13 "Covered Participant" means a Participant who is a "covered employee" as
defined in Section 162(m)(3) of the Code, and the regulations promulgated
thereunder.
3.14 "Department" means the Department of the Company responsible for Human
Resources.
3.15 "Designated Beneficiary" means the beneficiary designated by the
Participant, pursuant to procedures established by the Department, to receive
amounts due to the Participant in the event of the Participant's death. If the
Participant does not make an effective designation, then the Designated
Beneficiary will be deemed to be the Participant's estate.
3.16 "Director" shall mean a non-employee member of the Board of Directors as
defined in Rule 16b.
3.17 "Disability" means (i) the mental or physical disability, either
occupational or non-occupational in origin, of the Participant defined as "total
disability" in the Long term Disability Plan of the Company currently in effect
and as amended from time to time; or (ii) a determination by the Committee of
"Total Disability" based on medical evidence that precludes the Participant from
engaging in any occupation or employment for wage or profit for at least twelve
months and appears to be permanent.
3.18 "Divestiture" means the sale of, or closing by, the Company of the business
operations in which the Participant is employed.
3.19 "Early Retirement" means retirement of a Participant from employment with
the Company after age 55, but before the Company's normal retirement date as
stated in its employee policies.
3.20 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.21 "Executive Officer" means those individuals designated as "officers" for
purposes of Section 16 of the Securities Exchange Act of 1934 by the Board.
3.22 "Fair Market Value" means, on any given date, the closing price of the
Stock as reported on the NASDAQ on the immediately preceding trading day, all as
reported by such source as the Committee may select.
3.23 "Full time Employee" means an employee designated by the Company as being a
"regular, full time employee" who is eligible for all plans and programs of the
Company set forth for those employees. This designation includes all part time,
temporary, leased or contract employees who work for the Company more than 10
hours a week,
3
<PAGE>
consultants and product sales agents and representatives to the Company, all of
whom would be eligible to be included in a registration statement with the
Securities and Exchange Commission on a Form S-8.
3.24 "Incentive Stock Option" or "ISO" means an option to purchase Stock,
granted under Section 7 herein, which is designated as an incentive stock option
and is intended to meet the requirements of Section 422 of the Code.
3.25 "Key Employee" means an officer or other employee of the Company, who, in
the opinion of the Committee, can contribute significantly to the growth and
profitability of, or perform services of major importance to, the Company.
3.26 "Nonqualified Stock Option" or "NQSO" means an Option to purchase Stock,
granted under Section 7 herein, which is not intended to be an Incentive Stock
Option.
3.27 "Normal Retirement" means the retirement of any Participant under the
Company's regular policies at age 65.
3.28 "Option" means an Incentive Stock Option or a Nonqualified Stock Option.
3.29 "Participant" means a Key Employee or Director who has been granted an
Award under the Plan.
3.30 "Performance Based Exception" means the performance based exception from
the tax deductibility limitations of Code Section 162(m).
3.31 "Performance Measures" mean, unless and until the Committee proposes for
shareholder approval and the Company's shareholders approve a change in the
general performance measures set forth in this article, the attainment of which
may determine the degree of payout and/or vesting with respect to Awards which
are designed to qualify for the Performance Based Exception, measure(s) chosen
from among the following alternatives:
(a) Total shareholder return (absolute or peer group comparative)
(b) Stock price increase (absolute or peer group comparative)
(c) Dividend payout as a percentage of net income (absolute or peer group
comparative)
(d) Return on equity (absolute or peer group comparative)
(e) Return on capital employed (absolute or peer group comparative)
(f) Cash flow, including operating cash flow, free cash flow, discounted cash
flow return on investment, and cash flow in excess of cost of capital
4
<PAGE>
(g) Economic value added (income in excess of capital costs)
(h) Market share
(i) Earnings Per Share (absolute or peer group performance)
(j) Growth in Earnings per share (absolute or peer group performance)
(k) Net income (either pre-tax or after tax and either absolute or peer group
performance)
(l) Operating earnings, earnings before interest and taxes ("EBIT") and earnings
before interest, taxes, depreciation and amortization ("EBITDA") (absolute or
peer group performance)
(m) Annual revenues and growth in revenues (absolute or peer group performance)
(n) Reduction of debt to asset ratio
(o) Increase in number of marketing Agents/Representatives
(p) Attainment of specific Standard approvals, including but not limited to,
product acceptance for sale in the State of California under Title 22,
International Standard Association Approval (ISO 9000 series and ISO 14000
series), Canadian Standard Association Product Approval (CSA), Underwriters
Laboratories Approval (UL)
(q) Attainment of purchase order, task or project, on schedule, at contract or
budgeted price, with required or targeted result achieved
(r) Company implementation of a participant's recommendation or suggestion
resulting in a reduction of product cost or substantial increase in product
performance
(s) Increase or realignment of marketing efforts resulting in an increase in
product sales of more than 10% from the previous fiscal year or defined
financial period.
3.32 "Performance Period" means the time period designated by the Committee
during which performance goals must be met.
3.33 "Performance Share" means an Award, designated as a Performance Share,
granted to a Participant pursuant to Section 9 herein, the value of which is
determined, in whole or in part, by the value of Stock in a manner deemed
appropriate by the Committee and described in the Agreement or Sub Plan.
3.34 "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is restricted, pursuant to Section 8 of the Plan.
5
<PAGE>
3.35 "Person" shall have the meaning ascribed to such term in Section 3 (a) (9)
of the Exchange Act and used in Sections 13 (d) and 14 (d) thereof, including a
"group" as defined in Section 13 (d).
3.36 "Plan" means the Service Systems International, Ltd. 1999 Long-Term Equity
Incentive Plan as herein described and as hereafter from time to time amended.
3.37 "Restricted Stock" means an Award of Stock granted to a Participant
pursuant to Section 8 of the Plan.
3.38 "Rule 16b 3" means Rule 16b 3 under Section 16(b) of the Exchange Act as
adopted in Exchange Act Release No. 34 37260 (May 31, 1996, effective August 15,
1996), or any successor rule as amended from time to time.
3.39 "Section 162(m)" means Section 162(m) of the Code, or any successor section
under the Code, as amended from time to time and as interpreted by final or
proposed regulations promulgated thereunder from time to time.
3.40 "Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any successor law, as amended from time
to time.
3.41 "Stock" or "Shares" means the Common Stock of the Company.
3.42 "Sub Plan" means a written document that permits the grant of Awards
consistent with the provisions of this Plan.
3.43 "Subsidiary" means a corporation in which the Company owns, either directly
or through one or more of its Subsidiaries, at least 50% of the total combined
voting power of all classes of stock.
Section 4. Administration
4.1 The Committee. The Plan shall be administered and interpreted by the
Committee, which shall have full authority and all powers necessary or desirable
for such administration. The express grant in this Plan of any specific power to
the Committee shall not be construed as limiting any power or authority of the
Committee. In its sole and complete discretion the Committee may adopt, alter,
suspend and repeal any such administrative rules, regulations, guidelines, and
practices governing the operation of the Plan as it shall from time to time deem
advisable. In addition to any other powers and, subject to the provisions of the
Plan, the Committee shall have the following specific powers: (i) to determine
the terms and conditions upon which the Awards may be made and exercised; (ii)
to determine all terms and provisions of each Agreement and/or Sub Plan, which
need not be identical for types of Awards nor for the same type of Award to
different Participants; (iii) to construe and interpret the Agreements, Sub
Plans and the Plan; (iv) to establish, amend, or waive rules or regulations for
the Plan's administration; (v) to accelerate the exercisability of any Award,
the length of a Performance Period or
6
<PAGE>
the termination of any Period of Restriction; and (vi) to make all other
determinations and take all other actions necessary or advisable for the
administration of the Plan. The Committee may take action by a meeting in
person, by unanimous written consent, or by meeting with the assistance of
communications equipment which allows all Committee members participating in the
meeting to communicate in oral or written form or as permitted by applicable
law. The Committee may seek the assistance or advice of any persons it deems
necessary to the proper administration of the Plan.
4.2 Selection of Participants. The Committee shall have sole and complete
discretion to determine those Key Employees and Directors who shall participate
in the Plan. The Committee may request recommendations for individual Awards
from the Chief Executive Officer of the Company and may delegate to the Chief
Executive Officer of the Company the authority to make Awards to Participants
who are not Executive Officers of the Company, subject to a fixed maximum Award
amount for such a group and a maximum Award amount for any one Participant, as
determined by the Committee. Awards made to the Executive Officers shall be
determined by the Committee.
4.3 Award Agreements and Sub Plans. Each Award granted under the Plan shall be
granted either under the terms of an Award Agreement and/or a Sub Plan. Award
Agreements and Sub Plans shall specify the terms, conditions and any rules
applicable to the Award, including but not limited to the effect of
transferability, a Change in Control, or death, Disability, Divestiture, Early
Retirement, Normal Retirement or other termination of employment of the
Participant of the Award. If the Award is granted under the terms of an Award
Agreement, the Award Agreement shall be signed by an authorized representative
of the Company and the Participant, and a copy of the signed Award Agreement
shall be provided to the Participant. If the Award is granted under the terms
and conditions of a Sub Plan, the Sub Plan shall be approved by the Committee as
an Exhibit to the Plan, and a copy of the Sub Plan or a summary description
thereof shall be provided to each Participant.
4.4 Committee Decisions. All determinations and decisions made by the Committee
pursuant to the provisions of the Plan shall be final, conclusive, and binding
upon all persons, including the Company, its stockholders, employees,
Participants, and Designated Beneficiaries, except when the terms of any sale or
award of shares of Stock or any grant of rights or Options under the Plan are
required by law or by the Articles of Incorporation or Bylaws of the Company to
be approved by the Company's Board of Directors or shareholders before any such
sale, award or grant.
4.5 Rule 16b 3 and Section 162(m) Requirements. Notwithstanding any other
provision of the Plan, the Committee may impose such conditions on any Award,
and the Board may amend the Plan in any such respects, as may be required to
satisfy the requirements of Rule 16b 3 or Section 162(m).
4.6 Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against
reasonable expenses incurred
7
<PAGE>
from their administration of the Plan. Such reasonable expenses include, but are
not limited to, attorneys' fees, actually and reasonably incurred in connection
with the defense of any action, suit or proceeding, or in connection with any
appeal therein, to which they or any of them may be a party by reason of any
action taken or failure to act under or in connection with the Plan or any Award
granted or made hereunder, and against all amounts reasonably paid by them in
settlement thereof or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, if such members acted in good faith and in a manner
which they believed to be in, and not opposed to, the best interests of the
Company.
Section 5. Eligibility
The Committee in its sole and complete discretion shall determine the Key
Employees, including officers and Directors, who shall be eligible for
participation under the Plan, subject to the following limitations: (i) no
member of the Committee or Director shall be eligible to participate under the
Plan except with full Board approval; (ii) no person owning, directly or
indirectly, more than 20% of the total combined voting power of all classes of
Stock shall be eligible to participate under the Plan, and (iii) only Full time
Employees shall be eligible to participate under the Plan, except that Directors
may be granted Nonqualified Stock Options or Restricted Stock awards.
Section 6. Shares Subject to the Plan
6.1 Number of Shares. Subject to adjustment as provided in Section 6.4 herein,
the maximum aggregate number of Shares that may be issued pursuant to Awards
made under the Plan shall not exceed 3,000,000 Shares of Common Stock, which may
be in any combination of Options, Restricted Stock, or any other rights or
Options. Shares of Common Stock may be available from the authorized but
unissued Shares of Common Stock, or any Shares of Common Stock acquired by the
Company, including Shares of Common Stock purchased in the open market. Except
as provided in Section 6.2 and 6.3 herein, the issuance of Shares in connection
with the exercise of, or as other payment for, Awards under the Plan shall
reduce the number of Shares available for future Awards under the Plan.
6.2 Lapsed Awards of Forfeited Shares. If (i) any Option or other Award granted
under the Plan terminates, expires, or lapses for any reason other than exercise
of the Award, or (ii) if Shares issued pursuant to the Awards are canceled or
forfeited for any reason, the Shares subject to that Award shall thereafter
again be available for grant of an Award under the Plan.
6.3 Delivery of Shares as Payment. If a Participant pays for any Option or other
Award granted under the Plan or for withholding taxes through the delivery of
previously acquired shares or withholding of shares of Common Stock, or
withholding of shares of common stock which otherwise would have been issued,
the number of shares of Common Stock available for Awards under the Plan shall
be increased by the number of
8
<PAGE>
Shares surrendered by the Participant, or withheld, subject to Rule 16b 3 as
interpreted by the Securities and Exchange Commission or its staff.
6.4 Capital Adjustments. The number and class of Shares subject to each
outstanding Award, the Option Price and the aggregate number, type and class of
Shares for which Awards thereafter may be made shall be subject to adjustment,
if any, as the Committee deems appropriate, based on the occurrence of a number
of specified and non specified events. Such specified events include but are not
limited to the following:
(a) If the outstanding Shares of the Company are increased, decreased or
exchanged through merger, consolidation, sale of all or substantially all of the
property of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split or other distribution in respect to such Shares, for
a different number or type of Shares, or if additional Shares or new or
different Shares are distributed with respect to such Shares, an appropriate and
proportionate adjustment shall be made in: (i) the maximum number of shares of
Stock available for the Plan as provided in Section 6.1 herein, (ii) the type of
Shares or others securities available for the Plan, (iii) the number of shares
of Stock subject to any then outstanding Awards under the Plan, and (iv) the
price (including exercise price) for each share of Stock (or other kind of
shares or securities) subject to then outstanding awards, but without change in
the aggregate purchase as to which such Options remain exercisable or Restricted
Stock releasable.
(b) If other events not specified above in this Section 6.4, such as any
extraordinary cash dividend, split up, spin off, combination, exchange of
shares, warrants or rights offering to purchase Common Stock, or other similar
corporate event affect the Common Stock such that an adjustment is necessary to
maintain the benefits or potential benefits intended to be provided under this
Plan, then the Committee in its discretion may make adjustments to any or all of
(i) the number and type of Shares which thereafter may be optioned and sold or
awarded, (ii) the grant, exercise or conversion price of any Award made under
the Plan thereafter, and (iii) the number and price (including Exercise Price)
of each share of Stock (or other kind of shares or securities) subject to then
outstanding Awards, but without change in the aggregate purchase price as to
which such Options remain exercisable or Restricted Stock releasable. Any
adjustment as provided above shall be subject to any applicable restrictions set
forth in Section 13 or in Section 162(m).
(c) Any adjustment made by the Committee pursuant to the provisions of this
Section 6.4, subject to approval by the Board of Directors, shall be final,
binding and conclusive. A notice of such adjustment, including identification of
the event causing such an adjustment, the calculation method of such adjustment,
and the change in price and the number of shares of Stock, or securities, cash
or property purchasable subject to each Award shall be sent to each Participant.
No fractional interests shall be issued under the Plan based on such
adjustments, and shall be forfeited.
Section 7. Stock Options
9
<PAGE>
7.1 Grant of Stock Options. Subject to the terms and provisions of the Plan and
applicable law, the Committee, at any time and from time to time, may grant
Options to Key Employees and Directors as it shall determine, provided however,
that Directors may only receive NQSO's. The Committee shall have sole and
complete discretion in determining the type of Option granted, the Option Price
(as hereinafter defined), the duration of the Option, the number of Shares to
which an Option pertains, any conditions imposed upon the exercisability or
transferability of the Options, the conditions under which the Option may be
terminated and any such other provisions as may be warranted to comply with the
law or rules of any securities trading system or stock exchange. Notwithstanding
the preceding, grants to Directors must be approved by the full Board. Each
Option grant shall have such specified terms and conditions detailed in an Award
Agreement. The Agreement shall specify whether the Option is intended to be an
Incentive Stock Option within the meaning of Section 422 of the Code, or a
Nonqualified Stock Option.
7.2 Option Price. The exercise price per share of Stock covered by an Option
("Option Price") shall be determined at the time of grant and by the Committee,
subject to the limitation that the Option Price shall not be less than 100% of
Fair Market Value of the Common Stock on the Grant Date.
7.3 Exercisability. Options granted under the Plan shall be exercisable at such
times and be subject to such restrictions and conditions as the Committee shall
determine, which will be specified in the Award Agreement and need not be the
same for each Participant. However, no Option may be exercisable after the
expiration of ten years from the Grant Date.
7.4 Method of Exercise. Options shall be exercised by the delivery of a written
notice from the Participant to the Company in the form prescribed by the
Committee setting forth the number of Shares with respect to which the Option is
to be exercised, accompanied by full payment for the Shares. The Option Price
shall be payable to the Company in full in cash, or its equivalent, or by
delivery of Shares of Stock (not subject to any security interest or pledge) or
withholding (in the case of NQSO's) shares which would otherwise be acquired
upon exercise, valued at Fair Market Value at the time of exercise or by a
combination of the foregoing. In addition, at the request of the Participant,
and subject to applicable laws and regulations, the Company may (but shall not
be required to) cooperate in a Cashless Exercise of the Option. In addition, any
NQSO granted under the Plan may provide, at the committee's discretion, that
payment of the exercise price may also be made in whole or in part in the form
of shares of common stock subject to risk of forfeiture or other restrictions.
As soon as practicable, after receipt of written notice and payment, the Company
shall deliver to the Participant, Stock certificates in an appropriate amount
based upon the number of Shares with respect to which the option is exercised,
issued in the Participant's name.
7.5 Notice. Each Participant shall give prompt notice to the Company of any
disposition of Shares acquired upon exercise of an Incentive Stock Option if
that disposition occurs
10
<PAGE>
within either two (2) years after the date of grant or one (1) year after the
date of transfer of those Shares to the Participant upon the exercise of the
Incentive Stock Option.
7.6 Maximum Award. Each Participant's Award shall be limited to the maximum
Award set out in Section 11 of this Plan.
Section 8. Restricted Stock
8.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan
and applicable law, the Committee, at any time and from time to time, may grant
shares of Restricted Stock under the Plan to such Participants, and in such
amounts and for such duration and/or consideration as it shall determine.
Participants receiving Restricted Stock Awards are not required to pay the
Company therefor (except for applicable tax withholding) other than the
rendering of services and/or until other considerations are satisfied as
determined by the Committee at its sole discretion.
8.2 Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced
by an Agreement that shall specify the Period of Restriction; the conditions
which must be satisfied before removal of the restriction; the number of Shares
of Restricted Stock granted; and such other provisions as the Committee shall
determine. The Committee may specify, but is not limited to, the following types
of restrictions in the Award Agreement: (i) restrictions on acceleration or
achievement of terms or vesting based on any business or financial goals of the
Company, including, but not limited to the Performance Measures set out in
Section 3.33, and (ii) any other further restrictions that may be advisable
under the law, including requirements set forth by the Securities Act, any
securities trading system or stock exchange upon which such Shares under the
Plan are listed.
8.3 Removal of Restrictions. Except as otherwise noted in this Section 8,
Restricted Stock covered by each Award made under the Plan shall be provided and
become freely transferable by the Participant after the last day of the Period
of Restriction and/or upon the satisfaction of other conditions as determined by
the Committee. Except as specifically provided in this Section 8, the Committee
shall have no authority to reduce or remove the restrictions or to reduce or
remove the Period of Restriction without the express consent of the stockholders
of the Company. If the grant of Restricted Stock is performance based, the total
Restricted Period for any or all shares of Restricted Stock so granted shall be
no less than one (1) year. Any other shares of Restricted Stock issued pursuant
to this Section 8 shall provide that the minimum Period of Restrictions shall be
two (2) years, which Period of Restriction may permit the removal of
restrictions on no more than one half (1/2) of the shares of Restricted Stock at
the end of the first year following the Grant Date, and the removal of the
restrictions on an additional one half (1/2) of the Shares at the end of each
subsequent year. In no event shall any restrictions be removed from shares of
Restricted Stock during the first year following the Grant Date except if a
Change in Control occurs.
11
<PAGE>
8.4 Voting Rights. During the Period of Restriction, Participants in whose name
Restricted Stock is granted under the Plan may exercise full voting rights with
respect to those Shares.
8.5 Dividends and Other Distributions. During the Period of Restriction,
Participants in whose name Restricted Stock is granted under the Plan shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares. If any such dividends or distributions are paid in Shares, the
Shares shall be subject to the same restrictions on transferability as the
Restricted Stock with respect to which they were distributed.
8.6 Maximum Award. Each Participant's Award shall be limited to the maximum
Award set out in Section 11 of this Plan.
Section 9. Performance Based Awards
9.1 Grant of Performance Awards. Subject to the terms and provisions of the Plan
and applicable law, the Committee, at any time and from time to time, may issue
Performance Awards in the form of Performance Shares to Participants subject to
the Performance Measures and Performance Period as it shall determine. The
Committee shall have complete discretion in determining the number and value of
Performance Shares granted to each Participant. Participants receiving
Performance Awards are not required to pay the Company therefor (except for
applicable tax withholding) other than the rendering of services.
9.2 Value of Performance Awards. The Committee shall determine the number and
value of Performance Shares granted to each Participant as a Performance Award.
The Committee shall set Performance Measures in its discretion for each
Participant who is granted a Performance Award. The extent to which those
Performance Measures are met will determine the number of Performance Shares
earned by the Participant. Such Performance Measures may be particular to a
Participant, may relate to the performance of the Subsidiary or Affiliate which
employs him or her, may be based on the division which employs him or her, may
be based on the performance of the Company generally, or a combination of the
foregoing. The terms and conditions of each Performance Award will be set forth
in an Agreement and/or a Sub Plan.
9.3 Settlement of Performance Awards. After a Performance Period has ended, the
holder of a Performance Share shall be entitled to receive the value thereof
based on the degree to which the Performance Measures established by the
Committee and set forth in the Agreement and/or Sub Plan have been satisfied.
9.4 Form of Payment. Payment of the amount to which a Participant shall be
entitled upon the settlement of a Performance Award shall be made in cash,
Stock, or a combination thereof as determined by the Committee. Payment may be
made in a lump sum or installments as prescribed by the Committee.
12
<PAGE>
9.5 Maximum Award. Each Participant's Award shall be limited to the maximum
Award set out in Section 11 of this Plan.
10. Election By Directors. For any service year as a Director of the Company, a
Director may elect to have up to 100% of the Director's cash compensation to be
payable by the Company during that year for the Director's services as a
Director applied to the purchase of shares of Common Stock ("Elected Amount"),
as provided in this Section. "Service year" means the period of a Director's
service beginning upon the Director's election or appointment (or, as to
Directors in office on the effective date of this Plan, the first day of the
then current fiscal year of the Company) and ending the earlier of one year from
its beginning or at the next meeting of shareholders of the Company at which
Directors are elected, but will never be less than three months. The Director
must notify the Board of Directors in writing of that election before the first
day of the service year for which the election is made, or as required by
Section 16(b), (or before such later date as may be approved by the Board of
Directors). Unless otherwise determined by the Board of Directors, a separate
election must be made for each service year. An election made pursuant to this
Section shall be irrevocable from and after the first day of that service year;
provided, however, that an election made during a service year for the remaining
portion of that service year shall be irrevocable from and after the date the
election is made. Elections shall be made on a form prescribed by the Board of
Directors.
10.2 Issuance Of Shares Pursuant To Election. Promptly following the end of each
year of a Director's service, the Company shall, subject to the provisions of
this Section, issue to each Director who elected to receive shares of Common
Stock, effective as of the last day of that service year, a number of whole
shares determined by the Board of Directors. This issuance shall be deemed to be
a separate Share Award made to the Director. No fractional shares of Common
Stock shall be issued to an electing Director by the Company under this Section,
and no cash payment or other adjustment shall be made in respect of any such
fractional share that would otherwise be issuable.
10.3 Eligibility Of Electing Director. A Director must be serving as a Director
on the last day of the service year in order to be eligible to receive shares of
Common Stock pursuant to this Section in respect of the Director's Elected
Amount, if any, for that service year. Any Director who becomes ineligible to
receive shares of Common Stock in respect of the Director's Elected Amount for a
service year because the Director's service as a Director terminated before the
last day of the service year shall be paid any earned amounts of the Elected
Amount in cash, without interest, as promptly as practicable following the date
of the termination of service, and the election made by that Director with
respect to the Elected Amount shall be null and void effective as of the date of
that termination of service.
10.4 Restriction On Transfer Of Shares. No shares issued to a Director in
respect of an Elected Amount shall be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of by the Director, other than by will or
pursuant to the laws of descent or distribution (unless otherwise permitted
under Section 16(b), as determined by the Board
13
<PAGE>
of Directors in its sole discretion, and at the Board's sole option), until six
months have elapsed from the effective date of issuance of those shares. The
Company shall hold the certificates representing those shares (and any other
securities distributed in respect of them) for the Director's benefit until the
restrictions on transfer have lapsed. Subject to the restrictions of this
paragraph, a Director shall have all rights as a shareholder, including voting
rights and the right to receive dividends and distributions, with respect to the
Director's shares.
Section 11. Special Provisions Applicable to Covered Participants
Unless the Committee in its sole discretion determines that any Award made to a
Covered Employee is not intended to qualify for the exemption for performance
based compensation under Section 162(m), Awards subject to Performance Measures
paid to Covered Participants under this Plan shall be governed by the conditions
of this Section 11 in addition to the requirements of Sections 7, 8 and 9 above.
Should conditions set forth under this Section 11 (when applicable) conflict
with the requirements of Sections 7, 8, and 9, the conditions of this Section 11
shall prevail.
(a) Performance Measures for Covered Participants shall be established by the
Committee in writing before the beginning of the Performance Period, or by such
other later date during the Performance Period as may be permitted under Section
162(m). Performance Measures for Covered Participants may include alternative
and multiple Performance Measures and may be based on one or more business
criteria.
(b) All Performance Measures must be objective and must satisfy third party
"objectivity" standards under Section 162(m).
(c) The Performance Measures shall not allow for any discretion by the Committee
as to an increase in any Award, but discretion to lower an Award is permissible.
(d) The Award and payment of any Award under this Plan to a Covered Participant
with respect to the relevant Performance Period shall be contingent upon the
attainment of the Performance Measures that are applicable to that Covered
Participant. The Committee shall certify in writing before payment of any such
Award that the applicable Performance Measures relating to the Award are
satisfied. Approved minutes of the Committee may be used for this purpose.
(e) The maximum Award that may be paid to any Covered Participant under the Plan
pursuant to Sections 7, 8, and 9 for any Performance Period is $1,500,000. The
maximum number of shares of Stock subject to Options, and/or Restricted Stock
granted to any Covered Participant for any Performance Period shall be 1,000,000
Shares.
(f) All Awards to Covered Participants under this Plan shall be further subject
to such other conditions, restrictions, and requirements as the Committee may
determine to be necessary to carry out the purpose of this Section 11.
14
<PAGE>
Section 12. General Provisions
12.1 Withholding. The Company shall have the right to deduct or withhold, or
require a Participant to remit to the Company, any taxes required by law to be
withheld with respect to the Awards made under this Plan. In the event an Award
is paid in the form of Common Stock, the Committee may require the Participant
to remit to the Company the amount of any taxes required to be withheld from
such payment in Common Stock, or, in lieu thereof the Company may withhold (or
the Participant may be provided the opportunity to elect to tender) the number
of shares of Common Stock equal in Fair Market Value to the amount required to
be withheld.
12.2 No Right to Employment. No granting of an Award shall be construed as a
right to employment with the Company.
12.3 Rights as Shareholder. Subject to the Award provisions, no Participant or
Designated Beneficiary shall be deemed a shareholder of the Company nor have any
rights as such with respect to any shares of Common Stock to be provided under
the Plan until he or she has become the holder of those Shares. Notwithstanding
the aforementioned with respect to Stock granted under a Restricted Stock
Agreement under this Plan, the Participant or Designated Beneficiary of such
Award shall be deemed the owner of such Shares. As such, unless contrary to the
provisions herein or in any such related Award Agreement, such stockholders
shall be entitled to full voting, dividend and distribution rights as provided
any other Company stockholder.
12.4 Construction of the Plan. The Plan, and its rules, rights, Agreements, Sub
Plans and regulations, shall be governed, construed, interpreted and
administered in accordance with applicable Federal laws, or to the extent that
Federal laws do not apply, the laws of the State of Nevada. In the event any
provision of the Plan shall be held invalid, illegal or unenforceable, in whole
or in part, for any reason, that determination shall not affect the validity,
legality or enforceability of any remaining provision, or portion of provision,
of the Plan overall, which shall remain in full force and effect.
12.5 Amendment of Plan. The Committee or Board of Directors may amend, suspend,
or terminate the Plan or any portion thereof at any time, provided the amendment
is made with shareholder approval if that approval is necessary to comply with
any tax or regulatory requirement, including for these purposes any approval
requirement for the performance based compensation exception under Section
162(m). The Committee in its discretion may amend the Plan so as to conform with
local rules and regulations subject to any provisions to the contrary specified
herein.
12.6 Amendment of Award. At any time and in its sole and complete discretion,
the Committee may amend any Award for the following reasons: (i) additions
and/or changes are made to the Code, any federal or state securities law, or
other law or regulations subsequent to the date of grant, and have an impact on
the Award; or (ii) for any other reason not described in clause (i) provided the
Participant gives his or her consent to such amendment.
15
<PAGE>
12.7 Exemption from Computation of Compensation for Other Purposes. By accepting
an Award under this Plan, each Participant agrees that such Award shall be
considered special incentive compensation and will be exempt from inclusion as
"wages" or "salary" for purposes of calculating benefits under pension, profit
sharing, disability, severance, life insurance, and other employee benefit plans
of the Company, except as otherwise provided in those benefit plans.
12.8 Legend. In its sole and complete discretion, the Committee may elect to
legend certificates representing shares of Stock sold or awarded under the Plan,
to make appropriate references to the restrictions imposed on such Shares.
12.9 Executive Officers and Covered Participants. All Award Agreements and/or
Sub Plans for Participants subject to Section 16(b) shall be deemed to include
any such additional terms, conditions, limitations and provisions as Rule 16b 3
requires, unless the Committee in its discretion determines that any such Award
should not be governed by Rule 16b 3. All performance based Awards shall be
deemed to include any such additional terms, conditions, limitations and
provisions as are necessary to comply with the performance based compensation
exemption of Section 162(m), unless the Committee, in its sole discretion,
determines that an Award to a Covered Participant is not intended to qualify as
exempt performance based compensation
12.10 Change in Control. If a Change in Control occurs, the Committee may, in
its sole and complete discretion, accelerate the payment or vesting of any Award
and release any restrictions on any Awards.
12.11 Divestiture. In the event of a Divestiture, the Committee may, in its sole
and complete discretion, accelerate the payment or vesting of any Award and
release any restrictions on any Awards.
12.12 Unfunded Obligation. Nothing in this Plan shall be interpreted or
construed to require the Company in any manner to fund any obligation to the
Participants or any Designated Beneficiary. Nothing contained in this Plan nor
any action taken hereunder shall create, or be construed to create a trust of
any kind, or a fiduciary relationship between the Company and/or the Committee,
and the Participants and/or any Designated Beneficiary. To the extent that any
Participant or Designated beneficiary acquires a right to receive payments under
this Plan, such rights shall be no greater than the rights of any unsecured
general creditor of the Company.
12.13 Plan Expenses. All reasonable expenses of the Plan shall be paid by the
Company.
16
<PAGE>
Exhibit 10(ii)
This letter agreement signed for reference the14th day of February, 2000
Between;
Growth Works Capital Ltd. (WOF) Fax: 669 7605
(Managers of Working Opportunity Fund (EVCC) Ltd.
Attention: Mike Phillips
and
MDS Ventures Pacific Inc. (MDS) Fax: 872 2977
Attention: David Scott
and
Service Systems International Ltd. (SSI)
and
UV Systems Technology Inc. (UVST)
The purpose of this letter agreement is to purchase from WOF and MDS, all Class
B common shares and Class A Preferred shares of UVST owed by WOF and MDS., by
issue of common shares of Service Systems International Ltd.
Accrued interest up to the date of completing the purchase of the UVST shares
held by WOF and MDS will be cancelled. These amounts currently are C$182,361
owing to WOF and C$39,222 owing to MDS.
The principal amount of loans owing to WOF, C$1,301,098 and MDS, C$275,000 will
be converted into common shares of SSI at US$0.50 per share. Using an exchange
rate of 1.46, the value per share is C$0.73 per share. This equates to 1,782,326
shares of SSI for WOF ($1,301,098/.073) and 376,712 shares for MDS
($275,000/0.73).
With respect to the UVST Class A preferred shares held by WOF and MDS we will
convert the full C$2,000,000 into SSI shares and would provide 1,027,397 shares
to WOF and 1,027,397 to MDS.
All Class B common shares of UVST held by WOF and MDS will be transferred to
SSI.
Currently there are a total of 14,981,090 shares of SSI issued and outstanding.
Under this purchase for all UVST shares held by WOF and MDS to SSI we would
issue additional shares totaling 4,213,832 bringing the total outstanding share
of SSI to 19,194,922. WOF and MDS or the assigns agree to vote their respective
shares as directed by the current Managing Directors, KF and JG until August 31,
2001.
A summary of this share transactions follows.
<TABLE>
<S> <C>
CURRENT SHARES OUTSTANDING IS SSI 14,981,090
WOF
Conversion of loan principal 1,782,326
Conversion of Class A shares 1.027,397 2,809,723
MDS
Conversion of loan principal 376,712
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C>
Conversion of Class A shares 1.027,397 1,404,109
--------- ---------
Total Shares issued and outstanding (post transaction) 19,194,922
==========
</TABLE>
Ken Fielding (KF) and John Gaetz (JG) will agree to a restriction on the sale of
their shareholdings. This restriction will remain in force until WOF has sold or
had an offer to sell at market price, 1,274,000 shares, thereafter the
opportunity to sell shall be on the basis of 50% WOF and 50% MDS until a further
1,000,000 shares have been sold at market prices, and thereafter the opportunity
to sell shall be on the basis of, 25% WOF, 25% MDS, 25% KF and 25% JG. If for
purposes of financing the needs of UVST, KF and JG wish to sell shares prior to
the completion of sales by WOF and MDS (in priority to KF and JG) than KF and JG
may apply to WOF and MDS for permission to do so; which permission will not be
unreasonably withheld.
The shares issued in this transaction are issued under Regulation S and are
restricted under US law, are being acquired for investment, may be transferred
under Regulation S requirements or an exemption from registration acceptable to
SSI. Thereafter, SSI will assist WOF and MDS to sell their position as and if
opportunities present themselves
Except for existing warrants or convertible debt instruments, SSI will restrict
the issues of additional shares. The issue of new shares will be tied to the
sale of WOF and MDS shares. In this regard, we will accept a restriction that no
more then 5.0 million shares will be issued until 50% of the total stock issued
to WOF and MDS has sold or had an offer to sell at market price and that no more
than 10.0 million shares will be issued until all of the shares of WOF and MDS
have been sold.
SSI will convert its loans into equity of UVST unless bonding agents or lenders
agree it is not necessary to do so.
The above is subject to internal approval of the parties and regulatory
advise/approval if and as needed. SSI will present this to its US legal counsel
for confirmation of any regulatory requirements.
This agreement may be executed by facsimile and by counterpart.
<TABLE>
<CAPTION>
SERVICE SYSTEMS INTERNATIONAL LTD. GROWTH WORKS CAPITAL
<S> <C>
(As Managers of Working Opportunity Fund (EVCC) Ltd.)
- -----------------------------------
Ken Fielding, President ----------------------------------------------------
M. E. Phillips, Senior VP, Investments
- -----------------------------------
J R Gaetz, Vice President MDS VENTURES PACIFIC INC.
UV SYSTEMS TECHNOLOGY INC ---------------------------------------
- -----------------------------------
Ken Fielding, President
- -----------------------------------
J R Gaetz, Executive Vice President
</TABLE>
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 11,774
<SECURITIES> 268,346
<RECEIVABLES> 115,538
<ALLOWANCES> 0
<INVENTORY> 315,991
<CURRENT-ASSETS> 745,451
<PP&E> 83,709
<DEPRECIATION> 165,089
<TOTAL-ASSETS> 1,996,344
<CURRENT-LIABILITIES> 927,881
<BONDS> 0
0
0
<COMMON> 14,981
<OTHER-SE> 3,566,371
<TOTAL-LIABILITY-AND-EQUITY> 1,966,344
<SALES> 49,124
<TOTAL-REVENUES> 49,124
<CGS> 35,441
<TOTAL-COSTS> 93,171
<OTHER-EXPENSES> 616,093
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (117,710)
<INCOME-PRETAX> (660,140)
<INCOME-TAX> 0
<INCOME-CONTINUING> (660,140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (660,140)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
