AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1997
REGISTRATION NO. 333-17399
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MERCURY WASTE SOLUTIONS, INC.
(Name of Small Business Issuer in its charter)
MINNESOTA 2819 41-1827776
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation) classification code number) Identification Number)
302 NORTH RIVERFRONT DRIVE, SUITE 100A
MANKATO, MINNESOTA 56001
(507) 345-0522
(Address and Telephone Number of Principal Executive Offices)
BRADLEY J. BUSCHER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MERCURY WASTE SOLUTIONS, INC.
302 NORTH RIVERFRONT DRIVE, SUITE 100A
MANKATO, MINNESOTA 56001
(507) 345-0522
(Name, Address, and Telephone Number of Agent For Service)
COPIES TO:
RUSSELL F. LEDERMAN, ESQ. ROBERT K. RANUM, ESQ.
SHAWN R. MCINTEE, ESQ. FREDRIKSON & BYRON, P.A.
MASLON EDELMAN BORMAN & BRAND, 1100 INTERNATIONAL CENTRE
A PROFESSIONAL LIMITED LIABILITY PARTNERSHIP 900 SECOND AVENUE SOUTH
3300 NORWEST CENTER MINNEAPOLIS, MINNESOTA 55402-3397
MINNEAPOLIS, MINNESOTA 55402-4140 (612) 347-7000
(612) 672-8200 FAX (612) 347-7077
FAX (612) 672-8397
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REIGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 28, 1997
PROSPECTUS
1,000,000 SHARES
[LOGO]
MERCURY WASTE SOLUTIONS, INC.
COMMON STOCK
Mercury Waste Solutions, Inc. (the "Company") is offering (the "Offering")
1,000,000 shares (the "Shares") of Common Stock at an initial public offering
price of $5.00 per share. Prior to this Offering, there has been no market for
the shares, and no assurance can be given that any such market will exist or
develop upon completion of this Offering or, if developed, will be maintained.
See "Underwriting" for information relating to the factors considered in
determining the Price to Public. The Company has applied for listing its Common
Stock on the Nasdaq SmallCap Market under the symbol MWSI.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE
"RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION" ON PAGE 13. THESE ARE
SPECULATIVE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
Per Share $5.00 $0.45 $4.55
Total(3) $5,000,000 $450,000 $4,550,000
(1) The Company has agreed to pay to Equity Securities Trading Co., Inc., (the
"Underwriter") a nonaccountable expense allowance equal to 2% of the gross
proceeds of the offering and has agreed to sell to the Underwriter five year
warrants to purchase up to 100,000 shares of Common Stock at 120% of the
Price to Public. The Company has also agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering estimated at $250,000, which does
not include the 2% nonaccountable expense allowance described in Note 1
above.
(3) The Company has granted the Underwriter a 45-day option to purchase up to
150,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the Total
Price to Public, Underwriting Discount and Proceeds to Company will be
$5,750,000, $517,500 and $5,232,500, respectively. See "Underwriting."
The Shares are being offered by the Underwriter when, as and if delivered to and
accepted by the Underwriter, and are subject to the right of the Underwriter to
withdraw, cancel or modify such offer and to its right to reject any order in
whole or in part. It is expected that delivery of the certificates representing
the Shares will be made on or about , 1997 in Minneapolis, Minnesota.
EQUITY SECURITIES TRADING CO., INC.
The date of this Prospectus , 1997
[PHOTO]
THE CONTINUOUS FLOW MERCURY DISTILLATION SYSTEM
[PHOTO]
MERCURY-CONTAINING PRODUCTS SUBJECT TO RETORTING AND RECYLYING INCLUDING
FLOURESCENT AND HID LAMPS, BATTERIES, SWITCHES AND CIRCUIT BOARDS
[PHOTO]
TECHNICIAN REMOVING SAMPLE OF RECOVERED MERCURY
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE INFORMATION IN
THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE
HEADING "RISK FACTORS", WHICH INVESTORS SHOULD CAREFULLY CONSIDER.
THE COMPANY
Mercury Waste Solutions, Inc. (the "Company") provides services and products to
mercury waste generators to reduce the risk of liability associated with mercury
waste disposal. The Company currently operates a mercury waste retorting
facility in Union Grove, Wisconsin and a facility to recycle and store
fluorescent and other mercury-containing lamps in Roseville, Minnesota. In
addition, the Company markets and sells or leases lamp recycling equipment.
Retorting is a form of distillation pursuant to which mercury is removed from
contaminated products via vaporization and condensation.
In January, 1996, the Company acquired substantially all of the assets of U.S.
Environmental, Incorporated ("USE"), a Minnesota-based mercury recycling company
founded in 1993 by Mark G. Edlund, the Company's President and Chief Operating
Officer. USE co-developed the Model 2000 lamp recycler (the "Model 2000"),
opened a mercury lamp recycling facility in Roseville, Minnesota (the "Roseville
Recycling Facility") to showcase the Model 2000 and co-developed mercury
retorting equipment installed at a facility in Union Grove, Wisconsin (the
"Union Grove Retorting Facility"). Since the acquisition of USE, the Company
improved the Model 2000 (the "Model 2000B") and began development of equipment
that processes mercury-containing lamps for more efficient storage and
transportation (the "Lamp Processor"). The Company has also developed a new
continuous flow oven and a stationary oven utilized at the Union Grove Retorting
Facility. On September 12, 1996, the Company acquired the interests of the
co-developer of the equipment located at the Union Grove Retorting Facility.
The Company's mission is to provide mercury waste recycling solutions to mercury
waste generators of all sizes including, but not limited to, public utilities,
manufacturers that utilize mercury in their business (e.g., measurement, control
and electrical equipment industries), building managers and hazardous waste
managers. The Company has provided lamp recycling or retorting services to a
variety of customers including Sylvania Lighting Services, Norwest Bank, Kansas
City Power & Light, Laidlaw Environmental Services and Pennsylvania Power &
Light, and has recently entered into contracts with the United States Postal
Service, PBM Construction (a general contractor to the U.S. Navy) and Eaton
Corporation. The Company believes that the mercury recycling industry has growth
potential because of: 1) stringent federal and state regulations governing
mercury-containing products; 2) acknowledgment from businesses of the potential
liability posed by mercury waste disposal; and 3) the growing recognition among
the public of the health risks of mercury. In a July 1994 article published by
the U.S. Environmental Protection Agency (the "EPA") titled GENERATION AND
TREATMENT OF MERCURY-BEARING WASTE, the EPA identified the total potential
demand for off-site retorting at 130,000 tons per year. The Company believes
that 30,000-40,000 tons of mercury waste generated per year are suitable for its
proprietary processing technology. In the same article, which was published
prior to the development of the Union Grove Retorting Facility, the EPA
estimated the retort industry capacity at 3,000 tons per year. The Company's
current retorting capacity is approximately 2,500 tons per year.
The Company presently offers the following services and products:
MERCURY WASTE RETORTING. The Company expects that a significant amount of its
revenue will consist of fees paid for retorting mercury waste to environmentally
acceptable levels. The Union Grove Retorting Facility utilizes a continuous flow
oven technology that processes more mercury waste in a shorter period of time
than other conventional methods presently utilized. The Company intends to apply
to the U.S. Patent and Trademark Office for protection of certain aspects of its
technology related to its retorting equipment. The processed waste from the
Union Grove Retorting Facility satisfies current federal and state environmental
standards for mercury waste and requires no further treatment as a hazardous
waste. The Company has also developed a high capacity stationary oven for
retorting larger, non-granular items such as thermostats and batteries. The
Company expects that the Union Grove Retorting Facility will derive its business
from: (1) large scale generators of mercury waste, particularly in the
measurement, control and electrical equipment industries; (2) lamp recycling
facilities, such as the Roseville Recycling Facility; (3) users of Lamp
Processors; and (4) other manufacturing facilities that utilize mercury in their
business. At the present time, the Company believes that the supply of
mercury-containing waste capable of being retorted exceeds the capacity of
mercury retorters. In order to more efficiently process mercury waste, the
Company intends to utilize a portion of the net proceeds of this Offering to
expand the Union Grove Retorting Facility to provide this capacity to store
mercury waste for a period of up to one year. For the year endedDecember 31,
1996, the Union Grove Retorting Facility generated approximately $638,000 in
revenues.
The Company's goal is to maximize the utilization of its Union Grove Retorting
Facility by acquiring and consolidating mercury waste generated throughout the
United States. The Company believes that mercury waste could be stored at
various locations across the country and transported to the Union Grove
Retorting Facility on a controlled basis. As part of such strategy, the Company
intends to utilize a portion of the proceeds of this Offering to acquire or
develop a consolidation and temporary hazardous waste storage facility (a "WSF")
in the Southwestern United States. Because governmental regulations limit the
amount of mercury waste that can be present at a retorting facility at any given
time, many generators of mercury waste are forced to store such waste in a
temporary hazardous waste storage facility prior to shipment to a retorting
facility or permanent hazardous waste disposal site. The Company believes that
the establishment of a WSF in the Southwestern United States would complement
the Company's business by consolidating the mercury waste located in the
Southwestern United States. This will allow the Company to control the shipments
of mercury waste to the Company's Union Grove Retorting Facility and achieve
maximum utilization of the facility's retorting capacity. The Company estimates
that the cost of acquiring or developing a 4,000 to 6,000 square foot WSF in the
Southwestern United States and establishing operations at such facility will be
approximately $300,000. After completion of the first WSF, the Company also
intends to develop a similar WSF in the Southeastern United States.
EQUIPMENT SALES AND LEASING. The Company intends to offer two proprietary types
of equipment for lease or sale: its Model 2000B lamp recycler and its Lamp
Processor. The Model 2000B can process approximately five million lamps annually
by separating the lamps into three principal components: glass, aluminum endcaps
and mercury-laced calcium phosphate powder. After separation, the powder's level
of mercury still exceeds federal and state guidelines for mercury and must
either be further retorted to remove the mercury or sent to a hazardous waste
landfill with potentially harmful environmental consequences. For the year ended
December 31, 1996, there were no sales of the Model 2000B lamp recycler because
the Company did not complete the purchase of the co-developer's rights to the
Model 2000 until September 12, 1996.
The Company is developing the Lamp Processor for marketing to businesses and
utilities that dispose of a large volume of fluorescent and other
mercury-containing lamps and desire to reduce lamp storage and transportation
costs. The Lamp Processor will reduce the lamps to a volume more convenient for
transporting and retorting. The Company anticipates that the Lamp Processor will
process lamps at a customer's business site and deposit the lamps into a sealed
holding container which will be periodically removed (and replaced with an empty
container) and transported to a mercury retorting facility such as the Union
Grove Retorting Facility. The Company intends to lease the Lamp Processor to its
customers. The Company believes that leasing, while requiring a greater initial
capital commitment by the Company, will better provide the Company with
recurring monthly revenue. A portion of the proceeds of this Offering will be
utilized to finance the final development and production of the Lamp Processor
for subsequent lease to customers.
LAMP RECYCLING. The Company operates the Roseville Recycling Facility in
Roseville, Minnesota, a suburb of St. Paul, which utilizes a Model 2000B to
recycle mercury-containing fluorescent lamps. The Roseville Recycling Facility
also collects other items including high intensity discharge ("HID") and neon
lamps, batteries, mercury-containing switches and thermostats for shipment to
and retorting by the Company's Union Grove Retorting Facility. The approximately
6,500 square foot Roseville Recycling Facility has processed approximately five
million lamps since it opened in April 1993. Fluorescent lamps are transported
to the Roseville Recycling Facility by Company-owned trucks that pick up
fluorescent lamps directly from customers or are delivered directly by the
customers. For the year ended December 31, 1996, the Roseville Recycling
Facility generated approximately $697,000 in revenues.
The Company was incorporated in January, 1996 as a Minnesota corporation. Its
principal executive offices are located at 302 North Riverfront Drive,
Mankato, Minnesota 56001 and the telephone number is (507) 345-0522.
THE OFFERING
COMMON STOCK OFFERED ............ 1,000,000 Shares
COMMON STOCK OUTSTANDING
AFTER THIS OFFERING ........... 3,369,097 Shares(1)(2)
PROPOSED NASDAQ SYMBOL .......... MWSI
USE OF PROCEEDS ................. A maximum of $1,660,000 to repay an
operating note to Norwest Bank
Minnesota, N.A.; $875,000 to expand
the Union Grove Retorting Facility,
develop an on-site hazardous waste
storage facility, and develop on-site
lamp processing capabilities;
$600,000 for the manufacture of the
Lamp Processor; $600,000 for the
lease or development of WSF temporary
hazardous waste storage facilities in
Southwestern and Southeastern parts
of the United States; and the balance
for working capital purposes.
(1) Includes 120,000 shares to be issued upon exercise of warrants simultaneous
with the effectiveness of this Offering.
(2) Does not include (i) 100,000 shares of Common Stock issuable upon exercise
of the Underwriter's Warrant at 120% of the Price to Public; (ii) 185,500
shares of Common Stock reserved for issuance under the Company's 1996 Stock
Option Plan of which 145,000 shares of Common Stock were subject to options
granted as of January 22, 1997; and (iii) 200,771 shares of Common Stock
issuable upon exercise of Warrants issued to certain individuals (including
certain officers and directors of the Company) prior to this Offering.
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED YEAR
DECEMBER 31, ENDED
1995 DECEMBER 31,
(PREDECESSOR) 1996
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Revenues $ 1,548,782 $ 1,334,709
Cost of revenues 783,355 552,681
Gross profit 765,427 782,028
Operating expenses 700,026 1,579,406
Interest expense 11,486 188,068
Net income (loss ) $ 53,915 $ (985,446)
PRO FORMA DATA(2)(3):
Net income (loss), as reported $ 53,915 $ (985,446)
Pro Forma provision for income taxes (Note 5) 13,500 --
Pro Forma net income (loss) $ 40,415 $ (985,446)
Net loss per share $ (0.40)
Weighted average number of common and common
equivalent shares outstanding 2,455,313
</TABLE>
DECEMBER 31, 1996
PRO PRO FORMA
ACTUAL FORMA(4) AS ADJUSTED(5)
BALANCE SHEET DATA:
Working capital $ 197,159 $ 197,159 $ 662,159
Total assets 2,566,585 2,566,585 5,106,585
Long-term
liabilities 2,064,867 1,929,867 269,867
Total liabilities 2,282,891 2,147,891 487,891
Shareholders' equity 283,694 418,694 4,618,694
(1) On January 4, 1996, the Company acquired substantially all the assets of
USE. The results of operations for the year ended December 31, 1995 are
those of USE. The results of USE from January 1, 1996 to January 3, 1996 are
included with the Company's 1996 results as they are not material.
(2) Since its incorporation on January 2, 1996, the Company has been an S
Corporation for federal and state income tax purposes and, accordingly, has
not been subject to federal or state income taxes. The pro forma statement
of operations data presented has been computed as if the Company were
subject to corporate federal and state income taxes. Net income (loss) does
not include a pro forma adjustment for income taxes due to the Company's net
loss. The Company's election to be taxed as an S Corporation will terminate
automatically upon the consummation of this offering. See Note 1 of Notes to
Financial Statements, "S Corporation Status" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(3) On a supplemental basis, as adjusted to give effect to the number of shares
offered hereby necessary to retire as of the beginning of the period or at
the date of issuance of the Company's interest bearing debt, the Company's
net loss, loss per share, and weighted average number of common and common
equivalent shares outstanding would have been $(815,296), $(0.29) and
2,787,313, respectively.
(4) Adjusted for the effect of the exercise of a warrant for 120,000 shares of
Common Stock at $1.125 per share with exercise price paid by cancellation of
a related debt of $135,000 owed by the Company to the warrant holder.
(5) Adjusted for the effect of (i) the sale of 1,000,000 shares offered hereby
and the application of the net proceeds thereof and (ii) the
reclassification of accumulated deficit to additional paid-in capital as a
result of the automatic termination of the Company's S Corporation income
tax status upon consummation of the offering.
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY IS HIGHLY SPECULATIVE AND INVOLVES A
HIGH DEGREE OF RISK. INVESTORS COULD LOSE THEIR ENTIRE INVESTMENT. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS, ALONG WITH THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS, IN EVALUATING THE COMPANY, ITS
BUSINESS AND PROSPECTS BEFORE PURCHASING THE SHARES.
LACK OF PROFITABILITY; LACK OF OPERATING HISTORY The Company was organized in
January, 1996 to acquire substantially all of the assets of USE. USE earned a
substantial portion of its income from sales of the Model 2000, a source from
which the Company has earned no income or revenues in 1996. USE also profitably
operated the Roseville Recycling Facility from 1993-1995, but the Company has
substantially changed the management and operations at this facility. USE had no
operating history at the Union Grove Retorting Facility which is the major
source of projected revenue for the Company. During the period from January 2,
1996 (date of inception) through December 31, 1996, the Company had a net loss
of approximately $985,000. Accordingly, the Company's operations are subject to
all of the risks inherent in the establishment of a new business enterprise,
including the lack of profitability and the lack of operating history. The
likelihood of success of the Company must be considered in light of the
problems, expenses, difficulties, complications and delays frequently
encountered in connection with the establishment of any company. Future revenues
and profits, if any, will depend upon various factors, including the market
acceptance of the Company's services and products, environmental regulation and
enforcement and general economic conditions. There is no assurance that the
Company can operate profitably or that it will successfully implement its
expansion plans. Furthermore, to the extent that the Company's expansion
strategy is successful, the Company must manage the transition to multiple site
operations, higher volume operations, the control of overhead expenses and the
addition of necessary personnel.
NEW AND EVOLVING INDUSTRY; NEW PRODUCT The mercury waste treatment and mercury
lamp recycling industry in the United States is relatively new and evolving. The
demand for its services and products is highly dependent upon governmental
regulations, the federal and state enforcement of regulations and the perception
by mercury waste generators of the need for the Company's services and products.
The Company intends to market its mercury retorting services directly to waste
generators and to large hazardous waste brokers. Although the Company expects
that the customer base for its mercury retorting services will be broad and
diverse, in the past mercury waste has been collected by large hazardous waste
brokers who have arranged for its disposal or treatment. The Company may be
dependent on waste collected by a few large waste brokers with whom the Company
may indirectly compete for the collection and treatment of mercurial waste. In
addition, the Company's Lamp Processor is currently under development. There can
be no assurance that the Lamp Processor will be developed and if developed,
there can be no assurance that the market will accept the product on terms
acceptable to the Company.
LACK OF EQUIPMENT OPERATING HISTORY Nineteen Model 2000 Lamp Recyclers have been
sold since such product was developed in 1992 and no Model 2000Bs have been sold
in 1996. The Company did not actively market the Model 2000B until it acquired
all of the rights to the original Model 2000, the predecessor to the Model
2000B, in September, 1996. The Company is continuing to improve the Model 2000B
to provide more efficient and complete mercury removal. No assurance can be
given that such modified equipment can compete with equipment designed by
competitors. Additionally, the Company's retorting technology is new in design
and unproven in long-term processing. Furthermore, the Company's Lamp Processor
is in its final design and prototype stage and none have been sold or leased to
date.
LIMITED FINANCIAL RESOURCES; ADEQUACY OF PROCEEDS AND NEED FOR ADDITIONAL
FINANCING The Company's ability to execute its business strategy depends to a
significant degree on its ability to obtain substantial equity capital to
finance the development of WSF's and Lamp Processors. The proceeds of this
Offering will provide the Company with the financing required to develop and
open two WSFs, manufacture approximately 120 Lamp Processors, expand the Union
Grove Retorting Facility and supply working capital for at least 12 months.
There can be no assurance, however, that the costs of opening the WSFs and
manufacturing approximately 120 Lamp Processors will not exceed current
estimates. If the proceeds of this Offering are not sufficient to develop such
facilities or equipment, the Company may be required to seek additional
financing. If additional financing is required, there can be no assurance that
any additional financing will be available on terms acceptable to the Company or
its shareholders. New investors may seek and obtain substantially better terms
than were granted to the Company's present investors and the issuance of such
securities may result in dilution to the existing shareholders. Furthermore, as
the Company prepares to expand, it will expend a relatively higher amount on
administrative expenses than would a mature Company with such operations.
DEVELOPMENT OF FUTURE WSF FACILITIES; EXPANSION PLAN RISKS Part of the Company's
business strategy includes developing WSFs to consolidate and store hazardous
mercury waste and control the timing of shipments of mercury waste to the
Company's Union Grove Retorting Facility. The Company estimates an investment of
$300,000 to develop or acquire the proposed WSF in the Southwestern United
States. The Company presently intends to develop an additional WSF in the
Southeastern United States in late 1997 or early 1998 and estimates that such
WSF will also require a $300,000 investment. A portion of the Company's
projected revenue is based on successful development of WSFs to provide a source
of regular supply of mercury waste to the Union Grove Retorting Facility.
Successful expansion of the Company's operations will be largely dependent upon
a variety of factors, some of which are currently unknown or beyond the
Company's control, including the ability of the Company's management to identify
suitable WSF sites and to negotiate purchases and financing of such WSF sites;
timely regulatory approval of the sites; the hiring of skilled management and
other critical, experienced personnel; the ability of the Company's management
to apply its policies and procedures to geographically dispersed facilities; the
general ability to successfully manage growth; and the general state of the
economy. Although the Company is in the process of exploring the opening of new
WSF facilities, the Company has entered into no agreements. There can be no
assurance that the Company will be able to open WSF facilities.
TECHNOLOGICAL CHANGE The Company could be adversely affected by the development
of new technologies for processing mercury waste. The Company has a significant
investment in its existing mercury waste processing technologies. Changes could
result in reconfiguring or replacing existing equipment and redesign of
equipment the Company is selling/leasing. Research and development costs and
replacement costs could be substantial. Patents obtained by competitors
developing new technologies could hamper the Company's ability to adjust to
technological changes.
LACK OF INTELLECTUAL PROPERTY PROTECTION The Company has no patents on its Model
2000B lamp recycler, the Lamp Processor or on its retorting technology. There is
significant risk that third parties will independently develop similar
technology. Although the Company intends to apply to the United States Patent
and Trademark Office for protection of certain aspects of its technology
relating to the Model 2000B, the Lamp Processor and its retorting equipment, no
assurance can be given that patent protection will be obtained. There is also no
assurance that any of the Company's intellectual property rights will be
enforceable, even if patented or registered, against any prior users of similar
intellectual property or that the Company will be successful in defending itself
against a third party claiming that the Company's technologies violate an
existing patent. Any such claim, with or without merit, could also be time
consuming and costly to defend.
GOVERNMENT REGULATION The Company is subject to extensive and evolving
environmental laws and regulations which have become increasingly stringent in
recent years as a result of greater public interest in protecting the
environment. These laws and regulations affect the Company's business in many
ways and will continue to impose substantial costs on the Company.
The Company believes that the Environmental Protection Agency ("EPA") has
received requests from trade organizations to change its rules to allow
mercury-containing lamps (determined hazardous by existing federal regulations)
to be disposed of in municipal solid waste landfills and incinerators. This
action would effectively eliminate lamps from the federal hazardous waste
regulations. If these rules are changed, the lamp processing and mercury
recycling industries which have been specifically developed to mitigate mercury
problems would suffer a severe setback. The Company, its employees and vendors
would be adversely affected by such a change in EPA rules.
In order to develop and operate WSF facilities, it is necessary for the Company
to obtain and maintain in effect one or more licenses or permits as well as
zoning, environmental and/or other land use approvals. These licenses or permits
and approvals are often difficult and time consuming to obtain and are
frequently subject to opposition by various elected officials, environmental
advocates and citizen groups. Facility operating permits may be subject to
modification or revocation. Permits must be renewed periodically. There can be
no assurance that the Company will be successful in obtaining and maintaining
the permits and approvals required for the successful operation and growth of
its business. The failure by the Company to obtain or maintain in effect a
permit or approval significant to its business would have a material adverse
effect on the Company's operations and financial condition. Due to the
complexity of regulation of the industry and to public pressure, implementation
of existing laws, regulations or initiatives by different levels of government
may be inconsistent and difficult to foresee. The Company makes a continuing
effort to anticipate regulatory, political and legal developments that might
affect its operations, but it is not always able to do so.
POTENTIAL ENVIRONMENTAL LIABILITY The Company, as a transporter, recycler and
potential operator of temporary storage facilities of hazardous waste is subject
to liability for any contamination for which it is deemed responsible pursuant
to the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("Superfund" or "CERCLA"). The statute provides for the
remediation of contaminated facilities and imposes costs on the responsible
parties. The expense of conducting a cleanup and the damages can be very
significant. If the Company were to be found to be a responsible party for a
CERCLA cleanup, the enforcing authority could hold the Company completely
responsible for all investigative and remedial costs even if others may also be
liable. Any substantial liability for environmental damage incurred by the
Company could have a material adverse effect on the Company's financial
condition and results of operations.
LIMITED MANAGEMENT EXPERIENCE/NEED FOR ADDITIONAL MANAGEMENT The success of the
Company will depend upon the Company's ability to attract and retain a highly
qualified management and sales team. Mark G. Edlund, the Company's President and
Chief Operating Officer, Donald J. Wodek, the Company's Executive Vice
President-Operations, Legal and Regulatory Affairs, James Cornwell, General
Manager of the Union Grove Retorting Facility, Steven A. Rush, Facility Manager
at the Union Grove Retorting Facility, and Thomas Kimmel, General Manager of the
Roseville Recycling Facility, have an aggregate of 46 years of experience in the
recycling and/or hazardous waste business. However, these individuals have
limited prior experience in operating a mercury recycling facility with the
capacity of the Union Grove Retorting Facility. The Company will need to hire
other corporate level, management and sales employees to help implement and
operate its expansion plans. The failure to obtain, or delays in obtaining, key
employees could have a material adverse effect on the Company.
DEPENDENCE ON THIRD PARTY MANUFACTURER The Company co-owns the design rights to
its Model 2000 lamp recycler with Resource Technology, Inc., an Iowa-based
manufacturing company ("RTI"). RTI currently has the exclusive rights to
manufacture the Model 2000 and the Company is accordingly dependent upon RTI to
produce the Model 2000. The Company plans to purchase and modify the Model 2000
to produce the Model 2000B. No assurance can be given that if RTI were unable to
manufacture the Model 2000, another manufacturer could be located to perform the
manufacturing function or, if located, that such firm could successfully
manufacture the Model 2000 in a timely, cost-effective manner.
COMPETITION The mercury recycling industry is extremely competitive with respect
to price, service, and location. New or existing competitors that add capacity
can affect the price charged for remediation services and the volume of services
performed. Mercury retort competitors have been in the market for many years and
some have established excellent reputations. The Company may not be able to
establish relationships with customers of these competitors. Over the past five
years there has been considerable consolidation in the waste management
industry. However, the mercury recycling industry still consists mostly of
small, independent companies. A large, well-financed or capitalized company
might be able to quickly build a significant market share by buying existing
companies or processes, by reducing prices or by utilizing other marketing
methods.
CONTROL OF THE COMPANY; DEPENDENCE ON KEY PERSONNEL Bradley J. Buscher, the
Company's Chairman, Chief Executive Officer and Chief Financial Officer, will
control approximately 36% of the Company's Common Stock following this
Offering. Therefore, Mr. Buscher will have the ability to direct the
Company's operations and financial affairs and to substantially influence the
election of members of the Board of Directors of the Company. The Company is
also presently highly dependent upon the personal efforts and abilities of
Mr. Buscher and Mark G. Edlund, the Company's President and Chief Operating
Officer. The loss of the services of either Mr. Buscher or Mr. Edlund could
have a substantial adverse effect on the Company's ability to achieve its
objectives. The Company currently has no key man insurance on Mr. Buscher and
a $2 million key man insurance policy on Mr. Edlund.
RELATED PARTY TRANSACTIONS The Company and Messrs. Buscher and Edlund are
subject to certain transactions that may present a conflict of interest. See
"Certain Transactions."
DILUTION TO NEW INVESTORS - 79 PERCENT Purchasers of the securities offered
hereby will experience immediate substantial dilution of $3.97 per share in the
net tangible book value per share of Common Stock.
ABSENCE OF DIVIDENDS At the present time, the Company intends to use any
earnings which may be generated to finance further growth of the Company's
business. Accordingly, investors should not purchase the Shares with a view
towards receipt of cash dividends from any Shares.
LACK OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE Prior to this Offering,
there has been no public market for the Company's securities. Although the
Company has applied for listing of the Common Stock on the Nasdaq SmallCap
Market, there can be no assurance that an active public market will develop or
be sustained. The offering price of the Shares has been arbitrarily determined
by negotiation between the Company and the Underwriter and bears no relationship
to the Company's current operating results, book value, net worth or financial
statement criteria of value. The factors considered in determining the offering
price included an evaluation by management of the history of and prospects for
the industry in which the Company competes and the prospects for earnings of the
Company. Such factors are largely subjective, and the Company makes no
representation as to any objectively determinable value of the securities
offered hereby.
In addition, if the Company fails to maintain its qualification for its Common
Stock to trade on the Nasdaq SmallCap Market, the Shares will be subject to
certain rules of the Securities and Exchange Commission relating to "penny
stocks." Such rules require broker-dealers to make a suitability determination
for purchasers and to receive the purchaser's prior written consent for a
purchase transaction, thus restricting the ability of purchasers and
broker-dealers to sell the stock in the open market.
UNDESIGNATED STOCK; POSSIBLE ANTI-TAKEOVER EFFECT The Company's authorized
capital consists of 50,000,000 shares of capital stock. The Board of Directors,
without any action by the Company's stockholders, is authorized to designate and
issue shares in such classes or series (including classes or series of preferred
stock) as it deems appropriate and to establish the rights, preferences and
privileges of such shares, including dividends, liquidation and voting rights.
The Company currently has 2,369,097 shares of Common Stock outstanding (includes
120,000 shares to be issued upon exercise of warrants simultaneous with the
effectiveness of this Offering), has reserved 185,500 shares of Common Stock for
issuance under its 1996 Stock Option Plan, has issued warrants to purchase
200,771 shares of Common Stock and has authorized the issuance of an additional
1,150,000 shares of Common Stock in contemplation of this Offering. The rights
of holders of preferred stock and other classes of common stock that may be
issued may be superior to the rights granted to the holders of the Shares. The
ability of the Board of Directors to designate and issue such undesignated
shares could impede or deter an unsolicited tender offer or takeover proposal
regarding the Company. Further, the issuance of additional shares having
preferential rights could adversely affect the voting power and other rights of
holders of Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE The sale, or availability for sale, of
substantial amounts of Common Stock in the public market subsequent to this
offering may adversely affect the prevailing market price of Common Stock and
may impair the Company's ability to raise additional capital by the sale of its
equity securities. The Company and its directors, executive officers and 5%
shareholders have agreed that they will not sell nor grant any option for the
sale of, or otherwise dispose of any shares of Common Stock for 365 days after
the Effective Date without the prior written consent of the Underwriter. Subject
to certain limitations and customary cutbacks as reasonably determined by any
underwriter, if at any one time prior to the end of the two-year period
following complete exercise of any warrant or September 2001, whichever occurs
earlier, the Company proposes to register any of its Common Stock under the
Securities Act, the Company will provide each of the holders of warrants to
purchase an aggregate of 320,771 shares of Common Stock with the opportunity,
pursuant to piggyback registration rights, to participate in such public
offering. In connection with this Offering, certain officers and directors of
the Company have agreed to escrow a portion of their shares for three years or
until (i) the Company meets certain earnings requirements established by the
State of Minnesota, or (ii) the State of Minnesota determines that the escrow
agreement is no longer necessary. A total of shares of Common Stock (including
options and warrants to purchase shares of Common Stock) will be subject to
escrow.
DISCRETIONARY USE OF PROCEEDS A portion of the net proceeds to be received by
the Company in the offering have not been designated for any specific use. The
proceeds may be utilized for one or more alternative purposes in the discretion
of the Company.
MINNESOTA ANTI-TAKEOVER LAW The Company is subject to Minnesota statutes
regulating business combinations and restricting voting rights of certain
persons acquiring shares of the Company, which may hinder or delay a change in
control of the Company. See "Description of Securities--Minnesota Anti-Takeover
Law."
USE OF PROCEEDS
The net proceeds to be received by the Company from this Offering, after
deducting estimated costs and expenses of the Offering, are estimated to be
approximately $4,200,000 ($4,882,500 if the Underwriter's over-allotment option
is exercised in full). The Company intends to utilize the net proceeds as
follows:
Repayment of Norwest Bank Minnesota, N.A.
Operating Note $1,660,000
Expansion of Union Grove Retorting Facility $ 875,000
Manufacturing of Lamp Processors $ 600,000
Development of two WSF Storage Facilities $ 600,000
Working Capital $ 465,000
REPAYMENT OF NOTES. The Company intends to utilize a maximum of $1.66 million of
the net proceeds of the Offering to repay a secured revolving promissory note
issued to Norwest Bank Minnesota, N.A. The note is due January, 1998 and bears
interest at a rate of 2% over prime. As of January 23, 1997, $1,660,000
of such note remained outstanding. See "Certain Transactions"
EXPANSION OF UNION GROVE RETORTING FACILITY. The Company intends to utilize
approximately $575,000 to expand the Union Grove Retorting Facility to include a
hazardous waste storage facility and a lamp processing facility. The Company may
accomplish this by either purchasing and expanding its current facility at Union
Grove or leasing adjacent land and buildings and retrofitting the buildings to
the Company's specifications. The finalization of the Company's expansion plans
will depend upon a number of factors including regulatory approval of its plans.
The Company will also utilize approximately $300,000 for a closure fund for such
facility. A closure fund is required by certain states in connection with the
handling of hazardous waste to pay for the costs of closing down an operation in
the event that the operating company is not financially solvent at such time of
closure.
MANUFACTURING OF LAMP PROCESSORS. The Company intends to utilize
approximately $600,000 to manufacture Lamp Processors for leasing.
DEVELOPMENT OF WSF STORAGE FACILITIES. The Company intends to utilize $300,000
of the net proceeds to lease or develop a consolidation and temporary hazardous
waste storage facility in the Southwestern United States. Subsequently, the
Company intends to utilize an additional $300,000 of the net proceeds to lease
or develop a similar WSF in the Southeastern United States.
WORKING CAPITAL. The remaining net proceeds will be used for general working
capital purposes.
As of January 23, 1997, the Company owed $197,000 to Bradley J. Buscher, its
majority shareholder, pursuant to a $600,000 revolving credit promissory note,
payable on demand. Although the Company and Mr. Buscher have agreed that the
debt to Mr. Buscher will not be repaid from the proceeds of the offering, the
Company may repay this amount from cash generated from operations provided the
Company's Board of Directors, excluding Mr. Buscher, determines that such
repayment will not adversely affect the Company's financial condition.
The foregoing represents the Company's best estimate of its allocation of the
net proceeds of this Offering, based upon the current state of its business
operations, its current plans and current economic and industry conditions.
These estimates are subject to change based on unanticipated levels and types of
competition, adverse market trends and new business opportunities. Any material
revisions in the allocation of proceeds will be made at the discretion of the
Board of Directors. The Company believes the net proceeds from this Offering,
together with cash generated from operations, will be sufficient to meet the
Company's capital needs for at least 12 months. Pending the use of the proceeds
of this Offering, the Company intends to invest the proceeds in short-term, high
quality, interest-bearing instruments. If the Underwriter exercises the
over-allotment option in full, the Company will realize additional net proceeds
of $682,500. Such additional net proceeds will be added to the Company's working
capital.
DILUTION
Purchasers of the Shares offered hereby will experience an immediate substantial
dilution in net tangible book value of the Shares. As of December 31, 1996, the
Company's net tangible book value (deficit) was ($867,618) or ($.39) per share
of Common Stock. "Net tangible book value" (deficit) per share of Common Stock
represents the amount of total tangible assets of the Company less the amount of
all liabilities (excluding contingent liabilities), divided by the number of
shares of Common Stock outstanding. After giving effect to the issuance of
120,000 shares upon exercise of a warrant which exercise will take place upon
the effectiveness of this Offering (the "Pro Forma Adjustments"), the pro forma
net tangible book value (deficit) was ($732,618) or ($.31) per share. Without
giving effect to any other changes in net tangible book value after December 31,
1996 and assuming the sale of 1,000,000 shares of Common Stock offered hereby
and the receipt of the net proceeds of this Offering, the net tangible book
value as of December 31, 1996 would have been $3,467,382 or approximately $1.03
per share. This represents an immediate increase to existing shareholders in net
tangible book value of approximately $1.34 per share and an immediate dilution
to new shareholders of $3.97 per share. "Dilution" represents the difference
between the amount per share paid by purchasers in this Offering and pro forma
net tangible book value per share of the Common Stock after this Offering.
The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per Share $5.00
Net tangible book value (deficit) at December 31, 1996 $(.39)
Increase in net tangible book value attributable to pro forma
adjustments .08
Pro forma net tangible book value (deficit) at December 31, 1996 (.31)
Increase in net tangible book value attributable to new
investors 1.34
Pro forma net tangible book value after offering 1.03
Dilution in net tangible book value to new investors $3.97
</TABLE>
The following tables summarize the differences between the Company's officers,
directors and affiliated parties, existing shareholders and the new investors
with respect to the number of shares of Common Stock purchased from the Company,
the total cash consideration paid by each group, and the average cash
consideration per share of Common Stock paid by each group.
<TABLE>
<CAPTION>
AVERAGE
PRICE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
NUMBER PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C>
Officers, directors and affiliated
parties 2,298,178 68.2% $1,211,255 18.9% $0.53
Other existing shareholders 70,919 2.1% 195,012 3.0% 2.75
New Investors 1,000,000 29.7% 5,000,000 78.1% 5.00
Total 3,369,097 100.0% $6,406,267 100%
</TABLE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common Stock,
and the Board of Directors presently intends to retain all earnings, if any, for
use in the Company's business for the foreseeable future. Any future
determination as to declaration and payment of dividends will be made at the
discretion of the Board of Directors.
S CORPORATION STATUS
Since inception, the Company has elected to be treated for federal income tax
purposes as an S corporation under Subchapter S of the Internal Revenue Code of
1986, as amended, and has been treated as an S corporation for state income tax
purposes under comparable tax laws. As a result, the Company's losses through
the date of termination of the Company's S corporation status (the "Termination
Date") and the effective date of the offering of Common Stock hereby will for
federal and state income tax purposes be included in the personal tax returns of
the Company's shareholders. On the Termination Date, the Company will become
responsible for payment of state and federal income tax on earnings, if any,
subsequent to the Termination Date. On such date, the Company's cumulative
losses will be reclassified from accumulated deficit to additional paid-in
capital.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of December
31, 1996, as further adjusted to give effect to the sale of the Shares offered
hereby and the anticipated application by the Company of the proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
PRO
ACTUAL FORMA(1) AS ADJUSTED(2)
<S> <C> <C> <C>
Long-term debt:
Long-term debt $1,919,567 $1,919,567 $ 259,567
Subordinated debt 135,000 -- --
Total long-term debt 2,054,567 1,919,567 259,567
Shareholder's equity:
Common stock, $0.01 par value; 50,000,000 shares
authorized; 2,249,097 shares
issued and outstanding actual; 2,369,097 shares
issued and outstanding proforma; 3,369,097
shares issued and outstanding as adjusted 22,491 23,691 33,691
Additional paid-in capital 1,246,649 1,380,449 4,585,003
Accumulated deficit (985,446) (985,446) --
Total shareholders' equity 283,694 418,694 4,618,694
Total capitalization $2,338,261 $2,338,261 $4,878,261
</TABLE>
(1) Adjusted for the effect of the exercise of a warrant for 120,000 shares of
common stock at $1.125 per share with exercise price paid by cancellation of
a related debt of $135,000 owed by the Company to the warrant holder.
(2) Adjusted for the effect of (i) the sale of 1,000,000 shares offered hereby
and the application of the net proceeds thereof and (ii) the
reclassification of the accumulated deficit to additional paid-in capital as
a result of the automatic termination of the Company's S Corporation income
tax status upon consummation of the offering.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONNECTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS
PROSPECTUS.
OVERVIEW
The Company provides mercury waste recycling solutions to mercury waste
generators of all sizes. The Company operates a mercury waste retorting facility
in Union Grove, Wisconsin (the "Union Grove Retorting Facility") and a facility
to recycle fluorescent and other mercury-containing lamps in Roseville,
Minnesota (the "Roseville Recycling Facility"). In addition, the Company markets
and sells lamp recycling equipment.
On January 4, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of U.S. Environmental, Incorporated ("USE"). The USE
assets acquired consisted primarily of (i) the operations of the Roseville
Recycling Facility, and (ii) rights in certain equipment including the Model
2000 and the retorting equipment used at the Union Grove Retorting Facility,
both of which USE co-developed with Resource Technology, Inc. ("RTI"), an
unrelated party. USE and RTI equally owned the design rights of the Model 2000.
RTI owns the exclusive manufacturing rights and USE owned (and sold to the
Company) the exclusive sales and distribution rights of the Model 2000. In
addition, USE and RTI equally owned the rights in the retorting equipment used
in the Union Grove Retorting Facility. In September, 1996, the Company acquired
RTI's rights in such retorting equipment used at the Union Grove Retorting
Facility and affirmed the respective parties' rights in the Model 2000.
In 1995, USE's activities consisted primarily of the continued co-development
with RTI of the Model 2000 and the Union Grove Retorting Facility, the full year
operation of the Roseville Recycling Facility and marketing and sale of the
Model 2000. In 1995, USE's revenues consisted primarily of recycling revenue
from the Roseville Recycling Facility and revenue from Model 2000 sales.
In 1996, the Company's revenues consisted of recycling revenues generated from
its Roseville and Union Grove facilities. The Company's activities also
included: (i) the continued improvement of the Model 2000, (ii) completion of
the development of the mercury retorting equipment at the Union Grove Retorting
Facility, (iii) development of new lamp processing equipment, (iv) commencement
of marketing strategies and (v) activities related to the organizational
development of the Company including various capital raising activities.
RESULTS OF OPERATIONS
This discussion compares the results of operations of the Company from January
2, 1996, date of inception, to December 31, 1996 with USE's operations for the
twelve months ended December 31, 1995. USE's operations from January 1, 1996 to
January 3, 1996 are included with the Company's 1996 operations as they are not
material.
Total revenues were $1,334,709 for the year ended December 31, 1996 compared to
$1,548,782 for the year ended December 31, 1995. Mercury retorting revenues were
$637,924 for the year ended December 31, 1996 compared to $40,177 for the year
ended December 31, 1995. This significant increase is primarily due to volume
increases as a result of the Union Grove Retorting Facility becoming fully
operational in September, 1996. Since that time, the Company has been actively
pursuing large potential customers, including national waste management
companies and Fortune 500 companies. Lamp Recycling revenues were $696,785 for
the year ended December 31, 1996 compared to $748,605 for the year ended
December 31, 1995. The 7% decrease is primarily due to diminished volume in the
first six months of 1996 as a result of the changes in utility programs to
encourage energy conservation by replacement of older fluorescent lamps in
Minnesota and changes in management following the Company's acquisition of USE.
The Roseville Recycling Facility's revenue has been generated largely from small
to mid-sized local customers. In 1996, the Company began the development of a
sales force on a national level. Although the Company anticipates increased
recycling revenues due to a fully operational Union Grove Retorting Facility,
expansion of marketing efforts and recently obtained recycling contracts, there
can be no assurance that these increased revenues will be realized.
The Company had no revenue from equipment sales for the year ended December 31,
1996 compared to $760,000 in 1995. USE sold five Model 2000s in 1995. The
Company had no sales of equipment in 1996 and did not market the equipment
because it was negotiating with RTI, the manufacturer of the Model 2000, to
resolve RTI's rights in the Model 2000 and the Union Grove Retorting equipment.
This process was completed in September, 1996. In 1997, the Company anticipates
equipment sales will resume, but believes it will not be a significant revenue
source in 1997. The Company is also developing a proprietary lamp processor that
it plans to lease to large users of fluorescent and other mercury-containing
lamps such as office towers and retail chain stores. This equipment marketing
activity is expected to begin generating revenues in the second half of 1997.
For the year ended December 31, 1996, the Company had one customer that
accounted for 11% of revenues. The Company believes it has not been and will not
be economically dependent on this customer.
Cost of recycling revenues consists primarily of direct labor costs to process
the waste and direct facility overhead costs. Cost of recycling revenue as a
percent of revenue was 41% of recycling revenue in 1996 compared to 47% in 1995.
The reduction in the percentage in 1996 is primarily due to increases in
capacity utilization at the Union Grove Retorting Facility, which spreads more
volume over the fixed costs at this facility. The Company anticipates that costs
of revenues as a percent of revenue will continue to decrease in the future as
anticipated increased revenues will utilize both facilities' additional
capacities. Cost of equipment sales as a percent of the related sales was 0% in
1996 (due to the lack of revenue in 1996) compared to 54% in 1995.
Research and Development expense was $359,915 for the year ended December 31,
1996 compared to $124,807 for the year ended December 31, 1995. USE's
development activities consisted of the development of the mercury retorting
equipment for the Union Grove Retorting Facility. The Company's development
activities consisted of completing the development of the continuous flow oven
at the Union Grove Retorting Facility and development of new lamp processing
equipment. Research and development expense for the year ended December 31, 1996
includes $200,000 allocated to purchased research and development relating to
the continuous flow oven that had no alternative future use for the Company. The
balance of research and development expense in 1996 consists primarily of
engineering cost incurred to complete the redesign and development of this oven,
which became fully operational in September, 1996. The Company expects to
continue to incur costs in the development of its lamp processing equipment.
Selling, general and administrative expense was $1,219,491 or 91% of revenues
for the year ended December 31, 1996 compared to $575,219 or 37% of revenues for
the year ended December 31, 1995. Salaries and wages increased $406,000 as a
result of the Company's development of a sales and marketing staff and the
hiring of other management to support its anticipated growth. Professional and
consulting fees increased $89,000 relating to the initial operating activities
of the new company and the USE and RTI transactions. Depreciation and
amortization expense increased $160,000 as a result of the increased basis in
the acquired assets and due to the purchase of property and equipment totaling
$552,000 during the year. The Company believes selling, general and
administrative expense will increase in 1997 due to the continued development of
a sales and marketing staff and the hiring of other management to support its
anticipated growth.
Interest expense was $188,068 for the year ended December 31, 1996 compared to
$11,486 for the year ended December 31, 1995. The significant increase is due to
the debt incurred to finance the acquisitions of certain assets of USE and RTI
and to fund Company operations.
The Company and USE elected S corporation status and, as a result, the Company's
losses were allocated at the shareholder level rather than the corporate level.
The pro forma provision for income taxes is calculated as if the Company and USE
had been subject to corporate income taxes. Pro forma provision for income taxes
was $0 for the year ended December 31, 1996 compared to $13,500 for the year
ended December 31, 1995. There was no pro forma income tax expense (benefit)
recorded in 1996 because, on a pro forma basis, the deferred tax assets
generated in 1996 were fully reserved by a valuation allowance due to their
uncertainty of realization.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has incurred losses and has been dependent on debt
and equity financing to fund operations and capital expenditures. The Company
had no cash balance and had working capital of $197,159 at December 31, 1996.
Net cash used in operating activities of $778,178 for the year ended December
31, 1996, primarily resulted from the net loss of $985,446 and an increase in
accounts receivable of $339,971 offset by depreciation, amortization and the
non-cash purchased research and development expenses totaling $430,956,
resulting primarily from the purchase accounting. The increase in sales in the
latter part of 1996 resulted in the increase in accounts receivable.
Cash flows used in investing activities were $2,052,074 for the year ended
December 31, 1996, consisting primarily of payments of $1,444,125 associated
with the transactions with USE and RTI and the purchase of furniture, fixtures
and equipment of $551,942. The furniture, fixture and equipment purchases
consisted primarily of recycling equipment and leaseholds for its recycling
facilities.
As part of the transaction with USE, the Company will make payments to USE for
each Model 2000 (or Model 2000B) sold by the Company (as defined in the
agreement), with total payments not to exceed $460,000. There were no payments
for 1996. Any contingent consideration paid under this agreement will be
capitalized to goodwill and amortized over its remaining useful life.
Cash provided by financing activities consisted of proceeds from common stock
issuances of approximately $769,000, issuance of $135,000 of subordinated debt,
and proceeds from related party debt issuances of $2,045,000.
The Company has a $300,000 revolving credit promissory note with Bradley J.
Buscher, its majority shareholder, of which $45,000 was outstanding at December
31, 1996 and $197,000 as of January 23, 1997. The note is secured by all assets
of the Company and bears interest at prime plus 2%. Subsequent to year end, the
availability under this facility was increased to $600,000. The Company had a
$1,660,000 revolving note payable to Mr. Buscher that was replaced in December
1996 with a $1,660,000 revolving line of credit ("Revolver") with Norwest Bank
Minnesota, N.A. The Revolver bears interest at 2% over prime, is secured by all
the assets of the Company, is due in January 1998 and is personally guaranteed
by Mr. Buscher. As of January 23, 1997, $1,660,000 of the Revolver remained
outstanding. The Revolver will be repaid out of the net proceeds of this
Offering and will then be terminated.
The Company has debt related to the acquisition of USE ("USE Note") of $259,567
at December 31, 1996. The USE Note bears interest at 10% and is payable in
monthly interest only installments with the principal due January 1, 2001. As
set forth in the note, the Company is obligated to prepay certain amounts of
principal under the note from the Company's "excess cash flow" (as defined in
the note).
As part of a private placement completed in September, 1996, the Company
received proceeds of $135,000 of subordinated debt that bears interest at 2%
over the prime rate. The Company expects that the holder of this debt will
cancel the indebtedness concurrently with the effectiveness of this Offering as
payment of the exercise price of a warrant to purchase 120,000 shares of Common
Stock.
The Company's capital requirements will be significant for 1997 to fund
operations and planned capital expenditures related to expansion of the Union
Grove Retorting Facility ($875,000), the manufacture of lamp processing
equipment for lease ($600,000) and to lease and develop consolidation and
temporary hazardous waste storage facilities ($600,000). The Company anticipates
that the net proceeds from the sale of shares offered hereby will be sufficient
to fund its operations and planned expansion for at least 12 months following
the Offering. If the Company's business grows more rapidly than anticipated or
if anticipated revenue increases do not materialize, the Company may require
additional capital more quickly. There can be no assurance that financing from
this offering or any additional financing will be available at all or that, if
available, such financing would be obtainable on terms favorable to the Company.
BUSINESS
GENERAL
The Company provides services and products to mercury waste generators to reduce
the risk of liability associated with mercury waste disposal. The Company
currently operates a mercury waste retorting facility in Union Grove, Wisconsin
and a facility for recycling and storing fluorescent and other
mercury-containing lamps in Roseville, Minnesota. In addition, the Company
markets and sells lamp recycling equipment. Retorting is a form of distillation
pursuant to which mercury is removed from contaminated products via vaporization
and condensation.
On January 4, 1996, the Company acquired substantially all of the assets of U.S.
Environmental, Incorporated, a Minnesota-based mercury recycling company ("USE")
founded in 1993 by Mark G. Edlund, the Company's President and Chief Operating
Officer. USE co-developed the Model 2000 lamp recycler (the "Model 2000"),
opened a mercury lamp recycling facility in Roseville, Minnesota (the "Roseville
Recycling Facility") to showcase the Model 2000 and co-developed the mercury
retorting equipment installed at a facility in Union Grove, Wisconsin, (the
"Union Grove Retorting Facility"). Since the acquisition of USE, the Company
improved the Model 2000 (hereinafter referred to as the "Model 2000B") and began
development of equipment that processes mercury-containing lamps for more
efficient storage and transportation that the Company intends to lease (the
"Lamp Processor"). The Company has also developed a new continuous flow oven and
a stationary oven utilized at the Union Grove Retorting Facility and on
September 12, 1996 acquired the interests of the co-developer of the equipment
located at the Union Grove Retorting Facility.
In addition to current federal and state regulations which provide strict
guidelines regarding the disposal of all mercury containing products, many
county and local governments have begun to strictly regulate mercury wastes due
to the growing recognition of the serious health risks of mercury. Most
businesses which generate mercury wastes have now recognized the large potential
legal liability from the improper handling and disposal of mercury-containing
wastes and are motivated to reduce potential hazardous waste liability. By
offering disposal solutions for all types of mercury containing products, from
mercury lamp recycling to mercury waste retorting, the Company intends to serve
the entire scope of the mercury waste disposal market.
The Company's mission is to provide mercury waste recycling solutions to mercury
waste generators of all sizes including, but not limited to, public utilities,
manufacturers that utilize mercury in their business (e.g., measurement, control
and electrical equipment industries), building managers and hazardous waste
managers. The Company has provided lamp recycling or retorting services to a
variety of customers including Sylvania Lighting Services, Norwest Bank, Kansas
City Power & Light, Laidlaw Environmental Services and Pennsylvania Power &
Light, and has recently entered into contracts with the United States Postal
Service, PBM Construction (a general contractor to the U.S. Navy) and Eaton
Corporation. The Company believes that the mercury recycling industry has growth
potential because of 1) stringent federal and state regulations governing
mercury-containing products; 2) acknowledgment from businesses of the potential
liability posed by mercury waste disposal; and 3) the growing recognition among
the public of the health risks of mercury. In a July 1994 article published by
the U.S. Environmental Protection Agency (the "EPA") titled GENERATION AND
TREATMENT OF MERCURY-BEARING WASTE, the EPA identified the total potential
demand for off-site retorting at 130,000 tons per year. The Company believes
that 30,000-40,000 tons of mercury waste generated per year are suitable for its
proprietary processing technology. In the same article, which was published
prior to the development of the Union Grove Retorting Facility, the EPA
estimated the retort industry capacity at 3,000 tons per year. The Company's
current retorting capacity is approximately 2,500 tons per year.
INDUSTRY
MERCURY AND ITS HAZARDS. Mercury has long been recognized as a valuable metal
because of its ability to expand and contract evenly through various temperature
ranges and its ability to be combined with other metals. The Company believes
that mercury is presently utilized principally in three applications in the
United States:
* ELECTRICAL AND ELECTRONIC APPLICATIONS, such as mercury batteries and
fluorescent lamps, currently account for approximately 30% of the current
usage of mercury.
* MEASUREMENT AND CONTROL INSTRUMENTS, SUCH AS THERMOMETERS AND BAROMETERS
AND DENTAL APPLICATIONS, account for approximately 40% of the current
usage of mercury.
* The CHLORALKALI INDUSTRY utilizes mercury as the cathode in cells which
produce chlorine and caustic soda through the electrolysis of brine. This
industry accounts for approximately 30% of the current usage of mercury.
In 1994, there were approximately 600 million mercury-containing lamps sold in
the United States. Total mercury consumed in lamps in 1993 was approximately 42
tons. Today, approximately 12 percent of fluorescent lights being discarded each
year are recycled. The remaining mercury-containing lamps are being disposed of
in landfills with other non-hazardous waste or are incinerated. Once mercury is
in the environment, it cannot be removed by combustion or biological process.
Mercury may either seep into the soil and then possibly into the water supply or
vaporize into the atmosphere and fall back to earth in the form of rain. If
mercury enters a lake or river through rain or the water supply, a portion of
the mercury is converted into methyl mercury by bacteria and other chemical
processes. Methyl mercury then accumulates and concentrates as it moves up the
food chain. Once in older and larger fish, mercury measurements can be 200,000
times higher than measurements in the same body of water. When humans and
animals consume mercury contaminated fish, the methyl mercury is transferred to
their tissues.
In humans, mercury poisoning affects the brain, spinal cord, kidneys and liver.
Mercury affects the ability to see, taste and move and leaves a tingling
sensation in the fingers and toes. Long term exposure to mercury can result in
personality changes, stupor or a coma. Exposure of pregnant women to mercury can
affect development of the fetal brain and nervous system resulting in children
with lower intelligence, impaired hearing and poor coordination.
The United States government has taken steps to alleviate the risks from mercury
poisoning including:
* Prohibitions on the sale of fish with certain levels of mercury.
* Passage of the Clean Water Act requiring paper companies, smelters, sludge
incinerators and chloralkali plants to limit the release of mercury into the
water.
* Bans on uses of mercury connected with food production.
The EPA enacted hazardous waste disposal regulations that require businesses of
certain size to test fluorescent and HID lamps for mercury content prior to
disposal. The regulations require that if the mercury content of lamps exceeds a
certain level, then the lamps must be treated as hazardous waste. Some states,
such as Florida, California, Wisconsin and Minnesota have enacted regulations
more rigorous than the EPA's. Recent research by the federal and state
regulatory agencies have established that almost without exception, fluorescent
and HID lamps exceed the EPA toxicity threshold. Nevertheless, these regulations
have not been stringently enforced by some state and local agencies charged with
enforcement of such regulations.
The Company believes that federal and state governments have been slower to
react to the risks posed by fluorescent lamps and other mercury-containing lamps
because any individual lamp contains a relatively small amount of mercury
relative to other mercury wastes and governmental agencies have recognized the
difficulty of gathering widely dispersed fragile products such as fluorescent
lamps. Although most fluorescent lamps are currently designated as hazardous
waste by the EPA, according to an article in the October 18, 1996 volume of RCRA
REPORT, a waste industry newsletter, the EPA has been requested to designate
used fluorescent lamps as solid and not hazardous waste.
HISTORICAL BACKGROUND
In 1992, Mark G. Edlund, President and Chief Operating Officer of the Company,
recognized a business opportunity resulting from mercury waste management
legislation and regulations. Mr. Edlund initially focused on the recovery and
recycling of fluorescent lights and co-developed a concept for a machine that
would separate and remove mercury contaminated calcium phosphate powder from the
other components of a fluorescent lamp. Working with designers, engineers and
manufacturers, Mr. Edlund and RTI co-developed the Model 2000 mercury lamp
recycling machine and sold 19 Model 2000s from 1992 through 1995. While selling
the Model 2000 machines, Mr. Edlund realized that USE needed a showcase lamp
recycling facility to demonstrate the machine's capability. Accordingly, he
opened the USA Lights mercury recycling facility in Roseville, Minnesota in
April, 1993.
Mercury-laced calcium phosphate powder, a residual of the Model 2000 lamp
recycling process, requires retorting to reduce the level of mercury to EPA
acceptable levels. Mr. Edlund believed that existing mercury retorting
facilities were expensive and, because of their slow processing methods,
significantly backlogged. Utilizing the continuous flow method of retorting
mercury, USE co-developed mercury retorting technology that the Company believes
is significantly more efficient and faster than previously existing technology.
In January, 1996, the Company was formed by Bradley J. Buscher and Mark G.
Edlund to acquire substantially all of the assets of USE. The Company paid
USE $1.24 million comprised of $790,000 in cash and a $448,000 secured
promissory note, which note is due on January 1, 2001 and bears interest at
ten percent per year, as consideration for the purchase of USE's assets. USE
is wholly-owned by Mr. Edlund.
The Company acquired USE's assets in January, 1996 but did not complete its
agreement with RTI regarding RTI's rights in the Model 2000 and the equipment
located at the Union Grove Retorting Facility until September, 1996. The process
took longer than a usual acquisition due to co-ownership of two of USE's assets:
the Model 2000 and the original retorting equipment installed at the Union Grove
Retorting Facility.
The Model 2000 was co-developed with RTI beginning in 1992. Prior to the
Company's acquisition of certain rights in the Model 2000, USE and RTI equally
owned the design rights while RTI owned the exclusive manufacturing rights and
USE owned the exclusive sales and distribution rights. USE's rights in the Model
2000 were transferred to the Company pursuant to a Distribution Rights Bill of
Sale Agreement dated January 4, 1996 between the Company and USE which agreement
was amended and restated on November 30, 1996 (the "Distribution Rights
Agreement"). Under the Distribution Rights Agreement, the Company may become
obligated to reconvey to USE the distribution rights relating to the Model 2000
if: (i) the Company stops distributing the Model 2000 prior to the time that USE
has received total distribution payments of $460,000 due under the agreement
(the "Total Distribution Payment"); or (ii) during any one year period,
beginning with the year following September 12, 1996, before USE has earned the
entire Total Distribution Payment, the Company either fails to purchase at least
three Model 2000's for retail sale or the Company fails to issue distribution
notes to USE evidencing distribution payments in the aggregate of at least
$138,000. The Company acknowledged in the Distribution Rights Agreement that USE
has granted exclusive territory rights with respect to the Model 2000 and/or
rights of first refusal to purchase Model 2000s in a given area to certain
parties.
To further document the Company's ownership rights to the Model 2000, the
Company entered into an Amended and Restated Model 2000 Agreement dated
September 12, 1996 with RTI. This agreement amends the original Model 2000
Agreement between USE and RTI, dated June 27, 1994. The Agreement acknowledges
that all of USE's rights were assigned to the Company in the Distribution Rights
Agreement. The agreement contains a covenant not to compete which limits the
Company's ability to manufacture or distribute a fluorescent lamp recycling
machine anywhere in North America, other than the Model 2000 machine, for a
period of 36 months. This restriction does not apply to retort units, conveyors
and lamp and bulb crushers not designed to function with or be added to the
Model 2000. The Agreement does not prohibit the research and development of
fluorescent lamp recycling machines. The restrictive covenants set forth above
do not prohibit the Company or RTI from manufacturing, distributing and/or
selling fluorescent lamp recycling devices which: (i) employ processes and means
of operation which do not include any of the components of the Model 2000; or
(ii) employ processes and utilize any of the components of the Model 2000, that
(A) are less than 30 feet 6 inches or greater than 70 feet 6 inches of lineal
feet of floor space (whether in a straight line or other configuration), and (B)
the published/stated technical specifications for hourly processing capability
are less than 2,000 lamps or more than 3,000 lamps; provided, however, that any
such fluorescent lamp recycling machine (whether under (i) or (ii) above) must
be in a different color than the Model 2000. The agreement also contains
non-solicitation language which prohibits the parties from soliciting,
interfering with or endeavoring to entice away any prospective or existing
customer of the other party in connection with sales of any fluorescent lamp
recycling machines. The agreement expires on September 30, 1999, or sooner under
certain circumstances such as the bankruptcy of a party.
Since the acquisition of USE, the Company has refined and improved the Model
2000, creating a new model which is called the Model 2000B. The Company is the
exclusive owner of all improvements embodied in the Model 2000B. The Amended and
Restated Model 2000 Agreement will not prevent the Company from distributing the
Model 2000B so long as the Model 2000B is manufactured from the Model 2000.
USE and RTI also co-developed the original continuous-flow mercury retorting
equipment installed at the Union Grove Retorting Facility. In a Bill of Sale
Agreement, dated September 12, 1996, between RTI, the Company, Donald Seiler and
Michael Seiler, the Company purchased RTI's interest in the mercury distillation
system at Union Grove, Wisconsin and the Union Grove Retorting Facility.
Pursuant to the agreement, the Company granted RTI and its subcontractors or
other agents, a non-exclusive paid-up worldwide, royalty-free license to use the
processes, inventions, trademarks, trade secrets and any other necessary or
desirable intellectual property with respect to the original mercury
distillation system at Union Grove, Wisconsin, sufficient to enable RTI to make
and sell mercury distillation equipment or systems. The license is not
assignable except to successors of RTI's business. Although the license is
perpetual, it does not apply to the new continuous flow technology or the
stationary oven developed by the Company.
SERVICES AND PRODUCTS
The Company presently offers the following services and products:
MERCURY RETORTING. The Company expects that a significant amount of its revenue
will consist of fees paid for retorting mercury waste to environmentally safe
levels. Retorting is the process by which mercury is separated from the
contaminated waste through the process of distilling. The Company has developed
a proprietary continuous flow process which, in conjunction with its stationary
retorting system, has the capability of processing over 10,000 drums of mercury
debris per year and recovering approximately 99.9995% of available mercury from
the processed waste. The processed waste contains less than one part per million
of mercury which satisfies current federal and state environmental standards for
mercury waste and requires no further treatment as hazardous waste. Mercury
recovered in the retorting process is sold for a nominal price to a distiller.
The Company's mercury retorting facility in Union Grove, Wisconsin utilizes a
"continuous flow" concept developed by the Company which allows the facility to
process more mercury waste in a shorter period of time than other conventional
methods presently utilized. Other companies retort mercury primarily by placing
55 gallon drums filled with mercury-contaminated waste, each weighing up to 700
pounds, in a retorting oven for approximately 24 hours. Furthermore, typical
retorting ovens can only hold one or two drums and need increased capacity to
process more drums. The Company believes that this technology causes other
retorting companies to be relatively expensive and backlogged. With a relatively
heavy and dense powder such as calcium phosphate, the Company believes that
retorting is more effective if the mercury-laced powder is spread out evenly
during processing.
The Company's continuous flow concept automatically feeds the powder (or other
granular material such as soil and items such as batteries and switches up to 3
inches in diameter) through the oven. The electrically powered oven is heated to
a temperature sufficient to release the mercury from its device and vaporize it.
Negative air flow pulls the vapors through a series of condensers where mercury
is returned to liquid form. The air flow proceeds through two carbon filters and
a wet scrubber to remove any other potential impurities resulting from the
heating process. While the typical drum oven utilized by the Company's
competitors may require approximately 24 hours to process mercury-laced calcium
phosphate powder because of the significant amount of time required to
sufficiently heat and cool large, dense drums of mercury-laced waste, the
Company's continuous flow oven requires less than one hour to process the same
amount of mercury-laced waste.
In addition to its new continuous flow retorting technology, the Company has
developed a high capacity electrically powered stationary oven that can retort
more than 12 drums simultaneously. While the Company's continuous flow oven
works well with granular compounds such as powder and items less than 3 inches
in diameter, the stationary oven is able to process certain larger
mercury-containing items such as switches, batteries, thermostats, filters and
dental amalgam.
Prior to the development of the Union Grove Retorting Facility, the EPA
estimated in 1994 that the amount of mercury waste retorted annually was
approximately 3,000 tons. The Company expects that the Union Grove Retorting
Facility has the capacity to process over 2,500 tons of mercury waste annually.
The Company expects that the Union Grove Retorting Facility will derive its
business from: (1) large scale generators of mercury waste, particularly in the
measurement, control and electrical equipment industries; (2) lamp recycling
facilities, such as the Roseville Recycling Facility and other non-Company owned
facilities across the country; (3) users of Lamp Processors; and (4) other large
scale generators of mercury waste. For the year ended December 31, 1996, the
Union Grove Retorting Facility has generated approximately $638,000 in revenues.
The Union Grove Retorting Facility is unable to store mercury-containing waste
due to governmental regulations which cause logistical problems for the Company
regarding the scheduling and delivery of mercury waste to the Union Grove
Retorting Facility. Under governmental regulations, the Company currently cannot
store unprocessed mercury waste at its Union Grove Retorting Facility for more
than 24 hours. To address this limitation, the Company intends to utilize a
portion of the net proceeds of the Offering to expand the Union Grove Retorting
Facility, which expansion will include a "Part B" storage facility that has the
capacity to store up to approximately 180 drums of mercury waste up to 12
months. The Company will be required to obtain a license from the State of
Wisconsin to operate a Part B storage facility. No assurance can be given that
such license will be obtained, or that it will be obtained in a timely manner.
WASTE STORAGE FACILITIES. As part of the Company's strategy to maximize the
utilization of its Union Grove Retorting Facility by acquiring, consolidating
and storing mercury waste throughout the United States, the Company intends to
utilize a portion of the proceeds of the Offering to first acquire a
consolidation and temporary hazardous waste storage facility ("WSF") in the
Southwestern United States and later to acquire a similar WSF in the
Southeastern United States. Because governmental regulations limit the amount of
mercury waste that can be present at a retorting facility at any given time,
many generators of mercury waste are required to store such waste in a temporary
hazardous waste storage facility prior to shipment to a retorting facility or
permanent hazardous waste disposal site. The Company believes that the
acquisition or development of WSFs would complement the Company's business by
allowing the Company to consolidate the mercury waste and schedule shipments of
mercury waste to the Company's Union Grove Retorting Facility to maximize the
utilization of the facility. The Company estimates that the cost to acquire or
develop each 4,000 to 6,000 square foot WSF will be approximately $300,000.
MODEL 2000B. The Model 2000B retails for approximately $210,000, depending upon
the modifications required by a particular purchaser. The Model 2000B has the
capacity to recycle approximately 5 million fluorescent lamps annually.
Fluorescent lamps are manually placed onto a conveyer belt which feeds the lamps
into an enclosed machine. The Model 2000B operates under negative air flow to
limit the escape of mercury vapors. The Model 2000B breaks the lamps and
separates the debris into three principal components: the broken glass, the
aluminum endcaps and the mercury-laced calcium phosphate powder. The powder's
level of mercury exceeds federal and state guidelines for mercury and must
either be retorted to remove the mercury or sent to a hazardous waste landfill
with potentially harmful environmental consequences. Purchasers of the Model
2000B will be required to send the mercury-laced powder to the Union Grove
Retorting Facility for at least three years following the purchase. For an
additional fee, the Company also offers to purchasers of the Model 2000B the
right of first refusal on new sales of the Model 2000B into the purchaser's
market.
The Company and Resource Technology, Inc, an Iowa corporation ("RTI"), jointly
own the design rights to the Model 2000, the predecessor to the Model 2000B,
pursuant to a September 12, 1996 agreement. The Company has exclusive world-wide
distribution and sales rights to the Model 2000. RTI, which has exclusive
manufacturing rights to the Model 2000, manufactures the Model 2000. RTI's main
facility is located in Van Meter, Iowa. Nineteen Model 2000 machines have been
sold by USE, the Company's predecessor, since its development in 1992. In 1995,
Model 2000s accounted for approximately 49% of USE's revenues. For the year
ended December 31, 1996, the Company did not sell any Model 2000Bs because the
Company was in the process of finalizing its agreement with RTI over ownership
rights to the Model 2000. The Company has since increased its marketing efforts
of the Model 2000B.
LAMP PROCESSOR. The Company believes that with states enforcing federal
regulations or adopting even more stringent regulations, many major lamp waste
generators such as utilities and large retail and manufacturing companies will
be receptive to using in-house equipment to reduce handling, shipping and
processing costs and to better manage safety issues. The Company intends to
market its new equipment lines for recycling and processing such as the Lamp
Processor to such waste generators.
Many large generators of fluorescent lamps encounter problems storing and
handling fluorescent lamps given the volume of the used lamps, the risks of
breakage and the potential for release of toxic mercury vapors. These large
generators of fluorescent lamps may not have the volume of lamps to justify
owning a Model 2000B because of its expense and high recycling capacity. To
address the needs of these generators, the Company is developing the Lamp
Processor which will be marketed for lease to businesses and utilities that
dispose of a large volume of fluorescent lamps and desire to reduce storage and
transportation costs. The Lamp Processor will reduce fluorescent lamps to a
volume which is convenient for transportation and retorting. The processed
fluorescent lamps would be deposited by the Lamp Processor into a drum for
transporting to a mercury retorting facility such as the Union Grove Retorting
Facility. The Company will require users of the Lamp Processor to use the
Company's retorting services. The Company believes that leasing the Lamp
Processor to its customers will, while requiring a greater capital commitment by
the Company, better provide the Company with recurring monthly revenue. A
portion of the proceeds of this Offering will be utilized to finance the
production of the Lamp Processors.
RECYCLING FACILITIES. The Company owns and operates the Roseville Recycling
Facility located in Roseville, Minnesota, a St. Paul suburb, which utilizes a
Model 2000B to recycle fluorescent lamps. The approximately 6,500 square foot
Roseville Recycling Facility was developed in 1993 to serve as a showcase for
the Model 2000. Fluorescent lamps are primarily transported to the Roseville
Recycling Facility by Company-owned trucks that pick-up fluorescent lamps
directly from the Company's customers in Minnesota, western Wisconsin, northern
Iowa and the eastern sections of the Dakotas. Fluorescent lamps are then
processed by the Model 2000B and the mercury-laced powder is transported to the
Company's Union Grove Retorting Facility for retorting. Before the glass or
aluminum endcaps remaining after processing can leave the facility they must be
independently tested for mercury content and pass state regulatory standards.
The aluminum end caps are sent to a smelter for recycling. The glass is sent to
an aggregate company for use in asphalt. The Company sends the mercury-laced
calcium phosphate powder to the Union Grove Retorting Facility for retorting.
Any mercury that is vaporized during the Model 2000B's lamp processing is
captured in hepa and carbon filters. These filters are also sent to the Union
Grove Retorting Facility for retorting.
Since beginning operations in April, 1993 through December, 1996, the Roseville
Recycling Facility has recycled approximately 5.5 million lamps which is,
however, substantially less than capacity. The Roseville Recycling Facility has
the capacity to process approximately 7.5 million lamps annually. The Company
does not presently intend to open additional recycling facilities but will
continue to operate the Roseville Recycling Facility.
COMPETITION AND MARKET
The Company operates in three distinct market segments: retorting facilities,
recycling equipment and recycling facilities. The Company believes that within
these three markets the competition is highly fragmented with no competitor
having a national presence. Therefore, the Company believes that the mercury
recycling industry represents a potentially large source of revenues given
recent federal and state regulations governing mercury-containing products,
acknowledgment from businesses of the potential liability posed by mercury waste
disposal, and the growing recognition of the health risks of mercury. A
principal motivation for larger corporations to utilize the Company's services
and products is the reduction of potential future hazardous waste liability.
However, the mercury recycling industry is relatively new and evolving. The
demand for mercury recycling services and products is highly dependent upon
governmental regulations, the federal and state enforcement of regulations and
the perception by mercury waste generators of the need for the Company's
services and products. Currently, demand for mercury recycling products and
services is still being defined and is highly fragmented.
MERCURY RETORTING. The Union Grove Retorting Facility competes with several well
established mercury retorters. Currently, the nation's leading mercury retorter
is Bethlehem Apparatus, a Pennsylvania-based company that has been operating
since 1955. In a February 1994 article published in HAZMAT WORLD, it was
reported that Bethlehem Apparatus is in the process of developing a continuous
style retorting system. To the best of the Company's knowledge, Bethlehem
Apparatus is not currently operating a continuous style retorting system. Other
established retorting competitors include Mercury Refining Company, Inc., a New
York-based company that also has been operating since 1955 and Advanced
Environmental Recycling Corporation, located in Pennsylvania. In a July 1994
article published by the U.S. Environmental Protection Agency (the "EPA") titled
GENERATION AND TREATMENT OF MERCURY-BEARING WASTE, the EPA identified the total
potential demand for off-site retorting at 130,000 tons per year. The Company
believes that 30,000-40,000 tons of mercury waste generated per year are
suitable for its proprietary processing technology. In the same article, which
was published prior to the development of the Union Grove Retorting Facility,
the EPA estimated the retort industry capacity at 3,000 tons per year. The
Company's current retorting capacity is approximately 2,500 tons per year.
Because the amount of mercury waste shipped each year has exceeded the retorting
capacity, retorting prices are extremely high relative to landfill and
incineration alternatives. The Company believes that its competitors are
relatively expensive when compared to the Company and are significantly
back-logged. The Company believes there is a significant market for mercury
retorters and that it offers mercury waste generators a competitive alternative
to landfill or incineration and a reduction in potential environmental
liability.
LAMP RECYCLING EQUIPMENT. In 1994, approximately 600 million mercury-containing
lamps were sold in the United States. Industry experts estimate that
approximately 12% of these lamps are recycled. Total mercury consumed in lamps
in 1993 was approximately 42 tons. The Company believes that the Model 2000 is
the most prominent machine currently recycling lamps in the United States. The
Company's major mercury recycling equipment competitor, MRT, is based in Sweden
and sells mercury recycling equipment which is significantly more expensive than
the Company's equipment.
LAMP RECYCLING FACILITY. Mercury lamp recycling facilities themselves are very
fragmented with several mercury lamp recyclers across the country, none of which
has yet established a national presence. These include Advanced Environmental
Recycling Corporation/Mercury Technologies International which has facilities in
California, Pennsylvania, New Jersey and Florida; Lighting Resources, with
operations in Arizona, California and Indiana, and Recyclights, a
Minneapolis-based firm with operations in Minnesota and Florida. Accordingly,
the Company believes there is a significant market for the Lamp Processor and
lamp recycling facilities.
STRATEGY
The Company's strategy for growth includes the following key elements:
* Market retorting services to high volume customers by offering price
discounting. Because of the increased processing speed allowed by the
continuous flow method, the Company can charge $500 to $1500 a drum,
depending upon the type of mercury waste and the complexity to retort it,
compared to up to $2,400 a drum frequently charged by retorters utilizing
single drum stationary ovens.
* WSF's -- acquire or develop waste storage facilities to aid in the logistics
of scheduling and transporting mercury waste to the Union Grove Retorting
Facility. The Company believes that these WSFs will help the Company to
maximize the utilization of the Union Grove Retorting Facility.
* Market retorting services by offering a means to reduce potential hazardous
waste liability. The Company can reduce the waste generator's storage costs
and potential liability associated with the storage and handling of mercury
waste.
* Continue research and development of mercury-processing technology for use
by the Company and for sale and lease.
Potential retorting customers to be solicited include public utilities,
electrical contractors, hazardous waste managers, mercury lamp recyclers similar
to the Roseville Recycling Facility, hazardous waste management facilities
(including both final disposal and transfer and storage facilities), electrical
manufacturers of lights, batteries and switches, amalgam manufacturers and
chemical manufacturers.
The Company will also attempt to initiate a mercury waste collection program
with hospitals, electrical contractors and dentists, in which the Company would
provide self-contained disposal mailers for on-site collection and shipping to
the Company's mercury recycling facilities.
MARKETING AND SALES
MARKETING. The Company must inform potential customers that the Company's
mercury recycling products and services are designed to significantly eliminate
potential financial liability associated with disposal of mercury-bearing
materials. The Company plans to compete in each of its three primary markets
with respect to price, service, product quality and the timeliness of its
mercury retorting capabilities.
ADVERTISING AND PROMOTION. The Company's direct sales activities are supported
by targeted direct mail activities to waste generators, waste brokers, waste
transporters, permitted waste storage facilities, lighting contractors, lamp
distribution organizations and various other related business entities. Due to
the identifiable nature of target customers, expensive mass media advertising is
not necessary. The Company also displays its products and services at various
regional and national trade shows on a regular basis. The Company believes that
trade shows are a very cost effective activity for the Company due to the fact
it is able to promote all three of its primary sales areas simultaneously.
SALES STRATEGIES. The Company promotes its services and products through a
direct sales force. The Company presently employs sales professionals from the
waste industry to sell its products and services. The Union Grove Retorting
Facility and the Roseville Recycling Facility each employ separate specialized
technical sales managers in the areas of mercury retorting services and lamp
recycling services. The Company has also established a sales office in Phoenix,
Arizona to market and sell the Company's products and services.
A Model 2000B purchaser potentially becomes a long-term mercury retort services
customer who will be sending the Company mercury-bearing lamp powder recovered
during lamp recycling. The Company realizes immediate revenue from the sale of
lamp recycling equipment and potential long term revenue from the on-going
retorting of that buyer's mercury waste from lamp recycling. The Company
anticipates that the long term revenue from retorting services for a successful
lamp recycler will exceed the immediate lamp equipment sale income.
In a similar manner, a customer who recycles lamps may become a customer for
mercury retorting of other wastes or a purchaser of lamp processing equipment.
Due to the on-going generation of waste material by Company customers, the sales
and marketing efforts benefit substantially from the ability to utilize a
building block approach.
RESEARCH AND DEVELOPMENT
Research and development expense was $359,915 for the year ended December 31,
1996 and $124,807 for the year ended December 31, 1995. The 1996 expense
includes $200,000 of purchased research and development expense related to the
acquisition of certain assets of USE. In order to stay technologically
competitive, the Company must continue development of leading edge mercury
processing technology which would include the development of the next generation
of lamp recycling equipment.
REGULATION
INTRODUCTION. The Company is currently subject to extensive and evolving
federal, state and local environmental laws and regulations that have been
enacted in response to technological advances and increased concern over
environmental issues. These regulations not only strictly regulate the conduct
of the Company's operations but are also related directly to the demand for many
of the services offered by the Company.
The regulations affecting the Company are administered by the EPA and various
other federal, state and local environmental, zoning, health and safety
agencies. The Company believes that its facilities are currently in compliance
with all applicable federal, state and local laws, permits, orders and
regulations. The Company believes there will continue to be increased
regulation, legislation and regulatory enforcement actions related to the
hazardous waste and recycling industry. As a result, the Company attempts to
anticipate future regulatory requirements and to plan accordingly to remain in
compliance with the regulatory framework.
In order to develop and operate a fluorescent lamp processing facility, a
mercury recycling facility or other hazardous waste related facilities, the
Company must typically go through several governmental review processes in order
to obtain one or more permits/licenses, zoning or other land use approvals.
Obtaining these permits/licenses and zoning or land use approvals is difficult,
time consuming and expensive and is often opposed by various local elected
officials and citizens' groups. Once obtained, operating permits generally must
be periodically renewed and are subject to fees, modification and revocation by
the issuing agency.
The Company's operating facilities are subject to a variety of operational,
monitoring, site maintenance, closure, and financial assurance obligations which
change from time to time and which could give rise to increased capital
expenditures and operating costs. In connection with the Company's expansion of
its existing facility or any future expansions, it is often necessary to expend
considerable time, effort and money in complying with the governmental review
and permitting process necessary to maintain or increase operational capacity.
Governmental authorities have broad power to enforce compliance with these laws
and regulations and to obtain injunctions or impose civil or criminal penalties
in the case of violations. In the ordinary course of operating its fluorescent
lamp processing and mercury recycling facility, the Company has from time to
time received notices from regulatory authorities that is operations may not be
in total compliance with certain applicable environmental laws and regulations.
Upon receipt of any notices, the Company has cooperated with the authorities in
an attempt to resolve the issues raised by such notices and has corrected the
problems to the satisfaction of the authorities. Failure to correct problems to
the satisfaction of the authorities could lead to curtailed operations, fines
and penalties or even closure of Company facilities.
In order to transport hazardous wastes, it is necessary for the Company to
possess one or more permits/licenses from state or local authorities. These
permits must be periodically renewed and are subject to fees, modification and
revocation by the issuing agency. The Company, as a transporter of hazardous
waste, is subject to strict hazardous waste transportation guidelines under
federal and state Department of Transportation (DOT) regulations. The Company
currently is licensed to transport hazardous wastes in the states of Minnesota,
Wisconsin and North Dakota. The Company is governed by both the Hazardous
Materials and Federal Motor Carrier Safety Regulations contained in Title 49 of
the Code of Federal Regulations. An accident during the transportation of
hazardous waste or the failure to comply with any DOT regulation could expose
the Company to liability. An unsatisfactory transportation rating from the DOT
would severely limit the Company's ability to transport hazardous waste.
The principal federal, state and local statutes and regulations applicable to
the Company's various operations are reviewed in part as follows:
THE RESOURCE CONSERVATION AND RECOVERY ACT (RCRA) OF 1976, AS AMENDED. RCRA
regulates the generation, treatment, storage, handling, transportation and
disposal of hazardous waste. All current facilities are governed by RCRA
regulations. RCRA divides solid waste into two groups, hazardous and
nonhazardous. Wastes are generally classified as hazardous if they (i) either
(a) are specifically included on a list of hazardous wastes or (b) exhibit
certain hazardous characteristics and (ii) are not specifically designated as
nonhazardous. Wastes classified as hazardous under RCRA are subject to much
stricter regulation than wastes classified as nonhazardous.
The EPA regulations issued under Subtitle C of RCRA impose a comprehensive
"cradle to grave" system for tracking the generation, transportation, treatment,
storage and disposal of hazardous wastes. The Subtitle C regulations provide
standards for generators, transporters and disposers of hazardous wastes, and
for the issuance of permits for sites where such material is treated, stored or
disposed. Subtitle C imposes detailed operating, inspection, training and
emergency preparedness and response standards, as well as requirements for
manifesting, record keeping and reporting, facility closure and financial
responsibilities. These regulations require the Company to demonstrate financial
assurance for sudden and nonsudden pollution occurrences and for future facility
closure costs. The Company believes that its hazardous waste transportation
activities and its facilities comply in all material respects with the
applicable requirements of Subtitle C of RCRA.
THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT
(CERCLA) OF 1980, AS AMENDED. CERCLA established a regulatory and remedial
program intended to provide for the investigation and cleanup of facilities from
which there has been, or is threatened, a release of any hazardous substance
into the environment. CERCLA's primary mechanism for remedying such problems is
to impose strict joint and several liability for cleanup of facilities on
current owners and operators of the site, former owners and operators of the
site at the time of the disposal of the hazardous substances, as well as the
generators of the hazardous substances and the transporters who arranged for
disposal or transportation of the hazardous substances. The costs of a CERCLA
investigation and cleanup can be very substantial. Liability under CERCLA does
not depend upon the existence or disposal of "hazardous waste" as defined by
RCRA, but can also be founded upon the existence of even very small amounts of
the more than 700 "hazardous substances" listed by the EPA, many of which can be
found in household waste. If the Company were to be found to be a responsible
party for a CERCLA cleanup, the enforcing authority could hold the Company, or
any other generator, transporter or owner or operator of the facility,
completely responsible for all investigative and remedial costs even if others
may also be liable. CERCLA also authorizes the imposition of a lien in favor of
the United States upon the real property subject to, or affected by, a remedial
action for all costs for which a party is liable. CERCLA provides a responsible
party with the right to bring legal action against other responsible parties for
their allocable share of investigative and remedial costs. The Company's ability
to get others to reimburse it for their allocable share of such costs would be
limited by the Company's ability to find other responsible parties and prove the
extent of their responsibility and by the financial resources of such other
parties. CERCLA requires the EPA to establish a national priorities list of
sites at which hazardous substances have been or are threatened to be released
into the environment. Because the Company participates in the hazardous waste
industry, it bears an enhanced risk of being deemed a responsible party for
hazardous waste clean-up.
THE CLEAN AIR ACT OF 1976, AS AMENDED. The Clean Air Act provides for
regulation, through state implementation of federal requirements, of the
emission of air pollutants from any operating facility. The Clean Air Act
Amendments of 1990 broadened the scope of the law to control air pollution from
additional and often smaller industries. Federal and state air quality
regulations may apply to any facility emitting something into the air. The
amount of air pollution released generally determines whether compliance is
necessary with air quality regulations. Any of the Company's facilities that
have air emissions are in some way governed by federal and state air emission
regulations, compliance agreements or permits and licenses. Some of the
Company's facilities have air emissions that are governed by federal and state
air emission regulations, compliance agreements or permits and licenses. Failure
to comply with air emission standards at any of the Company's facilities could
have a severe impact on the Company ability to operate that facility. Failure to
correct the air emission problems could lead to curtailed operations, fines and
penalties or even closure of the Company facility. The inability to operate a
facility could have a material adverse effect on the Company's financial
condition and results of operation.
THE OCCUPATIONAL SAFETY AND HEALTH ACT OF 1970. The Occupational Safety and
Health Act of 1970, as amended, authorizes the Occupational Safety and Health
Administration (OSHA) to promulgate occupational safety and health standards.
Several of these standards apply to many of the operations at all Company
facility locations. OSHA regulations set standards for employee protection,
including medical surveillance, the use of respirators, protective clothing,
hearing protection and personal protective equipment. OSHA specifies a maximum
permissible exposure level for hazardous materials, including mercury. Company
employees are required to receive hazardous waste training which includes
training to respond to an accidental spill or release of a hazardous material
during processing, recycling or transportation activities. Failure to comply
with OSHA standards could lead to fines or penalties. The inability to
immediately correct a serious problem could lead to curtailed operations or even
closure until the problem is corrected.
EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT OF 1986 (SARA TITLE III).
This free-standing law is designed to address concerns about the effect of
chemical releases on communities. Section 312 contains community right-to-know
provisions that grant local emergency response personnel and the general public
access to information on chemicals present in local facilities. Local
participation varies, however, any of the Company's facilities may be subject to
this law and may also be subject to penalties for noncompliance. Company
facilities may be subject to this law and may also be subject to penalties for
noncompliance.
TOXIC SUBSTANCES CONTROL ACT (TSCA) OF 1976. The act established a system for
identifying and evaluating environmental and health effects of existing
chemicals and any new substances entering the U.S. market. TSCA provides for
regulation of chemical substances and mixtures which present an unreasonable
risk of injury or health to the environment. As part of its business, the
Company may handle and/or transport substances (Polychlorinated Biphenyls --
PCBs) subject to TSCA regulations. The Company's Roseville Lamp Recycling
facility is currently subject to these regulations since it transports,
consolidates, stores and ships PCBs for recycling. Failure to comply with any of
the handling, storage, record keeping or transportation requirements could lead
to fines or penalties for the Company.
STATE AND LOCAL REGULATIONS. Each state in which the Company currently operates,
or may operate within in the future, has laws and regulations governing the
generation, storage, treatment, recycling, handling, transportation and disposal
of solid and hazardous waste. States also regulate water and air pollution and,
in most cases, the siting, design, operation, maintenance and closure of
hazardous waste management facilities for any of the activities previously
stated. These regulations are in addition to the federal regulations and state
regulations may be even more restrictive than the federal regulations. Failure
to comply with any of the regulations could subject the Company to curtailed
operations, fines and penalties or even closure of Company facilities.
Within Minnesota, the primary responsibility for environmental programs is
shared by the Minnesota Pollution Control Agency (MPCA) and the Minnesota
Attorney General's Office. The MPCA is responsible for developing environmental
regulations, issuing permits, investigating violations of environmental
requirements and initiating administrative enforcement actions. The Company's
Roseville Lamp Recycling Facility is subject to all of Minnesota's hazardous
waste regulations and rules. The Company has entered into a Facility Compliance
Agreement with the MPCA because there is currently no legislation which grants
the MPCA the authority to license/permit this type of facility. The Facility
Compliance Agreement sets standards under which the facility must operate. The
Attorney General is responsible for investigating criminal violations of
environmental laws, representing the MPCA in administrative hearings and
initiating civil judicial enforcement actions.
In Wisconsin, the primary responsibility for environmental programs rests with
the Wisconsin Department of Natural Resources ("DNR"). The DNR is responsible
for developing environmental regulations, issuing permits, investigating
violations of environmental requirements and initiating administrative actions.
DNR environmental regulations are contained within the Wisconsin Administrative
Code. The Union Grove Retorting Facility is subject to all of the DNR's
environmental regulations.
In addition to state regulations, counties and municipalities may issue
operating licenses or permits to operate Company facilities. Failure to comply
with these requirements may also result in curtailed Company operations, fines
and penalties or even closure of Company facilities. The Company's Roseville
Lamp Recycling Facility is located in Ramsey County and some programs at the
facility are regulated by the county. The Special Hazardous Waste Program is
licensed and regulated by Ramsey County which has been granted authority by the
MPCA to regulate such program.
Many counties and municipalities also have ordinances, local laws and
environmental regulations affecting the Company's operations. These include
zoning and health measures that limit any type of hazardous waste management
facility to specified sites or activities. There has been an increasing trend at
the state and local level to mandate and encourage waste reduction at the source
and to provide waste recycling and limit or prohibit the disposal of certain
types of solid wastes in landfills.
Many states including Wisconsin and Minnesota, have programs that require
investigation and cleanup of sites containing hazardous materials in a manner
comparable to CERCLA. These statutes impose requirements for investigation and
cleanup of contaminated sites and liability for costs and damages associated
with such sites and some provide for the imposition of liens on property owned
by responsible parties.
INTELLECTUAL PROPERTY
The Company has no patents on its Model 2000B lamp recycler, the Lamp Processor
or on its retorting technology. There is significant risk that third parties
will independently develop similar technology. Although the Company has applied
to the United States Patent and Trademark Office for protection of certain
aspects of its technology relating to the Model 2000B, the Lamp Processor and
its retorting equipment, no assurance can be given that patent protection will
be obtained. There is also no assurance that any of the Company's intellectual
property rights will be enforceable, even if patented or registered, against any
prior users of similar intellectual property or that the Company will be
successful in defending itself against a third party claiming that the Company's
technologies violates an existing patent. Any such claim, with or without merit,
could also be time consuming and costly to defend.
EMPLOYEES
As of January 24, 1997 the Company employed 18 persons, 6 of whom served in
executive and administrative capacities, 6 served in facilities sales and
operations management, and 6 in hourly positions. No employee is covered by a
collective bargaining agreement, and the Company has never experienced an
organized work stoppage, strike or labor dispute. The Company considers
relations with its employees to be satisfactory.
FACILITIES AND EQUIPMENT
Effective January, 1997 the Company's corporate headquarters are located in
Mankato, Minnesota. The Company leases approximately 1,600 square feet of office
space at a rent of $1,250 per month, which rent is subject to increase in year
three of the lease, pursuant to a lease expiring in January, 2001. The Company
also leases approximately 2,000 square feet of office space in St. Paul,
Minnesota at a rent of $2,338 per month pursuant to a lease expiring in March,
1998. The 6,500 square foot Roseville Recycling Facility, is leased at a current
rent of $2,028 per month pursuant to a lease expiring in March, 1998. The
Roseville Recycling Facility has a recycling capacity of 7.5 million lamps and
operated at approximately 25 percent of capacity in 1996. The 8,000 square foot
Union Grove Retorting Facility is leased at a current rent of $2,800 per month
pursuant to a lease expiring in February, 2000. The Union Grove Retorting
Facility has a retorting capacity of 2,500 tons and operated at approximately
eight percent of capacity in 1996. Substantially all of the Company's assets
secure indebtedness owed to Norwest Bank Minnesota, N.A., Capital Partners, Ltd
and Bradley J. Buscher. See "Certain Transactions."
The Company is considering consolidating its St. Paul office facility and its
Roseville Recycling Facility in a single facility in the Minneapolis/St. Paul
area. The potential consolidation is in the investigative stage and there are
no definite plans for such consolidation.
LEGAL PROCEEDINGS
The Company is not a party to any material litigation and is not aware of any
threatened litigation that would have a material adverse effect on its business.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
<S> <C> <C>
Bradley J. Buscher 41 Chairman of the Board, Chief Executive Officer, Chief
Financial Officer and Director
Mark G. Edlund 43 President, Chief Operating Officer, Secretary,
Treasurer and Director
Donald J. Wodek 46 Executive Vice President-Operations, Legal and
Regulatory Affairs
Alan R. Geiwitz 45 Director
Joel H. Gottesman 48 Director
Robert L. Etter 51 Director
Frank L. Farrar 67 Director
</TABLE>
BRADLEY J. BUSCHER has been Chairman of the Board and Chief Executive Officer
of the Company since its inception. Mr. Buscher has also been the Chairman
and Chief Executive Officer of Bankers American Capital Corp., a privately
held merchant banking company, since 1993. From 1981 to 1994, Mr. Buscher was
President and Chief Executive Officer of American Bancshares, a multi-bank
holding company, and from 1976 to 1981 he served as Vice President of
American Bancshares. From 1986 to 1994, Mr. Buscher was also Chief Executive
Officer of American Banks, a subsidiary of American Bancshares. Mr. Buscher
also served as Chief Executive Officer of Eagle Insurance Agencies, Inc., a
full line property, casualty, life, health and crop insurance agency, from
1987 to 1994. In February, 1994, American Bancshares, its subsidiary American
Banks, and Eagle Insurance Agencies, Inc. were purchased by First Bank
Systems. From 1993 to the present, Mr. Buscher has served as the managing
general partner of BRB Development, LLC, a commercial and retail land
development company. Mr. Buscher also holds various other managing positions
in private investment partnerships. Mr. Buscher is a director, Vice President
and Treasurer of the Mankato State University Foundation, is chairman of the
Investment Committee of the Foundation, and is a member of the Foundation's
Executive Committee. He has served as a director of the Foundation since
1990. Mr. Buscher is the immediate past chairman of the Mankato State
University College of Business Board of Advisors.
MARK G. EDLUND has been President and Chief Operating Officer and a Director of
the Company since its inception. From 1993 to January, 1996, Mr. Edlund served
as President of U.S. Environmental, Incorporated, which sold substantially all
of its assets to the Company. From 1987 to 1992, Mr. Edlund was President of
Professional Resources International, Inc., a manufacturer and retailer of
ophthalmic products. Prior to forming Professional Resources International,
Inc., Mr. Edlund was Chief Operating Officer for Midwest Vision Center, a
Minnesota based retailer of ophthalmic products and services.
DONALD J. WODEK has been Executive Vice President-Operations, Legal and
Regulatory Affairs since January, 1997. From June, 1994 to March, 1997, Mr.
Wodek has and will serve as District Manager of the Hennepin Conservation
District, a local unit of government which manages environmental programs in
Hennepin County, Minnesota. From May, 1992 to June, 1994, he served as General
Counsel and Environmental Manager for Dynex Industries, Inc., a corporation
which manages, transports and recycles hazardous wastes. From September, 1991 to
May, 1992, Mr. Wodek was in the private practice of law handling environmental
and employment matters. From May, 1990 to September, 1991, he served as
Assistant General Counsel for the Space Center Company, a real estate management
corporation. From September, 1985 to April, 1990, he served as Director of
Health and Safety of the Metropolitan Waste Control Commission, the agency which
manages all of the sewers and related facilities for the Minneapolis/St. Paul
metropolitan area. From January, 1980 to August, 1985 he served as Director of
Western Operations of Cleveland-Cliffs, a world-wide mining corporation. From
January, 1979 to January, 1980, he served as Administrator of Health and Safety
of Cleveland-Cliffs Western Division. From March, 1977 to January, 1979, Mr.
Wodek served as Quality Control Chemist of Cleveland-Cliffs.
ALAN R. GEIWITZ has been a Director of the Company since September, 1996. Mr.
Geiwitz has been President and Director of Orion Financial Corp. since 1982.
Orion Financial Corp. provides middle market corporate financial assistance
including merger and acquisition, debt and equity placements and direct
investments to a variety of public and private companies. Prior to forming
Orion Financial Corp., Mr. Geiwitz was Vice President and Manager of a
commercial lending division of Norwest Bank Minnesota, N.A. which handled
manufacturing, wholesale and leasing companies. Mr. Geiwitz is also a member
of the Board of Directors of Midwest Financial Services, Inc., a commercial
finance company, BMD Company, Inc., a re-manufacturer and distributor of
parts for agricultural equipment, and Southwest Capital Corporation, a
publicly traded corporation with no current operations.
JOEL H. GOTTESMAN, has been a Director of the Company since January, 1996.
Mr. Gottesman has been Senior Vice President, General Counsel and Secretary
of Green Tree Financial Corporation, a diversified financial services
company, since September, 1995. Prior thereto, from 1983 through September,
1995, Mr. Gottesman was a shareholder of Briggs & Morgan, P.A., and served as
the firm's Treasurer and on its Board of Directors. Mr. Gottesman practiced
law in the areas of corporate finance, securities and mergers and
acquisitions. Mr. Gottesman also served as an early-round investor for and
served on the Board of Directors of Information Advantage, Inc., a software
development company operating in the data warehousing market.
ROBERT L. ETTER, a certified public accountant, has been a Director of the
Company since May, 1996. Mr. Etter has been a shareholder and Executive Board
Member of Wolf, Etter and Co., Certified Public Accountants since 1973. Mr.
Etter heads the firm's financial institutions department for tax, auditing
and consulting. Prior to 1973, Mr. Etter was with the Internal Revenue
Service.
FRANK L. FARRAR has been a Director of the Company since January 1997. Mr.
Farrar has been Chairman of the following companies since 1983: (i) Berdsford
Bancorporation, Inc., a South Dakota thrift holding company (ii) Capital
Bancorporation, Inc., a South Dakota bank holding company and (iii) Uptown
Bancorporation, Inc., an Illinois bank holding company. Mr. Farrar has also
been Chairman of Fulda Bancorporation, a Minnesota bank holding company since
1986. From 1969 to 1970, Mr. Farrar was the Governor and from 1962 to 1968,
he was the Attorney General of South Dakota. From 1962 to 1968, he was the
State Attorney for Marshall County, South Dakota and during 1967, he served
as a Marshall County judge.
KEY EMPLOYEES
James Cornwell, the General Manager of the Union Grove Retorting Facility,
has been with the Company since January, 1996. Mr. Cornwell has over 7 years
of experience in all areas associated with hazardous materials including
experience in regulatory management, project management, and waste recycling
and disposal. From September, 1994 to January, 1996, Mr. Cornwell served as
General Manager of the Union Grove Retorting Facility for U.S. Environmental,
Incorporated. From July 1993 to August 1994, Mr. Cornwell served as the
General Manager of Superior Lamp Recycling, a flourescent lamp recycling
division of Superior Services. From November 1991 to July 1993, Mr. Cornwell
served as the Regional Sales Manager for Superior Services, a full service
environmental firm managing hazardous and solid waste through recycling,
disposal, remediation and reuse.
Steven A. Rush, the Facility Manager at the Union Grove Retorting Facility,
has been with the Company since January, 1996. From November, 1995 to
January, 1996, Mr. Rush was Facility Manager of the Union Grove Retorting
Facility for U.S. Environmental, Incorporated. From March, 1995, to November,
1995, Mr. Rush was an Environmental Consultant for Braun Intertec, an
environmental engineering and consulting firm. From November, 1991 to March,
1995, Mr. Rush served as Project Manager and Emergency Response Manager for
Superior Services.
Thomas Kimmel, the General Manager of the Roseville Recycling Facility, has been
with the Company since July, 1996. Mr. Kimmel has worked in the hazardous waste
recycling industry for the past 7 years. From November, 1995 to July, 1996, Mr.
Kimmel was Sales Manager for ABB Service, Inc., one of the world's largest
electrical engineering firms. From September, 1990 to November, 1995, Mr. Kimmel
was employed by Dynex Industries, Inc., an electrical service and hazardous
waste recycling company, in several capacities including Marketing Development
Manager responsible for setting up lamp and PCB recycling facilities for the
company.
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the Company for the
period from January 2, 1996 (inception) through December 31, 1996 to the
Company's Chairman and Chief Executive Officer:
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
NAME OF INDIVIDUAL POSITION SALARY
<S> <C> <C>
Bradley J. Buscher Chairman of the Board, Chief Executive Officer and 0(1)
Chief Financial Officer
</TABLE>
(1) Pursuant to a Management Consulting Agreement with Bankers American
Capital Corporation ("BACC"), a Minnesota corporation wholly-owned by
Bradley J. Buscher, the Company pays $10,000 to Bankers Capital on a
monthly basis for certain consulting and administrative services provided
to the Company. See "Certain Transactions."
EMPLOYMENT AGREEMENTS
In January of 1997, the Company entered into an employment agreement with
Bradley J. Buscher pursuant to which Mr. Buscher serves the Company as Chief
Executive Officer. The Company or Mr. Buscher may each terminate the Agreement
upon 90 days written notice following the first year term of the agreement. Mr.
Buscher will receive an annual salary of $60,000 and a cash performance bonus
for the Company's 1997 fiscal year in an amount equal to four percent (4%) of
the Company's pre-tax income for the 1997 fiscal year in excess of Five Hundred
Thousand Dollars ($500,000) up to a maximum bonus of One Hundred Seventy-Five
Thousand Dollars ($175,000). Pursuant to the agreement, Mr. Buscher may not
disclose confidential information about the Company and has agreed not to
compete with the Company for a one year period after any termination of
employment.
In January of 1996, the Company entered into an employment agreement with Mark
Edlund pursuant to which Mr. Edlund serves the Company as President and Chief
Operating Officer. The Company or Mr. Edlund may each terminate the agreement
upon ninety days notice. Mr. Edlund currently receives an annual base salary of
$90,000. Pursuant to the agreement, Mr. Edlund may not disclose confidential
information about the Company and has agreed not to compete with the Company for
a five-year period after any termination of employment.
In January of 1997, the Company entered into an employment agreement with Donald
J. Wodek pursuant to which Mr. Wodek serves the Company as Executive Vice
President-Operations, Legal and Regulatory Affairs. Mr. Wodek will perform
services on a part time basis until March 1, 1997. The Company or Mr. Wodek may
each terminate the agreement upon ninety days written notice following the first
year term of the agreement. As of March 1, 1997, Mr. Wodek will receive an
annual salary of $80,000 with an additional compensation of $20,000 if he is
employed with the Company at the end of 1997. Mr. Wodek will also receive a
$7,000 bonus on March 1, 1997, and will receive a $400 a month car allowance.
Pursuant to the agreement, Mr. Wodek may not disclose confidential information
about the Company and may not compete with the Company for a one-year period
after any termination of employment. Contingent upon the effectiveness of this
offering, the Company has also granted to Mr. Wodek an option to purchase 35,000
shares of the Company's Common Stock at $2.75 per share which shares vest over a
five year period which option was approved by a majority of the shareholders
excluding officers, directors, employees and their spouses.
STOCK OPTION AND COMPENSATION PLAN
In September 1996, the Company adopted a Stock Option Plan (the "Plan"),
pursuant to which options and other awards to acquire an aggregate of 185,500
shares of the Company's Common Stock may be granted. Stock options, stock
appreciation rights, restricted stock, other stock and cash awards may be
granted under the Plan.
The Plan is administered by a stock option committee (the "Stock Option
Committee") consisting of Alan R. Geiwitz, Joel H. Gottesman and Robert L.
Etter, which has the discretion to determine the number and purchase price of
shares subject to stock options, which may not be below 85% of the fair market
value of the Common Stock on the date granted, the term of each option, and the
time or times during its term when the option becomes exercisable. As of the
date of this Prospectus, options aggregating 145,000 shares of Common Stock have
been granted to certain employees of the Company.
BOARD OF DIRECTORS
Each of the Company's directors has been elected to serve until the next annual
meeting of shareholders. The Company's executive officers are appointed annually
by the Company's directors. Each of the Company's directors continues to serve
until his or her successor has been designated and qualified. Non-employee
Directors currently receive $250 for each meeting attended.
CERTAIN TRANSACTIONS
In January 1996, the Company issued to Bradley J. Buscher, Chief Executive
Officer and Chairman of the Company, a secured revolving credit note authorizing
the Company to borrow up to $2,000,000 from Mr. Buscher for working capital
purposes. The largest aggregate amount of such indebtedness outstanding under
such note since January 2, 1996 was $1,885,000. A portion of this revolving
credit note was assigned to various parties and exchanged for stock and was
accordingly replaced with a similar revolving credit note in the amount of
$1,660,000, dated September 16, 1996. Such debt accrued interest at a adjustable
rate of 2% above the prime rate. Interest was payable each quarter with the
principal being due on January 1, 2001. The note was secured by all of the
Company's tangible and intangible assets. On December 4, 1996 the $1,660,000
revolving credit note held by Mr. Buscher was paid in full with proceeds from a
$1,660,000 revolving line of credit ("Revolver") with Norwest Bank Minnesota,
N.A. The Revolver bears interest at 2% over prime, is secured by all the assets
of the Company, is due in January, 1998 and is personally guaranteed by Bradley
J. Buscher, the Company's majority shareholder. The Revolver will be repaid out
of the net proceeds of this Offering and will be terminated. As of January 23,
1997, $1,660,000 of the Revolver remained outstanding.
In September, 1996, Mr. Buscher assigned a total of $114,600 of the original
amount of the revolving credit note to the 1996 Irrevocable Trust of Bradley
J. Buscher ($50,000), Joel Gottesman ($51,000), Robert L. Etter ($6,800) and
to an employee of the Company ($6,800 ). Mr. Gottesman and Mr. Etter are
directors of the Company. All of these amounts were then exchanged for the
Company's Common Stock based upon a Common Stock price of $.50 per share. Mr.
Buscher converted $225,400 of the revolving credit note into 450,800 shares
of the Company's Common Stock.
Mr. Buscher agreed to loan the Company $300,000 pursuant to a demand note
facility (the "Buscher Note"). The largest aggregate amount of indebtedness
outstanding under the Buscher Note since January 2, 1996 was $300,000. As of
January 23, 1997, $197,000 was outstanding under such note. The loan was
originally used to purchase RTI's interest in the Union Grove Retorting Facility
and is now used for working capital purposes . The Buscher Note accrues at a
adjustable rate of 2% above the prime rate. Interest is payable monthly and the
principal amount of the note is payable on demand by Mr. Buscher. The note is
secured by all of the Company's tangible and intangible assets. Subsequent to
year end, the borrowing availability under this facility was increased to
$600,000.
The Company owed USE approximately $448,257 pursuant to a secured note made
in connection with the Company's purchase of substantially all of USE's
assets. This amount was reduced by $28,690 in September, 1996 due in part to
uncollectible accounts receivable purchased by the Company from USE. The note
was subsequently assigned to Capital Partners, Ltd, a Florida corporation
wholly owned by Mark Edlund, which then assigned an interest equal to
$160,000 in the note to Mark Edlund. Mr. Edlund subsequently converted his
$160,000 note into 320,000 shares of the Company's Common Stock. As of
December 31, 1996, $259,567 is still owed to Capital Partners, Ltd. The debt
on the note accrues interest at the rate of 10% per annum and interest is
payable monthly. The principal amount of such note is due on January 1, 2001.
As set forth in the note, the Company is obligated to prepay certain amounts
of principal under the note from the Company's "excess cash flow" (as defined
in the note). All amounts owed under the note may become immediately due at
Capital Partner, Ltd.'s discretion: 1) if the Company suspends business or
becomes insolvent or bankrupt, 2) if the Company terminates Mr. Edlund's
employment with the Company, 3) if Mr. Edlund becomes disabled or incompetent
or 4) upon the death of Mr. Edlund. The note is secured by all of the
Company's tangible and intangible assets. Capital Partners, Ltd. has entered
into a Subordination Agreement with Bradley J. Buscher whereby the debt owed
by the company to Capital Partners, Ltd. is subordinate to the debt owed by
the company to Mr. Buscher.
The Company may also become indebted to USE pursuant to an Amended and Restated
Distribution Rights Bill of Sale Agreement ("Distribution Rights Agreement") for
certain amounts in connection with the on-going sale of the Model 2000B and
other mercury recycling equipment. The maximum indebtedness due USE under the
agreement is $460,000 (the "Total Distribution Payment"). The exact amount
depends upon the number of Model 2000B units and other mercury recycling
equipment sold by the Company. Such amount due will be evidenced by a note(s)
between the Company and USE which note(s) will bear interest at 10% with
interest due monthly and the principal due January 4, 2001. As set forth in the
note, the Company is obligated to prepay certain amounts of principal under the
note from the Company's "excess cash flow" (as defined in the note). The note is
secured by all of the Company's tangible and intangible assets.
The Company and Bankers American Capital Corporation, a corporation wholly-owned
by Bradley J. Buscher ("BACC"), entered into a management consulting agreement
on January 4, 1996 (the "Management Consulting Agreement"), pursuant to which
BACC provides certain management, accounting and other administrative services
to the Company for $10,000 per month. The Management Consulting Agreement
terminates in January, 1999. In January of 1996, the Company reimbursed BACC
$53,000 for out-of-pocket costs incurred by BACC in connection with the
acquisition of USE.
The Company is a party to a Shareholder Agreement with Mark G. Edlund, the
President and Chief Operating Officer of the Company and a director of the
Company, and Mr. Buscher. Pursuant to the agreement, the Company and/or Mr.
Buscher have the following rights and obligations: (i) the right of first
refusal on all common stock transfers by Mr. Edlund; (ii) the right but not the
obligation, to call any or all shares of common stock of Mr. Edlund after
January 4, 2001; (iii) the right but not the obligation, to call any or all
shares of common stock of Mr. Edlund on the occurrence of certain other events;
and (iv) the obligation (the Company's) to repurchase Mr. Edlund's shares upon
his death. The purchase price pursuant to the agreement is the fair value of the
common stock at the date of the transaction. The Company currently has no key
man insurance on Mr. Buscher and a $2 million key man insurance policy on Mr.
Edlund. This Agreement will terminate upon the effectiveness of this offering.
In September, 1996, the Company borrowed $135,000 of subordinated debt from
Orion Financial Corp. Money Purchase Plan which entity is for the sole benefit
of and controlled by Alan R. Geiwitz. The loan bears interest at 2% over the
prime rate and matures on September 25, 1998. In connection with such loan,
Orion Financial Corp. Money Purchase Plan received warrants to purchase 120,000
shares of the Company's Common Stock at $1.125 per share. The Company expects
that the loan will be canceled concurrently with the effectiveness of this
Offering as payment of the exercise price of the warrant for the purchase of
120,000 shares of Common Stock.
After the Offering, Bradley J. Buscher, Mark G. Edlund, Alan R. Geiwitz, Joel
H. Gottesman and Frank L. Farrar, as holders of warrants to purchase 116,180,
54,237, 140,339, 925 and 1,541 shares of Common Stock, respectively, will be
entitled to certain rights to cause the Company to register the sale of the
shares issuable upon exercise of such warrants under the Act. See
"Description of Securities -- Sales Eligible for Future Sale."
Effective January, 1997, the Company leases its corporate office space pursuant
to a lease between the Company and American Building Properties Inc., a company
owned substantially by Bradley J. Buscher, Chairman of the Board, Chief
Executive Officer, Chief Financial Officer and a shareholder of the Company. The
lease is for 1,600 square feet at $1,250 per month, which rent is subject to
increase in year three of the lease and expires in January, 2001. The lease rate
approximates the fair market value of the property.
The Company believes that all prior transactions between the Company and its
officers, directors or other affiliates of the Company were on terms no less
favorable than could have been obtained from unaffiliated third parties on an
arm's length basis. All future transactions and loans, and any forgiveness of
loans, with officers, directors or shareholders holding more than 5% of the
company's outstanding Common Stock, or affiliates of any such persons, will be
made for bona fide business purposes, will be on terms no less favorable than
could be obtained from an unaffiliated third party, and will be approved by a
majority of the independent outside directors who do not have an interest in the
transactions.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of the date of this Prospectus, as
adjusted to give effect to the issuance of the securities offered hereby, by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director of the Company, (iii) each
executive officer of the Company, and (iv) all executive officers and directors
of the Company as a group. Unless otherwise indicated, each of the following
persons has sole voting and investment power with respect to the shares of
Common Stock set forth opposite their respective names. The address of directors
and executive officers is 302 North Riverfront Drive, Mankato, Minnesota 56001
<TABLE>
<CAPTION>
PERCENT
SHARES OF PRIOR TO AFTER
NAME COMMON STOCK OFFERING OFFERING
<S> <C> <C> <C>
Bradley J. Buscher 1,257,890(1) 50.6% 36.1%
Mark G. Edlund 674,237(2) 27.8 19.7
Alan R. Geiwitz 260,339(3) 10.9 7.7
Joel H. Gottesman 213,835(4)(5) 9.0 6.3
Robert L. Etter 113,600(5) 4.8 3.4
Frank L. Farrar 19,723(6) * *
All executive officers and directors as a group (7
persons) 2,439,624(7) 95.2 68.5
</TABLE>
*Less than one percent.
(1) Includes 116,180 shares issuable upon exercise of warrants.
(2) Includes 54,237 shares issuable upon exercise of warrants.
(3) Includes 20,339 shares issuable upon exercise of warrants.
(4) Includes 925 shares issuable upon exercise of warrants.
(5) Includes 100,000 shares held as co-trustee of an irrevocable trust for
the benefit of Bradley J. Buscher's children.
(6) Includes 1,541 shares issuable upon exercise of warrants.
(7) Includes 193,222 shares issuable upon exercise of warrants.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 50,000,000 undesignated
shares, $.01 par value per share. After the closing of this Offering, there will
be issued and outstanding 3,369,097 shares of Common Stock (if the Underwriter's
over-allotment option is not exercised).
COMMON STOCK
There are no preemptive, subscription, conversion or redemption rights
pertaining to the Common Stock. The absence of preemptive rights could result in
a dilution of the interest of existing shareholders should additional shares of
Common Stock be issued. Holders of the Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of assets legally
available therefor, and to share ratably in the assets of the Company available
upon liquidation. The Company's Board of Directors does not intend to declare
dividends and presently intends to return all earnings, if any, for use in the
Company's business for the foreseeable future.
Each share of Common Stock is entitled to one vote for all purposes and
cumulative voting is not permitted in the election of directors. Accordingly,
the holders of more than 50% of all of the outstanding shares of Common Stock
can elect all of the directors. Significant corporate transactions such as
amendments to the articles of incorporation, mergers, sales of assets and
dissolution or liquidation require approval by the affirmative vote of the
majority of the outstanding shares of Common Stock. Other matters to be voted
upon by the holders of Common Stock normally require the affirmative vote of a
majority of the shares present at the particular shareholders' meeting. The
Company's directors and officers as a group beneficially own approximately 95%
of the outstanding Common Stock of the Company. Upon completion of this
Offering, such persons will beneficially own approximately 69% of the
outstanding shares (approximately 66% if the Underwriter's over-allotment option
is exercised in full). See "Principal Shareholders." Accordingly, such persons
will continue to be able to substantially control the Company's affairs,
including, without limitation, the sale of equity or debt securities of the
Company, the appointment of officers, the determination of officers'
compensation and the determination whether to cause a registration statement to
be filed. There are 18 holders of record of the Company's Common Stock as of the
date of this Prospectus.
The rights of holders of the shares of Common Stock may become subject in the
future to prior and superior rights and preferences in the event the Board of
Directors establishes one or more additional classes of Common Stock, or one or
more additional series of Preferred Stock. The Board of Directors has no present
plan to establish any such additional class or series.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, there will be 3,369,097 shares of Common Stock
issued and outstanding (3,519,097 if the Underwriter's over-allotment option is
exercised in full). The shares purchased in this Offering will be freely
tradeable without registration or other restriction under the Securities Act of
1933, as amended (the "Act"), except for any shares purchased by an "affiliate"
of the Company (as defined in the Act).
All the currently outstanding shares were issued in reliance upon the "private
placement" exemptions provided by the Act and are deemed restricted securities
within the meaning of Rule 144 ("Restricted Shares"). Restricted Shares may not
be sold unless they are registered under the Act or are sold pursuant to an
applicable exemption from registration, including an exemption under Rule 144.
2,369,097 Restricted Shares will become eligible for sale on various dates in
1998 assuming all of the other requirements of Rule 144 have been satisfied.
In general, under Rule 144 as currently in effect, any person (or persons whose
shares are aggregated) including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held for at least two years
from the later of the date of issuance by the Company or acquisition from an
affiliate, may sell such securities in broker's transactions or directly to
market makers, provided that the number of shares sold in any three month period
may not exceed the greater of 1% of the then-outstanding shares of Common Stock
or the average weekly trading volume of the shares of Common Stock in the
over-the-counter market during the four calendar weeks preceding the sale. Sales
under Rule 144 are also subject to certain notice requirements and the
availability of current public information about the Company. After three years
have elapsed from the later of the issuance of restricted securities by the
Company or their acquisition from an affiliate, such securities may be sold
without limitation by persons who are not affiliates under the rule. The
Securities and Exchange Commission is currently reviewing a proposal to amend
Rule 144 to reduce the period of time restricted securities must be held.
In general, under Rule 701 of Regulation F as currently in effect, any employee,
consultant or advisor of the Company who purchases shares from the Company by
exercising a stock option outstanding on the date of the Offering is eligible to
resell such shares 90 days after the date of the Prospectus in reliance on Rule
144, but need not comply with certain restrictions contained in Rule 144,
including the holding period requirement. As soon as practicable after the
Offering, the Company intends to register 185,500 shares of Common Stock that
are reserved for issuance under the Stock Option Plan. See "Management." After
the effective date of such registration statement, shares issued upon exercise
of outstanding options would generally be eligible for immediate resale in the
public market, subject to vesting under the applicable option agreements.
Following this Offering, the Company cannot predict the effect, if any, that
sales of the Common Stock or the availability of such Common Stock for sale will
have on the market price prevailing from time to time. Nevertheless, sales by
existing shareholders of substantial amounts of Common Stock could adversely
affect prevailing market prices for the Common Stock if and when a public market
exists. The Company and its directors, executive officers and 5% shareholders
have agreed that they will not sell, grant any option for the sale of, or
otherwise dispose of any shares of Common Stock for 365 days after the Effective
Date without the prior written consent of the Underwriter.
Subject to certain limitations and customary cutbacks as reasonably determined
by any underwriter, if at any one time prior to the end of the two-year period
following complete exercise of any warrant or September 2001, whichever occurs
earlier, the Company proposes to register any of its Common Stock under the
Securities Act, the Company will provide each of the holders of warrants to
purchase an aggregate of 320,771 shares of Common Stock with the opportunity,
pursuant to piggyback registration rights, to participate in such public
offering.
MINNESOTA ANTI-TAKEOVER LAW
The Company is governed by the provisions of Sections 302A.671 and 302A.673 of
the Minnesota Business Corporation Act. In general, Section 302A.671 provides
that the shares of a corporation acquired in a "control share acquisition" have
no voting rights unless voting rights are approved in a prescribed manner. A
"control share acquisition" is an acquisition, directly or indirectly, of
beneficial ownership of shares that would, when added to all other shares
beneficially owned by the acquiring person, entitle the acquiring person to have
voting power of 20% or more in the election of directors. In general, Section
302A.673 prohibits a publicly-held Minnesota corporation from engaging in a
"business combination" with an "interested shareholder" for a period of four
years after the date of the transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who is the beneficial owner, directly or indirectly, of
10% or more of the corporation's voting stock or who is an affiliate or
associate of the corporation and at any time within four years prior to the date
in question was the beneficial owner, directly or indirectly, of 10% or more of
the corporation's voting stock.
INDEMNIFICATION AND WAIVER OF DIRECTOR LIABILITY
The Minnesota Statutes provide that officers and directors of the Company have
the right to indemnification from the Company for liability arising out of
certain actions. Such indemnification may be available for liabilities arising
in connection with this offering. Insofar as indemnification for liabilities
arising under the Act may be permitted to directors, officers or persons
controlling the Company pursuant to such indemnification provisions, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The Company has adopted in its Articles of Incorporation a provision which
limits personal liability for breach of the fiduciary duty of its director to
the extent provided by Chapter 302A of the Minnesota Statutes. Such provision
eliminates the personal liability of directors for damages occasioned by breach
of fiduciary duty, except for liability based on the director's duty of loyalty
to the Company, liability for acts or omissions not made in good faith,
liability for acts or omissions involving intentional misconduct, liability
based on payments of improper dividends, liability based on violations of state
securities laws, and liability for acts occurring prior to the date such
provision was added.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A. is the transfer agent and registrar for the
Common Stock.
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, dated the effective date of this offering, Equity Securities Trading
Co., Inc. (the "Underwriter") has agreed to purchase from the Company and the
Company has agreed to sell to the Underwriter an aggregate of 1,000,000 shares
of Common Stock.
The Underwriting Agreement provides that the Underwriter will be obligated to
purchase, subject to the terms and conditions set forth therein, all of the
shares of Common Stock being sold pursuant to the Underwriting Agreement (other
than the shares covered by the over-allotment option) if any of the shares being
sold pursuant to the Underwriting Agreement are purchased.
The Company has been advised by the Underwriter that the Underwriter proposes to
offer the 1,000,000 Shares at a Price to Public of $5.00 per share and to
certain selected dealers at such price less usual and customary commissions.
After the initial public offering, the Price to Public and commissions to
dealers may be changed by the Underwriter. The Underwriter does not intend to
confirm sales to any account over which it has discretionary authority.
In the Underwriting Agreement, the Company and the Underwriter have agreed to
indemnify each other against certain liabilities under the Securities act of
1933, as amended (the "Act"), or to contribute to payments which the Underwriter
may be required to make in respect thereof.
The Company has granted to the Underwriter an option, exercisable by the
Underwriter within 45 days after the date of this Prospectus, to purchase up to
an additional 150,000 Shares at the Price to Public, less the Underwriting
Discount shown on the cover page of this Prospectus. This option may only be
exercised in whole or in part, but only for the purpose of covering any
over-allotments in the sale of the 1,000,000 Shares offered hereby.
The Company has agreed to pay the Underwriter a nonaccountable expense allowance
of 2% of the aggregate Total Price to Public of the Shares offered hereby,
including any Shares purchased pursuant to the over-allotment option, if
exercised.
The Company has agreed to sell to the Underwriter, for nominal consideration, a
warrant to purchase 100,000 shares of Common Stock of the Company at a price per
share equal to 120% of the per Share Price to Public (the Underwriter's
Warrant"). The Underwriter's Warrant is exercisable commencing one year from the
date of this Prospectus and for a period of four years thereafter. The
Underwriter's Warrant contains anti-dilution provisions providing for
appropriate adjustments on the occurrence of certain events. The Underwriter's
Warrant also provides certain demand and participatory rights to the require
registration of the shares underlying the Underwriter's Warrant under the Act.
The Underwriter's Warrant will be restricted from sale, transfer, assignment or
hypothecation except to persons who are both officers and shareholders of the
Underwriter. Any profits realized by the Underwriter upon the sale of the
Underwriter's Warrant or the securities issuable upon exercise thereof may be
deemed to constitute additional underwriting compensation.
The Company's security holders have agreed not to sell or otherwise dispose of
any shares of Common Stock for a period of one year from the date of this
Prospectus without the prior written consent of the Underwriter or, in some
cases, the Company.
The Company has granted the Underwriter a right of first refusal to act as
underwriter or finder in connection with all future equity or long-term debt
financing of the Company for a period of three (3) years from the effective date
of this Offering; provided that such right of first refusal shall not apply to
long term debt financing obtained from any bank or insurance company.
At the request of the Company, up to five percent of the Shares offered hereby
(the "Designated Shares") may be reserved for sale to persons designated by the
Company. The price of the Designated Shares will be the Price to Public set
forth on the cover of this Prospectus.
Prior to this Offering, there has been no public market for the shares.
Consequently, the Price to the Public was determined through negotiation between
the Company and the Underwriter and bears no relation to the Company's current
earnings, book value, net worth or financial statement criteria of value. The
factors considered in determining the Price to the Public, in addition to
prevailing market and general economic conditions, included the history of, and
prospects for, the industry in which the Company principally competes, the
historical results of operations of the Company, the experience of the Company's
management, the Company's earnings prospects and other related factors. There
can be no assurance that the price at which the shares will sell in the public
market after this Offering will not be lower than the initial Price to Public.
The foregoing is a summary of the material provisions of the Underwriting
Agreement and the Underwriter's Warrant. Copies of such documents have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the Company by
Maslon Edelman Borman & Brand, a Professional Limited Liability Partnership,
Minneapolis, Minnesota ("Maslon"). Partners in Maslon benefically own 9,862
shares of Common Stock. Certain legal matters relating to the sale of the shares
of Common Stock will be passed upon for the Underwriter by Fredrikson & Byron,
P.A., Minneapolis, Minnesota.
EXPERTS
The financial statements for the year ended December 31, 1995 of USE and of the
Company for the year ending December 31, 1996 included herein have been audited
by McGladrey & Pullen, LLP, independent auditors, as stated in their report with
respect thereto, and is included herein in reliance upon the authority of said
firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company is not a reporting company under the Securities Exchange Act of
1934, as amended. The Company has filed with the Washington, D.C. Office of the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form SB-2 under the Act with respect to the Common Stock offered hereby. This
Prospectus filed as a part of the Registration Statement does not contain all of
the information contained in the Registration Statement and the exhibits
thereto, certain portions of which have been omitted in accordance with the
rules and regulations of the Commission. For further information with respect to
the Company and the securities offered hereby, reference is made to such
Registration Statement including the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract, agreement or
other documents are not necessarily complete, and in each instance, reference is
made to such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. The Registration Statement and exhibits may be inspected without
charge and copied at the Washington office of the Commission, 450 Fifth Street,
N.W., Washington, DC 20549, and copies of such material may be obtained at
prescribed rates from the Commission's Public Reference Section at the same
address. In addition, the Commission maintains a Web site that contains reports,
proxy and information regarding registrants, such as the Company, that file
electronically with the Commission. The address of this Web site is:
http://www.sec.gov.
The Company intends to furnish to its shareholders annual reports containing
audited financial statements.
MERCURY WASTE SOLUTIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditor's Report F-2
Balance Sheet as of December 31, 1996 F-3
Statements of Operations for the Years Ended December 31, 1995 and 1996 F-4
Statement of Shareholders' Equity for the Year Ended December 31, 1996 F-5
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 F-6
Notes to Financial Statements F-7
</TABLE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Mercury Waste Solutions, Inc.
Mankato, Minnesota
We have audited the accompanying balance sheet of Mercury Waste Solutions, Inc.
as of December 31, 1996, and the related statements of operations, shareholders'
equity, and cash flows for the year then ended, and the statements of operations
and cash flows of the Company's predecessor, U.S. Environmental, Inc. (USE), for
the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mercury Waste Solutions, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended, and USE's results of operations and cash flows for the
year ended December 31, 1995, in conformity with generally accepted accounting
principles.
McGLADREY & PULLEN, LLP
Minneapolis, Minnesota
January 22, 1997
MERCURY WASTE SOLUTIONS, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS (NOTES 3 AND 4)
<TABLE>
<CAPTION>
<S> <C>
Current Assets
Accounts receivable, less allowance for doubtful accounts of $10,000 (Note 9) $ 381,064
Prepaid expenses 34,119
TOTAL CURRENT ASSETS 415,183
Property and Equipment, at cost
Leasehold improvements 95,860
Furniture, fixtures and equipment 150,430
Plant equipment 663,792
910,082
Less accumulated depreciation 103,032
807,050
Other Assets
Deferred offering costs 118,908
Cash restricted for closure (Note 6) 74,132
Goodwill, net of accumulated amortization of $127,924 1,151,312
1,344,352
TOTAL ASSETS $2,566,585
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Related party demand note (Note 4) $ 45,000
Accounts payable 113,922
Accrued expenses 59,102
TOTAL CURRENT LIABILITIES 218,024
Long-Term Liabilities
Long-term debt (Note 4) 1,919,567
Closure fund (Note 6) 10,300
Subordinated debt (Note 7) 135,000
2,064,867
Commitments and Contingencies (Notes 6 and 7)
Shareholders' Equity (Notes 7 and 8)
Common stock, $0.01 par value; 2,249,097 shares issued and outstanding 22,491
Additional paid-in capital 1,246,649
Accumulated deficit (985,446)
283,694
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,566,585
</TABLE>
See Notes to Financial Statements.
MERCURY WASTE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, YEAR ENDED
1995 DECEMBER 31,
(PREDECESSOR) 1996
<S> <C> <C>
Revenues (Note 9):
Recycling revenue $ 788,782 $ 1,334,709
Recycling equipment sales 760,000 --
TOTAL REVENUES 1,548,782 1,334,709
Cost of revenues:
Recycling 371,849 552,681
Equipment 411,506 --
TOTAL COST OF REVENUES 783,355 552,681
GROSS PROFIT 765,427 782,028
Operating expenses:
Research and development (Note 3) 124,807 359,915
Selling, general and administrative 575,219 1,219,491
700,026 1,579,406
OPERATING INCOME (LOSS) 65,401 (797,378)
Interest expense 11,486 188,068
NET INCOME (LOSS) $ 53,915 $ (985,446)
Pro Forma Data (Note 5):
Net income (loss), as reported $ 53,915 $ (985,446)
Pro forma provision for income taxes (Note 5) 13,500 --
PRO FORMA NET INCOME (LOSS) $ 40,415 $ (985,446)
Loss per share $ (0.40)
Weighted average number of common and common
equivalent shares outstanding -- 2,455,313
</TABLE>
See Notes to Financial Statements.
MERCURY WASTE SOLUTIONS, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD FROM JANUARY 2, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
<S> <C> <C> <C> <C> <C>
Balance, January 2, 1996 (Date of Inception) -- $ -- $ -- $ -- $ --
Initial capitalization (Note 7) 1,000,000 10,000 271,250 -- 281,250
Conversion of debt to equity (Note 7) 1,000,000 10,000 490,000 -- 500,000
Issuance of common stock in September,
1996, net of stock issuance costs of
$2,127 (Note 7) 120,000 1,200 131,673 -- 132,873
Issuance of common stock in November, 1996
(Note 7) 129,097 1,291 353,726 -- 355,017
Net loss -- -- -- (985,446) (985,446)
Balance, December 31, 1996 2,249,097 $22,491 $1,246,649 $(985,446) $ 283,694
</TABLE>
See Notes to Financial Statements.
MERCURY WASTE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, YEAR ENDED
1995 DECEMBER 31,
(PREDECESSOR) 1996
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 40,415 $ (985,446)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation 65,814 103,032
Amortization -- 127,924
Purchased research and development -- 200,000
Provision for doubtful accounts 29,000 33,400
Changes in assets and liabilities, net of
effects of business acquisition:
Accounts receivable (11,562) (339,971)
Prepaid expenses (7,276) (34,119)
Accounts payable (6,190) 57,920
Accrued expenses 85,950 59,102
Customer deposits 40,000 --
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 236,151 (778,158)
Cash Flows From Investing Activities
Purchase of furniture, fixtures, and equipment (244,350) (551,942)
Acquisition of business (Note 3) -- (1,444,125)
Increase in restricted cash (1,698) (56,007)
NET CASH USED IN INVESTING ACTIVITIES (246,048) (2,052,074)
Cash Flows From Financing Activities
Net proceeds from issuance of common stock -- 769,140
Proceeds from related party long-term debt -- 2,000,000
Proceeds from long-term debt 7,022 1,660,000
Payments on related party long-term debt -- (1,660,000)
Net proceeds on related party demand note -- 45,000
Proceeds from issuance of subordinated debt -- 135,000
Increase in excess of outstanding checks over
bank balance 104,125 --
Distribution to shareholder (158,640) --
Deferred offering costs -- (118,908)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (47,493) 2,830,232
DECREASE IN CASH AND CASH EQUIVALENTS (57,390) --
Cash and cash equivalents:
Beginning 57,390 --
Ending $ -- $ --
Supplemental Disclosures of Cash Flow
Information
Cash payments for interest $ 11,486 $ 168,078
Supplemental Schedule of Noncash Investing and
Financial Activities
Issuance of common stock upon conversion of
long-term debt
(Note 7) $ -- $ 500,000
Closure fund liability capitalized in property
and equipment -- 10,300
</TABLE>
See Notes to Financial Statements.
MERCURY WASTE SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND BASIS OF PRESENTATION: Mercury Waste Solutions, Inc.
(the Company) is in the business of providing mercury waste recycling
solutions to mercury waste generators of all sizes. As discussed in Note 3,
the Company was incorporated on January 2, 1996 for the purposes of acquiring
substantially all of the assets of U.S. Environmental, Inc. (USE or
Predecessor) on January 4, 1996. The accompanying financial statements
reflect the Company's operations since inception and USE's operations for
1995. In addition, USE's operations from January 1, 1996 to January 3, 1996
are included with the Company's 1996 operations as they are not material.
The Company offers the following services and products:
* LAMP RECYCLING: The Company owns and operates a recycling facility in
Roseville, Minnesota (Roseville Facility) that utilizes proprietary
equipment to recycle mercury-containing fluorescent lamps.
* MERCURY WASTE RETORTING: The Company operates a mercury waste retorting
facility in Union Grove, Wisconsin (Union Grove Facility) that utilizes
proprietary equipment (continuous flow and stationary ovens) to process
mercury containing waste and the residual powder from the fluorescent lamps.
* EQUIPMENT SALES AND LEASING: The Company intends to offer certain of its
recycling equipment for sale or lease. There were no equipment sales or
leasing activity in 1996. In 1995, USE generated revenues from sales of
equipment of $760,000.
A summary of the Company's significant accounting policies follows:
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
REVENUE RECOGNITION: Recycling revenue is recognized in the period when the
waste is collected and processed. Processing is complete when the mercury
waste is recycled to the point where it is no longer hazardous waste. The
Company has no significant obligations relating to the disposal of the waste
after it has been processed. Revenue from equipment sales is recognized upon
shipment to the customer.
WARRANTY: The Company intends to provide a warranty on recycling equipment
sales. The Company provides for estimated warranty costs at the time of sale
and for other costs associated with specific items at the time their
existence and amount are determinable.
LOSS CONTINGENCIES: From time to time, the Company may be subject to
contingent liabilities in the ordinary course of business. The Company
records a liability related to a loss contingency at the time the loss is
probable and can be reasonably estimated.
RESEARCH AND DEVELOPMENT COSTS: Expenditures for research and development are
charged to operations as incurred.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are provided
using the straight-line method based on the estimated useful lives of
individual assets over the following periods:
YEARS
Furniture, fixtures, and equipment 3 - 7
Leasehold improvements Life of lease
Goodwill 10
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In accordance with Statement of Financing Accounting Standards No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, the Company reviews its long-lived assets and goodwill related
to those assets periodically to determine potential impairment by comparing the
carrying value of the long-lived assets and identified goodwill with estimated
future cash flows expected to result from the use of the assets, including cash
flows from disposition. Should the sum of the expected future cash flows be less
than the carrying value, the Company would recognize an impairment loss. An
impairment loss would be measured by comparing the amount by which the carrying
value exceeds the fair value (estimated future cash flows) of the long-lived
assets and identified goodwill. Goodwill not identified with impaired assets
would continue to be evaluated to determine whether events or circumstances
warrant revised estimates of useful lives pursuant to APB Opinion No. 17. To
date, management has determined that no impairment of long-lived assets and
goodwill exists.
PRO FORMA LOSS PER COMMON AND COMMON EQUIVALENT SHARE: The pro forma net loss
per common and common equivalent share is based upon the weighted average number
of common and common equivalent shares outstanding during each period. Pursuant
to Securities and Exchange Commission Staff Accounting Bulletin No. 83, common
stock issued and stock options and warrants granted with exercise prices below
the assumed initial public offering price during the 12-month period preceding
the date of the initial filing of the registration statement have been included
in the calculation as if they were outstanding for all periods presented. Pro
forma loss per share information has only been provided for the Company.
INCOME TAXES: Net income (loss) of the Company and USE are reported in the
individual income tax returns of the shareholders under provisions of Subchapter
S of the Internal Revenue Code. As described in Note 7, the Company is filing a
registration statement for the sale of 1,000,000 shares of its common stock to
the public. Upon completion of this sale, the Company's income tax status will
change and the Company will be required to pay income taxes on its earnings
subsequent to the date it becomes publicly owned, including deferred taxes
existing at the time that the S corporation status terminates. At that time, the
Company will adopt Statement of Financial Accounting Standards No. 109,
"ACCOUNTING FOR INCOME TAXES". Deferred income taxes resulting from temporary
differences arising prior to termination will be recorded as a component of
current income tax expense in the period of adoption. Although this amount is
not currently known, if the Company's S Corporation status were terminated
effective December 31, 1996, the net deferred tax assets would be approximately
$94,000, subject to the need to record a valuation allowance.
The pro forma adjustment to reflect income taxes in the accompanying statement
of income is for information purposes only and has been calculated based on the
estimated effective tax rate in each year, assuming the Company had been subject
to corporate income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were
used to estimate the fair value of each class of financial instruments:
RESTRICTED CASH: The carrying amount approximates fair value.
SHORT AND LONG-TERM DEBT: The fair value of the short and long-term debt is
estimated based on interest rates for the same or similar debt offered to the
Company having the same or similar remaining maturities and collateral
requirements. The carrying value of the short and long-term debt approximates
fair value.
NOTE 2. CORPORATE LIQUIDITY
Management believes that the Company's liquidity is dependent upon raising
adequate capital to fund anticipated capital expenditures and operations until
profitability is achieved. Subsequent to year end, the Company increased the
availability under its demand note facility with its majority shareholder (See
Note 4) from $300,000 to $600,000 and plans to raise additional capital from an
initial public offering of its common stock (see Note 7). The Company believes
that the borrowing availability under the demand note facility and the capital
anticipated to be received from the initial public offering, along with
anticipated revenue increases, will provide adequate liquidity to fund
operations for at least twelve months after the offering. If the public offering
is unsuccessful, the Company plans to adjust its capital expenditure and
operational plans accordingly and believes the availability under the demand
note facility will provide adequate capital for 1997. In addition, if the
offering is unsuccessful, the Company believes it will be able to renew its
revolving bank line of credit (See Note 4) that is due on January 1, 1998.
NOTE 3. ACQUISITION
On January 4, 1996, the Company acquired substantially all of the assets of USE,
consisting primarily of (i) the operations at the Roseville Facility, and (ii)
rights in certain lamp recycling equipment (the Model 2000) and the mercury
retorting equipment at the Union Grove Facility (continuous flow oven), both of
which it had co-developed with Resource Technology, Inc. (RTI), an unrelated
party. USE and RTI equally owned the design rights of the Model 2000. RTI owned
the exclusive manufacturing rights and USE owned the exclusive sales and
distribution rights of the Model 2000. In addition, USE and RTI equally owned
the rights in the mercury retorting equipment at the Union Grove Facility. In
September, 1996, the Company acquired RTI's rights in the mercury retorting
equipment at the Union Grove facility and affirmed the respective parties'
rights in the Model 2000.
Prior to the settlement with RTI, there were no formal agreements governing the
co-development activities between USE and RTI or the respective parties rights
in the equipment at the Union Grove Facility. As a result, the financial
statements of USE and the Company reflect all revenues and expenses of the Union
Grove Facility.
The above acquisition was accounted for as a purchase. The purchase price is
summarized as follows:
Cash paid to USE $ 790,000
Note payable to USE 419,567
Cash paid to RTI (allocated to goodwill) 400,000
Direct acquisition costs, consisting of
legal, environmental audit and consulting fees 254,125
TOTAL $1,863,692
The purchase price was allocated as follows:
Current assets and restricted cash $ 92,618
Property and equipment 335,652
Purchased research and development 200,000
Goodwill 1,279,236
Less liabilities assumed (43,814)
TOTAL $1,863,692
The purchase price allocation includes all equipment at the Roseville and Union
Grove Facilities. The amounts allocated to (i) property and equipment were based
68% on the fair value of the acquired assets and 32% based on the historical
cost basis of the seller, since such person is a shareholder in the new company
(see Note 7), and (ii) purchased research and development were based on the
Company's estimated replacement cost of certain recycling equipment development
activities acquired that had no alternative future use to the Company.
As part of the transaction with USE, the Company will make payments to USE for
each Model 2000 (or 2000B) sold by the Company (as defined in the agreement),
with total payments not to exceed $460,000. There were no payments for 1996. Any
contingent consideration paid under this agreement will be capitalized to
goodwill and amortized over its remaining useful life. There will be no
carryover basis accounting with respect to any payments made under this
agreement.
As a part of the transaction with RTI, the Company entered into an agreement
that affirmed the respective parties rights in the Model 2000 equipment. The
term of the agreement is for three years and provides for fixed pricing for the
purchase of the equipment by the Company from RTI. RTI is also granted the right
to receive 30% of all royalties, if any, received by the Company from the sale
of the equipment to its customers. The Company currently has no outstanding
royalty arrangements.
Unaudited pro forma revenues and pro forma net loss for USE for the year ended
December 31, 1995, as though the acquisition had occurred as of January 1, 1995
were approximately $1,549,000 and $486,000, respectively.
NOTE 4. SHORT AND LONG-TERM DEBT
The Company has a $300,000 demand note facility with its majority shareholder,
of which $45,000 is outstanding at December 31, 1996. The note is secured by all
assets of the Company and bears interest at the prime rate plus 2% (10.25% at
December 31, 1996). Subsequent to year end this facility was increased to
$600,000 with similar terms.
Long-term debt consisted of the following:
<TABLE>
<S> <C>
$1,660,000 revolving line of credit to bank, interest payable at prime plus 2%
(10.25% at December 31, 1996), due in monthly installments of interest only
with the outstanding principal due January 1, 1998, or upon completion of an
initial public offering, secured by all assets of the Company and guaranteed by
the Company's majority shareholder. (1) $1,660,000
10% note payable to related party (formerly USE), due in
monthly installments of interest only with the principal due
January 1, 2001, secured by all assets of the Company(2) 259,567
$1,919,567
</TABLE>
(1) On December 4, 1996, the Company replaced its $1,660,000 revolving line of
credit with its majority shareholder with this revolving line of credit.
(2) Principal payments may be made on this note before maturity to the extent
that excess cash flow, as defined in the agreement, is achieved by the
Company. The note may also become due under certain events as defined in the
agreement including termination of employment in certain circumstances,
death, or disability of the related shareholder. The Company does not
anticipate any principal payments on this note within the next year, unless
there is a successful initial public offering of the Company's common stock.
Accordingly, this obligation has been recorded as a long-term liability (See
Note 7).
Interest expense to related parties totalled $174,834 for the year ended
December 31, 1996.
NOTE 5. PRO FORMA INCOME TAXES
The components of pro forma deferred tax assets at December 31, 1996 are as
follows:
1996
Intangible amortization $ 92,000
Accrued expenses 2,000
Less valuation allowance (94,000)
$ --
The pro forma deferred tax assets include a valuation allowance of $94,000 to
reduce the total to an amount that management believes will ultimately be
realized. Realization of deferred tax assets is dependent upon sufficient future
taxable income during the period that deductible temporary differences and
carryforwards are expected to be available to reduce taxable income. There are
no deferred tax assets related to net operating losses as these losses accrue to
the individual shareholders due to the Company's S Corporation tax status.
The pro forma income tax benefit (expense) differed from the statutory federal
rate as follows:
1995 1996
Statutory rate applied to income (loss) before tax $18,100 $(345,000)
Income taxes at lower rates (4,600) --
Net operating losses not utilized -- 345,000
$13,500 $ --
NOTE 6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES: The Company leases its office, warehouse and certain equipment
under non-cancellable operating leases with unrelated third parties. Certain
facility leases require that the Company pay a portion of the real estate taxes,
maintenance, utilities, and insurance.
Approximate future minimum rental commitments, excluding common area costs,
under these non-cancelable operating leases are:
YEARS ENDING DECEMBER 31,
1997 $131,000
1998 89,000
1999 55,000
2000 21,000
Rental expense, including common areas costs, was approximately $99,000 and
$144,000 for the year ending December 31, 1995 and 1996, respectively.
Subsequent to year end, the Company entered into a lease for office space with a
related party substantially owned by the Company's majority shareholder. The
lease calls for monthly rent of $1,250, subject to an increase in year three of
the lease, and expires in January, 2001.
CONSULTING AGREEMENT: The Company has a consulting agreement effective through
January 1999 with a related party 100% owned by the Company's majority
shareholder. The consulting fees are $10,000 per month. Consulting expense for
the year ended December 31, 1996 totaled $120,000. In addition, the Company
reimbursed the related party $53,000 related to the acquisition of USE, which
was expensed in 1996. The Company believes these fees materially approximate the
amounts which would have been paid to unrelated parties for these services.
CLOSURE FUND: State environmental laws require that the Company provide
assurance funds that would be available to cover processing and closure costs
related to its recycling facilities. As of December 31, 1996, the Company had
deposited $74,132 in a restricted cash account. The Company also has capitalized
in property and equipment and recorded a related liability of $10,300
representing an estimate to close its current facilities, should closure ever be
required.
USE CONTINGENCY: A customer has threatened to bring an action against USE for
breach of contract related to a 1995 equipment sale. The total amount of the
claim is approximately $113,000. To date, the customer has taken no action. If
such action is taken, USE intends to vigorously defend such action, including
filing a third party claim against the manufacturer (RTI). USE management
believes there will not be a material adverse outcome as a result of this claim.
As a result, USE has accrued no liability relating to this claim.
The Company is not a party to this claim. If the Company is sued in connection
with this claim, USE is required, pursuant to the asset purchase agreement
between USE and the Company, to indemnify the Company for any damages up to
$400,000.
NOTE 7. SHAREHOLDERS' EQUITY
INITIAL CAPITALIZATION: The Company was initially capitalized by issuing
1,000,000 shares of common stock for $281,250, to two shareholders. The majority
shareholder purchased 68% of this stock and the minority shareholder, who was
the 100% owner of USE, purchased the remaining 32%. In connection with this
investment, the shareholders were issued five-year warrants to purchase 169,492
shares of common stock at $4.50 per share.
SHAREHOLDER AGREEMENTS: The Company's minority shareholders are a party to an
agreement with the Company and/or the majority shareholder whereby the
Company and/or the majority shareholder have the following rights and
obligations:
* The right of first refusal on all common stock transfers by minority
shareholders.
* The right but not the obligation, to call any or all shares of common stock
held by the minority shareholders after January 4, 2001.
* The right but not the obligation, to call any or all shares of common stock
held by the minority shareholders on the occurrence of certain other events.
* The obligation (the Company's) to repurchase a minority shareholders shares
of common stock upon death.
The purchase price pursuant to the agreement is the fair value of the common
stock at the date of the transaction. The Company currently has a $2 million key
man insurance policy on the largest minority shareholder (USE's 100% owner).
These agreements are canceled upon the successful completion of an initial
public offering by the Company.
CONVERSION OF DEBT FOR COMMON STOCK: In September 1996, the majority shareholder
and certain other shareholders exchanged $340,000 of debt for 680,000 shares of
common stock. In September 1996, $160,000 of the note payable to USE incurred in
the acquisition was exchanged for 320,000 shares of the Company's common stock.
PRIVATE PLACEMENT: In September 1996, the Company completed a $270,000 private
placement with an investor that consisted of 120,000 shares of common stock at
$1.125 per share and $135,000 of subordinated debt with a warrant to purchase
120,000 shares of common stock at $1.125 per share. The warrant expires in
January 1998 and is automatically exercised upon a public offering of common
stock. There was no value assigned to this warrant due to the stated interest
rate and expected short duration of the related debt. The debt bears interest at
2% over prime and is due September 1998. In connection with this offering, the
investor was issued five-year warrants to purchase 20,339 shares of common stock
at $4.75 per share.
PRIVATE PLACEMENT: On November 22, 1996, the Company completed a private
placement of common stock by selling 129,097 shares of common stock at $2.75 per
share, for total proceeds of $355,017. In connection with this private
placement, the investors were granted five-year warrants to purchase 10,940
shares of common stock at $5.00 per share.
INITIAL PUBLIC OFFERING: On December 5, 1996, the Company signed a letter of
intent with an investment banker to undertake a public offering of 1,000,000
shares of common stock at a price based on market conditions at the time of
effectiveness. The letter of intent includes an over-allotment option to sell an
additional 150,000 shares and provides that the Company will issue the
investment banker a warrant for the purchase of 100,000 shares at 120% of the
offering price.
Upon the closing of the initial public offering, the Company's S corporation
election will terminate. At that time, the accumulated deficit balance ($985,446
at December 31, 1996) representing losses on which income tax deductions have
been taken, will be reclassified to paid-in-capital.
AUTHORIZED SHARES: On December 5, 1996, the Company increased its authorized
shares of capital stock from 10,000,000 to 50,000,000. The Board of Directors is
authorized to designate and issue shares in such classes or series as it deems
appropriate and to establish the rights, preferences, and privileges of such
shares, including dividends, liquidation and voting rights.
WARRANT COMPENSATION: For the above disclosed warrant issuances at $4.50,
$4.75 and $5.00 per share, there was no compensation expense recorded using
the Black-Scholes option pricing model pursuant to FASB Statement No. 123.
NOTE 8. STOCK OPTION PLAN
In September 1996, the Company adopted the Mercury Waste Solutions, Inc. Stock
Option Plan ("Plan"). The Plan permits the granting of "incentive stock options"
meeting the requirements of Section 422 of the Internal Revenue Code of 1986 as
amended, and non-qualified options which do not meet the requirements of Section
422. A total of 185,500 shares of the Company's common stock have been reserved
for issuance pursuant to options granted or shares awarded under the Plan.
Grants under that plan are accounted for following APB Opinion No. 25 and
related Interpretations. There was no compensation cost charged to income for
the stock option grants for the year ended December 31, 1996. Had compensation
cost for all of the stock-based compensation plans been determined based on the
grant date fair value of awards (the method described in FASB Statement No.
123), reported net income and earnings per common share would have been reduced
to the pro forma amounts shown below:
1996
Net loss:
As reported $(985,446)
Pro forma (988,656)
Loss per share:
As reported $ (0.40)
Pro forma (0.40)
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1996: dividend rate of 0%, price volatility of 38%,
risk-free interest rate of 6.28%, and expected lives of 3 years.
A summary of the status of the plan at December 31, 1996 and changes during
the year then ended is as follows:
<TABLE>
<CAPTION>
1996
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding at beginning of period -- $ --
Granted 110,000 0.67
Exercised -- --
Forfeited -- --
Outstanding at end of period 110,000 $0.67
Exercisable at end of year None
Weighted average fair value per option of options
granted during the year $0.23
Weighted average remaining contractual life 9 years
</TABLE>
Subsequent to year end, options for the purchase of 35,000 shares of common
stock at $2.75 were granted.
NOTE 9. MAJOR CUSTOMERS
Equipment sales to three customers accounted for approximately 21%, 10%, and 10%
of 1995 revenues, respectively. The Company had one customer in 1996 that
accounted for 11% of revenues. At December 31, 1996, the receivable balance from
this customer was approximately $106,000.
[PHOTO]
THE MODEL 2000B FLOURESCENT LAMP RECYCLER
[PHOTO]
THE STATIONARY MERCURY DISTILLATION SYSTEM
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
PAGE
Prospectus Summary 3
Risk Factors 7
Use of Proceeds 12
Dilution 13
Dividend Policy 13
S Corporation Status 14
Capitalization 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 15
Business 18
Management 31
Certain Transactions 35
Principal Shareholders 37
Description of Securities 38
Underwriting 41
Legal Matters 42
Experts 42
Additional Information 42
Index To Consolidated Financial Statements F-1
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
1,000,000 SHARES
[LOGO]
MERCURY WASTE
SOLUTIONS, INC.
COMMON STOCK
PROSPECTUS
EQUITY SECURITIES
TRADING CO., INC.
______________, 1997
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is governed by Minnesota Statutes Chapter 302A. Minnesota Statutes
Section 302A.521 provides that a corporation shall indemnify any person made or
threatened to be made a party to any proceeding by reason of the former or
present official capacity of such person against judgments, penalties, fines,
including, without limitation, excise taxes assessed against such person with
respect to an employee benefit plan, settlements, and reasonable expenses,
including attorney's fees and disbursements, incurred by such person in
connection with the proceeding, if, with respect to the acts or omissions of
such person complained of in the proceeding, such person has not been
indemnified by another organization or employee benefit plan for the same
expenses with respect to the same acts or omissions; acted in good faith;
received no improper personal benefit and Section 302A.255 (relating to director
conflicts of interest), if applicable, has been satisfied; in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful; and in the case of acts or omissions by persons in their official
capacity for the corporation, reasonably believed that the conduct was in the
best interests of the corporation, or in the case of acts or omissions by
persons in their capacity for other organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation.
As permitted by Section 302A.251 of the Minnesota Statutes, the Articles of
Incorporation of the Company provide that a director shall have no personal
liability to the Company and its shareholders for breach of his fiduciary duty
as a director, to the fullest extent permitted by law.
The Underwriting Agreement contains provisions under which the small business
issuer on the one hand, and the Underwriter, on the other hand, have agreed to
indemnify each other (including officers and directors of the small business
issuer and the Underwriter and any person who may be deemed to control the small
business issuer or the Underwriter) against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of the
securities registered hereby, other than underwriting discounts and fees, are
set forth in the following table:
SEC registration fee $1,924.27
NASD filing fee 1,075.00
Nasdaq listing fee 10,000
Legal fees and expenses 120,000
Accounting fees and expenses 70,000
Blue Sky fees and expenses. 10,000
Transfer agent fees and expenses 5,000
Printing and engraving expenses. 30,000
Miscellaneous 2,000.73
Total $ 250,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the initial capitalization of the Company in January, 1996,
the Company sold an aggregate of 1,000,000 shares of Common Stock to two
"Accredited Investors" as defined in Regulation D of the Securities Act of 1933,
as amended (the "Securities Act") for a total aggregate consideration of
$281,250. In connection therewith, such Accredited Investors also received
warrants to purchase an aggregate 169,492 shares of the Company's Common Stock
for $4.50 per share. No underwriter was involved in such offering. The Company
believes that each and every such sale of such securities was exempt from
registration pursuant to Section 4 (2) of the Securities Act and Rules 505
and/or 506 under Regulation D of the Securities Act.
On September 16, 1996, the Company issued an aggregate of 1,000,000 shares of
Common Stock to six Accredited Investors for an aggregate principle amount of
$500,000 in relief of indebtedness. The Company believes that each and every
such sale of such securities was exempt from registration pursuant to Section 4
(2) of the Securities Act and Rules 505 and/or 506 under Regulation D of the
Securities Act.
On September 25, 1996, the Company issued 120,000 shares of Common Stock to one
Accredited Investor for a total consideration of $135,000. In connection
therewith, such Accredited Investor also received warrants to purchase 10,170
shares of the Company's Common Stock for $4.75 per share. The Company believes
that such sale of such securities was exempt from registration pursuant to
Section 4 (2) of the Securities Act and Rules 505 and/or 506 under Regulation D
of the Securities Act.
On September 25, 1996, the Company issued 120,000 warrants to one Accredited
Investor to purchase shares of the Company's Common Stock for $1.125 per share
in connection with a promissory note in the amount of $135,000 payable to such
Accredited Investor. In connection therewith, such Accredited Investor received
warrants to purchase 10,169 shares of the Company's Common Stock for $4.75 per
share.
In November, 1996, the Company sold and aggregate of 129,097 shares of Common
Stock to twelve Accredited Investors for a total aggregate consideration of
$355,016.75. In connection therewith, such Accredited Investors also received
warrants to purchase an aggregate of 10,940 shares of the Company's Common Stock
for $5.00 per share. The Company believes that each and every such sale of such
securities was exempt from registration pursuant to Section 4(2) of the
Securities Act and Rules 505 and/or 506 under Regulation D of the Securities
Act.
ITEM 27. EXHIBITS.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
<S> <C>
1.1 Form of Underwriting Agreement +
1.2 Form of Underwriter's Warrant +
2 Asset Purchase Agreement by and between Mercury Waste Solutions, Inc. and U.S. Environmental,
Incorporated dated January 4, 1996. +
Exhibits:
A-1 List of Accounts Receivables/List of Certain Assets
A-2 List of Contracts/Leases Assumed
A-3 Union Grove Costs/Estimates
B Promissory Note
C Allocation of Purchase Price
D-1 Bill of Sale
D-2 Distribution Rights Bill of Sale
Agreement Schedules:
4.9 Litigation
4.10 Contracts
4.15 Environmental Compliance/Violations
4.17 Employees
4.21 Environmental Data and Test Results
10.1(k) Creditors
3.1 Articles of Incorporation +
3.2 By-laws +
5 Opinion of Maslon Edelman Borman & Brand, a Professional Limited Liability Partnership
10.1 Commercial Lease dated February 25, 1993 for premises located at 2007 West County Road
C-2, Roseville, Minnesota +
10.2 Lease dated January 25, 1995 by and between Durand Properties and U.S. Environmental,
Incorporated for Premises located at 21209 Building No. 6, Durand Avenue, Union Grove,
Wisconsin 53182 +
10.3 Revolving Credit Promissory Note made by the Company in favor of Bradley J. Buscher dated
October 24, 1996 +
10.4 Revolving Credit Promissory Note in the amount of $1,660,000
dated December 4, 1996 with the Company as Borrower in favor of
Norwest Bank Minnesota, N.A.
10.5 Security Agreement by and between the Company and Bradley J. Buscher dated January 4,
1996 +
10.6 Shareholder Agreement by and among Bradley J. Buscher, Mark Edlund and the Company effective
January 4, 1996 +
10.7 Employment Agreement by and between Mercury Waste Solutions, Inc. and Mark Edlund dated
as of January 4, 1996 +
10.8 Amended and Restated Distribution Rights Bill of Sale Agreement by and between the Company
and USE dated November 30, 1996
10.9 Management Consulting Agreement by and between Bankers American Capital Corporation dated
as of January 4, 1996 +
10.10 Bill of Sale Agreement dated September 12, 1996 between Resource Technology, Inc. Mercury
Waste Solutions, Inc. and certain other parties. +
10.11 Amended and Restated Model 2000 Agreement dated September 12, 1996 between Resource Technology,
Inc. and Mercury Waste Solutions, Inc.
10.12 Mercury Waste Solutions, Inc. Stock Option Plan dated September 17, 1996.
10.13 Employment Agreement by and between Mercury Waste Solutions, Inc. and Bradley J. Buscher
dated as of January 22, 1997
10.14 Employment Agreement by and between Mercury Waste Solutions, Inc. and Donald J. Wodek
dated as of January 22, 1997
10.15 Revolving Credit Promissory Note by and between Mercury Waste Solutions, Inc. and Bradley
J. Buscher dated as of January 22, 1997
10.16 Non Statutory Stock Option Agreement by and between Mercury Waste Solutions, Inc. and
Donald J. Wodek dated as of January 22, 1997
11 Computation of Loss Per Common and Common Equivalent Share
23.1 Consent of Maslon Edelman Borman & Brand, a Professional Limited Liability Partnership
(included in Exhibit 5)
23.2 Consent of McGladrey & Pullen, LLP
24.1 Powers of Attorney (included on Page II-5) +
24.2 Power of Attorney for Frank L. Farrar
27 Restated Financial Data Schedule.
</TABLE>
* To be filed by amendment.
+ Previously filed.
ITEM 28. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned small business issuer hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect
in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration
statement; and (iii) include any additional or changed material information
on the plan of distribution.
(2) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1) or (4) or
Rule 497(h) under the Securities Act as part of this registration statement
as of the time the Commission declared it effective.
(3) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
The small business issuer hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Minneapolis, State of
Minnesota, on January 28, 1997.
MERCURY WASTE SOLUTIONS, INC.
By /s/ BRADLEY J. BUSCHER
Bradley J. Buscher
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND CHIEF FINANCIAL OFFICER
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ BRADLEY J. BUSCHER Chairman of the Board, Chief Executive January 28, 1997
Bradley J. Buscher Officer and Chief Financial Officer
/S/ MARK G. EDLUND President, Secretary, Treasurer January 28, 1997
Mark G. Edlund and Director
/S/ ALAN R. GEIWITZ Director January 28, 1997
Alan R. Geiwitz
/S/ JOEL H. GOTTESMAN Director January 28, 1997
Joel H. Gottesman
/S/ ROBERT L. ETTER Director January 28, 1997
Robert L. Etter
/S/ FRANK L. FARRAR Director January 28, 1997
Frank L. Farrar
</TABLE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE
<S> <C> <C>
1.1 Form of Underwriting Agreement +
1.2 Form of Underwriter's Warrant +
2 Asset Purchase Agreement by and between Mercury Waste Solutions, Inc. and U.S.
Environmental, Incorporated dated January 4, 1996. +
Exhibits:
A-1 List of Accounts Receivables/List of Certain Assets
A-2 List of Contracts/Lease Assumed
A-3 Union Grove Costs/Estimates
B Promissory Note
C Allocation of Purchase Price
D-1 Bill of Sale
D-2 Distribution Rights Bill of Sale
Agreement Schedules:
4.9 Litigation
4.10 Contracts
4.15 Environmental Compliance/Violations
4.17 Employees
4.21 Environmental Data and Test Results
10.1(k) Creditors
3.1 Articles of Incorporation +
3.2 By-laws +
5 Opinion of Maslon Edelman Borman & Brand, a Professional Limited Liability Partnership
10.1 Commercial Lease dated February 25, 1993 for premises located at 2007 West County Road
C-2, Roseville, Minnesota +
10.2 Lease dated January 25, 1995 by and between Durand Properties and U.S. Environmental,
Incorporated for Premises located at 21209 Building No. 6, Durand Avenue, Union Grove,
Wisconsin 53182 +
10.3 Revolving Credit Promissory Note made by the Company in favor of Bradley J. Buscher
dated October 24, 1996 +
10.4 Revolving Credit Promissory Note in the amount of $1,660,000
dated December 4, 1996 with the Company as Borrower in favor of
Norwest Bank Minnesota, N.A.
10.5 Security Agreement by and between the Company and Bradley J. Buscher dated January
4, 1996 +
10.6 Shareholder Agreement by and among Bradley J. Buscher, Mark Edlund and the Company
effective January 4, 1996 +
10.7 Employment Agreement by and between Mercury Waste Solutions, Inc. and Mark Edlund dated
as of January 4, 1996 +
10.8 Amended and Restated Distribution Rights Bill of Sale Agreement by and between the
Company and USE dated November 30, 1996
10.9 Management Consulting Agreement by and between Bankers American Capital Corporation
dated as of January 4, 1996 +
10.10 Bill of Sale Agreement dated September 12, 1996 between Resource Technology, Inc. Mercury
Waste Solutions, Inc. and certain other parties. +
10.11 Amended and Restated Model 2000 Agreement dated September 12, 1996 between Resource
Technology, Inc. and Mercury Waste Solutions, Inc.
10.12 Mercury Waste Solutions, Inc. Stock Option Plan dated September 17, 1996
10.13 Employment Agreement by and between Mercury Waste Solutions, Inc. and Bradley J. Buscher
dated as of January 22, 1997
10.14 Employment Agreement by and between Mercury Waste Solutions, Inc. and Donald J. Wodek
dated as of January 22, 1997
10.15 Revolving Credit Promissory Note by and between Mercury Waste Solutions, Inc. and Bradley
J. Buscher dated as of January 22, 1997
10.16 Non Statutory Stock Option Agreement by and between Mercury Waste Solutions, Inc. and
Donald J. Wodek dated as of January 22, 1997
11 Computation of Loss Per Common and Common Equivalent Share
23.1 Consent of Maslon Edelman Borman & Brand, a Professional Limited Liability Partnership
(included in Exhibit 5)
23.2 Consent of McGladrey & Pullen, LLP
24.1 Powers of Attorney (included on Page II-5) +
24.2 Power of Attorney for Frank L. Farrar
27 Restated Financial Data Schedule
</TABLE>
* To be filed by amendment.
+ Previously filed.
Exhibit 5
MASLON EDELMAN BORMAN & BRAND
3300 NORWEST CENTER
90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402-4140
(612) 672-8200
FAX (612) 672-8397
January 21, 1997
Mercury Waste Solutions, Inc.
302 North Riverfront Drive, Suite 100A
Mankato, Minnesota 56001
Ladies and Gentlemen:
We have acted on behalf of Mercury Waste Solutions, Inc., a Minnesota
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form SB-2 (the "Registration Statement"), relating to
the registration under the Securities Act of 1933, as amended, of (i) up to
1,150,000 shares of the Company's common stock, $0.01 par value (the "Shares"),
(ii) a warrant to purchase 100,000 shares of the Company's common stock, $0.01
par value (the "Warrant"), and (iii) 100,000 shares of Company's common stock,
$0.01 par value, issuable upon exercise of the Warrant (the "Warrant Shares").
Upon examination of such corporate documents and records as we have
deemed necessary or advisable for the purposes hereof and including and in
reliance upon certain certificates by the Company, it is our opinion that:
1. The Company is a validly existing corporation in good standing under
the laws of the State of Minnesota.
2. The Shares and the Warrant have been duly authorized and, when
issued as described in the Registration Statement, will be validly issued, fully
paid and non-assessable.
3. The Warrant Shares, when issued and paid for as described in the
Warrant, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the references to our firm under the heading "Legal
Matters" in the Registration Statement.
Very truly yours,
/s/ MASLON EDELMAN BORMAN & BRAND,
A PROFESSIONAL LIMITED LIABILITY PARTNERSHIP
December 4, 1996
Mercury Waste Solutions, Inc.
1700 West Highway 36
Roseville, Minnesota 55113
RE: Revolving Line of Credit
Gentlemen:
Norwest Bank Minnesota, National Association ("Norwest") is pleased to
establish for the benefit of Mercury Waste Solutions, Inc. (the "Borrower") a
revolving line of credit (the "Credit") in the amount of $1,660,000.00. The
Credit shall be governed by the provisions of this letter agreement.
1. Advances. The Borrower may request advances from time to time
under the Credit from the effective date hereof until the earlier
of (i) five (5) business days immediately following the IPO
Revenue Date (hereinafter defined), or (ii) January 1, 1998 (the
"Termination Date"). At no time may the aggregate principal amount
of all outstanding advances under the Credit exceed $1,660,000.00.
Each advance under the Credit shall be requested in writing by an
authorized officer of the Borrower, or telephonically by any
person reasonably believed by Norwest to be an authorized officer
of the Borrower. Each advance shall be evidenced by a single
promissory note in the face amount of $1,660,000.00, and in form
and content acceptable to Norwest (the "Current Note"). The
initial advance under the Credit shall be used for the exclusive
purpose of retiring all indebtedness evidenced by the "Second
Note," as that term is defined in that certain letter loan
agreement dated July 15, 1996 made between the Guarantor
(hereinafter defined) and Norwest. The Borrower hereby irrevocably
authorizes Norwest to effectuate said initial advance for such
purpose. Within the limits of the Credit and subject to the terms
and conditions hereof, the Borrower may borrow, prepay pursuant to
Section 5 hereof, and reborrow under the Credit.
2. Interest Rate. As used herein, the term "Base Rate" shall mean
the rate of interest established by Norwest as its "base" rate, as
in effect from time to time. Interest on the unpaid principal
balance of the Current Note shall accrue at an annual rate equal
to two percent (2.0%) in excess of the Base Rate. The interest
rate on the Current Note shall change as and when the Base Rate
changes. Interest shall be calculated on the basis of actual
number of days elapsed in a year of 360 days.
3. Payment of Interest. Interest on the Current Note shall be
payable on demand, but until such demand is made the Borrower
shall pay accrued interest for each month on the 1st day of the
immediately succeeding month, commencing January 1, 1997.
4. Repayment of Principal. As used herein, the term "IPO Revenue
Date" shall mean the first date on which the Borrower realizes an
aggregate amount equal to or greater than $5,000,000.00 from its
initial public offering. The Borrower shall repay the principal of
the Current Note on the earlier of (i) five (5) business days
immediately following the IPO Revenue Date, or (ii) the
Termination Date.
5. Voluntary Prepayment. The Borrower may prepay the Current Note
in whole or, from time to time, in part without premium.
6. Guaranty. The payment and performance of the obligations of the
Borrower under this letter agreement and the Current Note shall be
unconditionally guaranteed by Bradley J. Buscher, Trustee of the
Revocable Trust of Bradley J. Buscher Under Agreement Dated
February 2, 1996 (the "Guarantor"), pursuant to a guaranty of even
date herewith (the "Guaranty"), duly executed by the Guarantor for
the benefit of Norwest.
7. Security.
A. The Current Note shall be secured by a security
agreement of even date herewith (the "Security Agreement"),
duly executed by the Borrower and Norwest. Pursuant to the
provisions of the Security Agreement, the Borrower grants
Norwest a security interest in all personal property assets
of the Borrower, whether now owned or hereafter acquired.
Among other things, the Security Agreement contains
covenants relating to insurance which the Borrower must
keep in full force. Said covenants are incorporated herein
by reference as if set out in full.
B. The payment and performance of the Guarantor's
obligations under the Guaranty shall be secured by that
certain Collateral Pledge Agreement dated July 15, 1996
(the "Collateral Pledge") made by the Guarantor for the
benefit of Norwest. Pursuant to the Collateral Pledge, the
Guarantor grants Norwest a first security interest in
(among other things) common stock in First Bank System,
Inc. (the "Stock") and/or in investment securities
acceptable to Norwest (the "Securities"). The aggregate
market value of the Stock and the Securities shall, at all
times, be equal to or greater than 125% of the sum of (i)
the outstanding principal balance of the Current Note, plus
(ii) the outstanding principal balance of the Guarantor's
Note. As used herein, the term "Guarantor's Note" shall
mean the promissory note dated of even date with this
letter agreement (including modifications, renewals and
replacements of said note), made by the Guarantor in the
face amount of $4,200,000.00 payable to Norwest. The Stock
and/or the Securities will be safekept at the offices of
Norwest.
8. Financial Reports. For so long as the Credit remains in
existence, or any indebtedness remains outstanding under the
Current Note, unless Norwest shall otherwise consent in writing,
the Borrower will furnish the following to Norwest, in form and
content acceptable to Norwest:
A. Within 120 days after the end of each fiscal year
of the Borrower, detailed financial reports of the Borrower
for such fiscal year, including the balance sheet of the
Borrower as of the end of such fiscal year, and the
statement of profit and loss and surplus of the Borrower
for such fiscal year.
B. Within 60 days after the end of each fiscal
quarter of the Borrower, (i) the balance sheet of the
Borrower as of the end of such quarter, and (ii) the
statement of profit and loss and surplus of the Borrower
from the beginning of such fiscal year to the end of such
quarter.
C. On or before April 30th of each year, the
personal financial statement and cash flow statement of
Bradley J. Buscher ("Buscher") as of a date no earlier than
the immediately preceding December 31st, and a photocopy of
the complete federal income tax return of Buscher for the
immediately preceding year; provided, however, that if the
Guarantor is required by law to file a tax return, a
photocopy thereof shall also be furnished to Norwest as
soon as it is filed.
D. Promptly upon knowledge thereof, notice to
Norwest in writing of the occurrence of (i) the IPO Revenue
Date, and (ii) any event which has or might, after the
lapse of time or the giving of notice and the lapse of
time, become an Event of Default (hereinafter defined).
E. Promptly, such other information as Norwest may
reasonably request, and permit Norwest to visit and inspect
the offices and records of the Borrower at any reasonable
time and from time to time.
9. Representations and Warranties. The Borrower hereby represents
and warrants to Norwest as follows:
A. The Borrower is a corporation, duly organized and
existing in good standing under the laws of the State of
Minnesota.
B. The execution and delivery of this letter
agreement, the Current Note and the Security Agreement by
the Borrower have been duly authorized by the Borrower's
Board of Directors, and do not conflict with the Borrower's
Articles of Incorporation or By-laws, or with the
provisions of any agreement, law or regulation binding upon
the Borrower.
10. Conditions Precedent. Simultaneously with the execution of
this letter agreement, the Borrower shall deliver to Norwest, in
form and content acceptable to Norwest, each of the items
described on the attached Exhibit A.
11. Default. The occurrence of any one or more of the following
shall constitute an event of default ("Event of Default")
hereunder:
A. Default in payment of interest or of principal on
the Current Note when due, and continuance of such default
for 10 calendar days following written notice from Norwest.
B. The aggregate market value of the Stock and the
Securities shall be less than 125% of the sum of (i) the
outstanding principal balance of the Current Note, plus
(ii) the outstanding principal balance of the Guarantor's
Note, and such collateral deficiency shall remain in
existence for 10 calendar days.
C. Borrower shall breach any other agreement or
covenant contained in this letter agreement, and such
breach shall continue for a period of 30 calendar days
following written notice from Norwest.
D. The occurrence of an event of default under the
Security Agreement or the Collateral Pledge.
E. Any representation or warranty made by the
Borrower herein, or in any statement or certificate
furnished by the Borrower, Buscher or the Guarantor
hereunder, is untrue in any material respect.
F. A petition is filed by or against the Borrower or
Buscher under the United States Bankruptcy Code.
G. Buscher shall die or be physically or mentally
incapacitated to the extent that a court appoints a person
or persons to administer to Buscher's affairs.
12. Remedies. Upon the occurrence of one or more of the foregoing
Events of Default, Norwest may, by notice in writing to the
Borrower, terminate the Credit and declare all indebtedness under
the Current Note to be due and payable, whereupon the Credit shall
terminate and all such indebtedness shall immediately become due
and payable. Upon the occurrence of any Event of Default under
Section 11(F) above, the Credit shall automatically terminate and
all indebtedness under the Current Note shall immediately become
due and payable, without notice or demand. Notwithstanding the
foregoing, in the case of the death of Buscher, Norwest shall not
exercise its right to accelerate the Current Note until the
earliest of (i) six (6) months from the date of death, (ii) the
maturity date of the Current Note, or (iii) the occurrence of any
other Event of Default hereunder. The remedies described herein
are not intended to be exclusive and shall be read cumulatively
with all other rights and remedies available to Norwest under this
letter agreement, by other contract, at law or in equity.
13. The Borrower hereby agrees that if all or any part of the
indebtedness under the Credit (or any extension or renewal
thereof) is not paid when due, Norwest may, without notice to the
Borrower or without further action, offset any and all
unrestricted deposits (including unmatured time deposits) of the
Borrower maintained at Norwest against the unpaid principal
balance and accrued and unpaid interest due and owing under the
Credit. Norwest agrees that it will not exercise its rights of
setoff unless it reasonably believes that the net proceeds from
the disposition of all collateral securing the Credit would not be
sufficient to repay all amounts outstanding under the Credit.
14. Entire Agreement. This letter agreement and the documents
referred to herein constitute the entire agreement between the
parties, and may be amended only by a writing signed on behalf of
each party.
15. Applicable Law. This letter agreement and the documents
executed in connection herewith shall be governed by the
substantive laws of the State of Minnesota.
16. Expenses. The Borrower agrees to reimburse Norwest for all
reasonable attorneys' fees incurred by Norwest in connection with
the preparation, administration and enforcement of this letter
agreement and the documents executed in conjunction herewith.
If the foregoing provisions are acceptable to you, please return a
fully executed original of this letter agreement and the other enclosed
documents to me on or before December 20, 1996. Please call me at 667-4766 if
you have any questions.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:
----------------------------------
Justin D. Stets,
Vice President
ACCEPTED BY:
MERCURY WASTE SOLUTIONS, INC.
By:
Its:
By:
Its:
December ____, 1996
AMENDED AND RESTATED
DISTRIBUTION RIGHTS BILL OF SALE AGREEMENT
THIS DISTRIBUTION RIGHTS BILL OF SALE AGREEMENT made this 30th day of
November, 1996, between:
U.S. ENVIRONMENTAL, INCORPORATED
1700 West Highway 36
Saint Paul, Minnesota 55113
a Minnesota corporation ("USE"), and
MERCURY WASTE SOLUTIONS, INC.
302 N. Riverfront Drive
Mankato, MN 56001
a Minnesota corporation ("MWS"):
This Agreement amends and restates that certain Distribution
Rights Bill of Sale Agreement (the "Original Distribution Rights
Agreement") dated January 4, 1996 by and between USE and MWS pursuant
to Section 9 of the Original Distribution Rights Agreement.
Pursuant to that certain Asset Purchase Agreement (the "Asset
Purchase Agreement") dated January 4, 1996 by and between USE and MWS,
for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, USE does hereby sell, assign, transfer
and convey unto MWS, its successors and assigns, all and singular, the
exclusive right to distribute and sell and USE's design rights of (the
"Distribution Rights") the Model 2000 lamp processing equipment ("Model
2000") and any and all new types and items of lamp processing or
mercury retorting/distilling equipment including modifications to the
Model 2000 manufactured by or for USE ("New Equipment"), as such
equipment exists now or may be varied or redesigned in the future
(collectively, the "Equipment").
TO HAVE AND TO HOLD all and singular the Distribution Rights unto MWS,
its successors and assigns, forever.
USE hereby covenants and agrees to and with MWS, its
successors and assigns, to do, execute, acknowledge and deliver, or to
cause to be done, executed, acknowledged and delivered, to MWS, its
successors and assigns, all such further acts, assignments, transfers,
and assurances that may be reasonably requested, conveying, delivering,
assuring and confirming, to MWS, its successors or assigns, or for
aiding and assisting in collecting or reducing to possession, any or
all of the Distribution Rights, including without limitation with
respect to any claims regarding the Distribution Rights asserted by
Donald Seiler, Michael Seiler (collectively, the "Seilers") and/or
Resource Technology, Inc. ("RTI").
This Bill of Sale shall be binding upon the successors and assigns of
USE and shall inure to the benefit of the successors and assigns of MWS.
1. Sale of Equipment. In addition to, and in connection with the
conveyance of the Distribution Rights, USE agrees that USE shall sell to MWS,
subject to the terms and conditions of this Agreement, MWS's requirements for
Equipment. USE shall sell Equipment to MWS on the terms and conditions set forth
in the RTI Agreement (as defined in Section 4 hereof), or any successor
agreement. Delivery of the Equipment shall be at the cost of MWS.
2. Distribution Payments. In consideration for the transfer of the
Distribution Rights, MWS agrees to pay USE as follows: (i) for each piece of the
Model 2000 Equipment actually sold, the sum of $46,000, and (ii) for each piece
of New Equipment actually sold, the sum of $25,000 (each such payment under (i)
or (ii) shall be referred to herein as a "Distribution Payment"); provided,
however that the aggregate maximum amount of Distribution Payments shall not
exceed the sum of $460,000 (the "Total Distribution Payment"). The Distribution
Payments shall be earned by USE upon final consummation of a sale of Equipment,
and shall be payable to USE pursuant to the terms of a promissory note in the
form attached hereto as Exhibit A (the "Distribution Note(s)"). After USE has
earned the Total Distribution Payment, USE shall have no further rights with
respect to the Equipment or the distribution of the Equipment. The Distribution
Note(s) shall bear interest at 10%, with interest accruing thereon payable to
USE monthly. The aggregate outstanding principal balance of the Distribution
Note(s) shall be due and payable on January 4, 2001. In addition, at such time
as the Board of Directors of MWS has determined, in its sole discretion, that
the principal balance outstanding on the Revolving Loan (defined below) is at
the maximum amount anticipated to be advanced against the Revolving Loan and no
further advances against the Revolving Loan are projected (the "Determination"),
then MWS may prepay the Distribution Note(s) in whole or in part, without
penalty or premium, out of Excess Cash Flow as described below. For purposes of
this Agreement, "Excess Cash Flow" shall mean MWS's gross revenue actually
received less (i) all operating expenses of MWS excluding depreciation, (ii)
reserve for the income taxes of MWS (if MWS becomes a Subchapter C corporation)
or of MWS's shareholders with respect to income of the MWS, (as long as MWS is a
Subchapter S corporation), (iii) interest and scheduled principal payments on
indebtedness of MWS, and lease payments (other than principal owing on the Asset
Purchase Loan, as defined below, and the Distribution Note(s)), (iv) interest
payable on the Distribution Note(s), (v) the cost of goods sold, (vi) capital
expenditures, and (viii) a cash reserve of $100,000. MWS shall distribute to USE
thirty-two percent (32%) of such Excess Cash Flow, to be applied by USE to the
principal balance outstanding on that certain Promissory Note bearing even date
herewith in the principal amount of $448,256.60 made payable by MWS to USE (the
"Asset Purchase Loan"), and the aggregate principal balance outstanding on the
Distribution Note(s), in USE's discretion. MWS shall distribute sixty-eight
percent (68%) of such Excess Cash Flow to reduce the principal balance
outstanding on that certain Revolving Credit Promissory Note bearing even date
herewith in the principal amount of up to $2,000,000 made payable by MWS to the
order of Brad Buscher ("Buscher") or his assigns, as amended from time to time
or replaced with other financing from time to time (the "Revolving Loan").
Before the Determination, all Excess Cash Flow shall be applied to the principal
balance outstanding on the Revolving Loan.
The Distribution Note(s) shall be secured by the assets of MWS pursuant
to the terms of a certain Security Agreement dated January 4, 1996 by and
between MWS and USE, as the same may be amended from time to time (the "Security
Agreement").
3. Reconveyance. MWS shall reconvey to USE the Distribution Rights
relating to the Model 2000 Equipment, if: (i) MWS determines in its sole
discretion to cease distributing Equipment before USE has earned the Total
Distribution Payment, or (ii) during any one year period, beginning on September
12th of each year, beginning with the year following September 12, 1996, before
USE has earned the Total Distribution Payment, MWS either fails to purchase a
minimum of three (3) Pieces of Model 2000 Equipment for retail sale or MWS fails
to issue Distribution Note(s) to USE evidencing Distribution Payments in the
aggregate of at least $138,000, (or any combination with this net result).
Notwithstanding the foregoing, MWS shall retain all rights with respect to New
Equipment and shall retain the rights to any and all new types and items of lamp
processing or mercury retorting/distilling equipment including modifications to
the Model 2000 manufactured by or for or developed by MWS. Upon reconveyance of
the Distribution Rights relating to the Model 2000 Equipment, MWS shall have no
further obligation to USE pursuant to this Agreement or otherwise with respect
to the Distribution Rights, except for payment in accordance with Section 2
hereof of any Distribution Note(s) outstanding on the date of the reconveyance.
4. USE's Representations to MWS. USE warrants that USE has good and
marketable title to the Distribution Rights pursuant to the terms of a certain
Agreement dated as of June 27, 1994 between USE and RTI a copy of which is
attached hereto as Exhibit B (the "RTI Agreement"), and that there are no liens
or security interests which encumber or affect the Distribution Rights, and that
USE will warrant and defend title to the Distribution Rights against all claims
and demands whatsoever, including without limitation any claims asserted by RTI
or the Seilers, at no cost and expense to MWS. USE further represents and
warrants to MWS that it (i) has the exclusive right to sell the Equipment and
has the right and authority to grant to MWS the rights granted hereunder, (ii)
is contractually free to enter into and perform this Agreement without thereby
being in breach or causing a breach of the terms of any other contract,
commitment or understanding, and (iii) the Equipment is in good condition and is
fit for the purpose for which it is intended, and the Equipment's design and
construction complies with all applicable federal and state environmental laws
in effect as of the date of this Agreement. If MWS is unable to distribute and
sell the Model 2000 Equipment because of a breach of USE's foregoing
representations or warranties, MWS may reassign its rights to distribute the
Model 2000 Equipment to USE and in such a case USE agrees to retain the services
of MWS to market and sell the Model 2000 Equipment, for which services USE shall
pay MWS compensation in an amount equal to the gross sales price of each piece
of Model 2000 Equipment sold less: (A) the costs of manufacturing plus $46,000,
until such time as ten (10) pieces of Model 2000 Equipment have been sold under
the terms of this Agreement, whether before or after the reassignment of the
Distribution Rights pursuant to this Section 4, or (B) the costs of
manufacturing after the sale of 10 pieces of Model 2000 Equipment pursuant to
the terms of this Agreement.
5. Offset. USE acknowledges and agrees that MWS shall have the right to
offset against indebtedness of MWS to USE evidenced by Distribution Note(s), any
damages or losses incurred by MWS arising out of the breach by USE of any of the
terms and conditions of this Agreement, or the Asset Purchase Agreement,
including without limitation, a breach of the representations and warranties set
forth in Section 4 hereof. In the event of such an offset, the interest on the
amount offset against such Distribution Note(s) shall be reimbursed to MWS.
6. Acceleration of Distribution Note(s). If prior to payment in full of
the Total Distribution Payment in accordance with Section 2 hereof and the
related Distribution Note(s), any of the following events occurs, then the
amounts outstanding on Distribution Note(s) existing on the date of the
occurrence may become due and payable in full to USE immediately, upon the
written election of USE:
a. MWS terminates the employment of Mark Edlund ("Edlund") pursuant to
Section 5.1(a)(i) of that certain Employment Agreement dated as of
January 4, 1996 by and between MWS and Edlund, as the same may be
amended from time to time (the "Employment Agreement"), or any
successor employment agreement; or
b. At any time after January 1, 1999, Edlund becomes unable to perform
under his employment agreement because of disability or incompetency,
as defined in Section 5.1(a)(ii) of the Employment Agreement or any
successor employment agreement; or
c. The death of Edlund, as long as MWS has been able to procure an
insurance policy on the life of Edlund with MWS as beneficiary, which
MWS shall use its reasonable efforts to obtain.
After the occurrence of any of the above events and an acceleration
election by USE, any Distribution Payments earned by USE shall be payable
pursuant to the terms of Section 2 hereof and shall not be subject to such
acceleration.
7. Exclusive Trade Areas. MWS acknowledges that prior to the date of
this Agreement, in connection with the sale of pieces of Model 2000 Equipment,
USE has granted exclusive territory rights and/or rights of first refusal to the
parties listed on Schedule I attached hereto pursuant to the terms of Purchase
Agreements. MWS agrees to comply with the terms of those Purchase Agreements
specifically listed on Schedule I, solely to the extent of any exclusive
territories or rights of first refusal granted. In no event, however, shall this
be construed as an assumption by MWS of USE's obligations under such Purchase
Agreements, including without limitation any representations or warranties
provided therein, nor shall MWS be held liable or responsible for any violations
by USE of any grants of exclusive territories or rights of first refusal under
such Purchase Agreements, and USE agrees to indemnify and hold harmless MWS for
any damages incurred by MWS arising out of USE's failure to comply with the
terms of such Purchase Agreements.
8. Miscellaneous Provisions. This Agreement contains the entire
agreement of the parties relative to its subject, and shall not be waived,
altered or rescinded except by a writing signed by the party to be charged
therewith. This Agreement except where otherwise specifically stated shall be
governed by and interpreted in accordance with the laws of the State of
Minnesota. The parties hereto hereby consent to the jurisdiction of the state
and federal courts located in the state of Minnesota in conjunction with any
controversy related to this Agreement and waive any argument that venue in such
forums is not convenient. Pronoun references shall be deemed to be of any number
or gender relevant in the context. Paragraph captions are for convenience of
reference and do not alter or limit the terms of this Agreement. The various
terms of this Agreement are independent and severable and the invalidity or
unenforceability of any of them shall not affect the remainder. This Agreement
may be executed in any number of counterparts, each of which shall be deemed an
original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
MERCURY WASTE SOLUTIONS, INC.
By ___________________________________________
Brad J. Buscher, its Chief Executive Officer
U.S. ENVIRONMENTAL, INCORPORATED
By ___________________________________________
Mark Edlund, its President
AMENDED AND RESTATED MODEL 2000 AGREEMENT
THIS AMENDED AND RESTATED MODEL 2000 AGREEMENT made and entered into as
of this 12th day of September, 1996 by and between RESOURCE TECHNOLOGY, INC., an
Iowa corporation, ("RTI") and MERCURY WASTE SOLUTIONS, INC., a Minnesota
corporation ("MWS").
RECITALS
A. RTI and U.S. Environmental, Incorporated ("USE") are parties to a
certain Agreement dated June 27, 1994 (the "Model 2000 Agreement") pursuant to
which RTI and USE jointly owned the design rights of the Model 2000 Machines
(defined below) (the "Design Rights"), USE exclusively owned the rights to
purchase, sell and distribute the Model 2000 Machines (the "Distribution
Rights") and RTI exclusively owned the manufacturing rights for the Model 2000
Machines (the "Manufacturing Rights").
B. Pursuant to the terms of a Distribution Rights Bill of Sale
Agreement dated as of January 4, 1996, USE assigned and transferred to MWS its
rights under the Model 2000 Agreement, including without limitation, its Design
Rights and the Distribution Rights; provided, however that the assignment was
subject to the consent of RTI.
C. To resolve outstanding issues between RTI and USE, and as a
condition to RTI's consent to the assignment from USE to MWS, the parties hereto
(and USE and Mark Edlund) executed a certain letter of intent dated July 8, 1996
(the "Letter of Intent"), which provided, among other things, that RTI consents
to the assignment to MWS of USE's rights under the Model 2000 Agreement, and
that RTI and MWS would amend and restate the terms of the Model 2000 Agreement
upon the terms and conditions outlined in the Letter of Intent.
D. RTI has represented and warranted to MWS, USE and Edlund in the
Letter of Intent, that (i) RTI has not accepted any orders for Model 2000
Machines other than through USE, (ii) RTI has not been actively marketing sales
of the Model 2000 Machines independently, whether in the United States market or
internationally, and (iii) RTI has not interfered with prospective sales of the
Model 2000 Machines by offering to such prospective customers a different model
of machine in lieu of the Model 2000, except that RTI has disclosed to MWS, USE,
and Edlund discussions that RTI has had with an interested potential buyer in
Missouri, and RTI has referred said parties to said potential buyer.
E. RTI and MWS hereby desire to amend and restate the Model 2000
Agreement upon the terms and conditions set forth herein.
AGREEMENTS
NOW THEREFORE, in consideration of the mutual promises and covenants
contained herein and for one dollar and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Model 2000 Machines. As used in this Agreement, the "Model
2000 Machine" is defined as a fluorescent lamp processing
machine for recovering mercury, which includes, among other
things, the following components and their descriptions
(herein referred to as the "Model 2000 Technology"):
a. Pre-breaker bar which shears small sections of lamp
from whole lamps;
b. Crushing drums which finish crushing small sections
of lamps from pre-breaker so that glass is smaller
than end caps;
c. Cleated incline belt conveyor to transport glass from
crusher to trommel; and
d. Trommel with double screening.
2. Ownership Rights. RTI and MWS hereby agree and acknowledge
that with respect to the Model 2000 Machine (i) RTI shall be
the exclusive owner of the Manufacturing Rights; (ii) MWS
shall be the exclusive owner of the Distribution Rights; and
(iii) RTI and MWS shall jointly and equally own the Design
Rights.
3. Purchase Price/Terms of Payment.
a. For each Model 2000 Machine that MWS purchases
pursuant to this Agreement, MWS will pay a purchase price
determined as follows (the "Purchase Price"):
(i) if one or two Model 2000 Machines are ordered at
one time, the lesser of: (A) $92,500, (B) the lowest
price paid to RTI for a Recycling Machine (defined
below) within the previous 180 days by a third-party
distributor or any other person or entity that
resells to an end-user customer, or (C) as long as
the price at which MWS sells the Model 2000 Machine
or a Recycling Machine during the previous 180 days
is greater than or equal to the price at which RTI
sells a Recycling Machine to an end-user customer
during the same 180 day period, a sum equal to 56% of
the lowest price at which RTI (or an RTI affiliate,
agent or independent contractor acting at the
direction or request of RTI) directly sold a
Recycling Machine to an end-user customer within such
180 day period, or
(ii) if three or more Model 2000 Machines are ordered
at one time, the lesser of (A) $84,000, (B) the
lowest price paid to RTI for a Recycling Machine
within the previous 180 days by a third-party
distributor or any other person or entity that
resells to an end-user customer, or (C) as long as
the price at which MWS sells the Model 2000 Machines
or a Recycling Machine during the previous 180 days
is greater than or equal to the price at which RTI
sells a Recycling Machine to an end-user customer
during the same 180 day period, a sum equal to 51% of
the lowest price at which RTI (or an RTI affiliate,
agent or independent contractor acting at the
direction or request of RTI) directly sold a
Recycling Machine to an end-user customer within such
180 day period.
b. The prices described in subparagraphs (i)(A) and
(ii)(A) above will be guaranteed by RTI not to change through
January 1, 1998 (except in the event of unforeseeable
increases of more than 20% in the costs of manufacturing the
Model 2000 Machines), and annual increases of such prices
after January 1, 1998 will not exceed 10% of the previous
year's sale prices in subparagraphs (i)(A) and (ii)(A) above.
Notwithstanding anything to the contrary, MWS agrees that for
the first four Model 2000 Machines ordered after the closing
of this transaction (excluding orders for machines for any of
21st Century Environmental, Total Reclaim or Environmental
Light Recyclers which had been prospective sales of USE prior
to the date of this Agreement), MWS will pay RTI the Purchase
Price, as determined in subparagraph 3.a.(i) or 3.a.(ii)
whichever is applicable, plus the following additional
amounts: (i) the sum of $9,000 for each of the first two
machines, and (ii) the sum of $5,000 for each of the third and
fourth machines. For determination of the applicable pricing,
each party will provide written notice to the other party
within 10 days of the consummation of any sale of a Recycling
Machine or a Model 2000 Machine, including without limitation
the price at which such machine was sold.
c. The Purchase Price for a Model 2000 Machine will
be paid by MWS to RTI as follows:
(i) MWS will make a deposit of $30,000 for each Model
2000 Machine upon placing an order with RTI;
(ii) MWS will pay another $30,000 upon the shipment
of each Model 2000 Machine, which shipment will be
F.O.B. RTI's facility or RTI's agent's facility;
(iii) the balance of the Purchase Price will be due
30 days after installation (if RTI performs the
installation); provided, however, that if MWS (or its
customer) does not accept delivery of any Model 2000
Machine within 120 days from the order, the
customer/MWS shall pay the balance due together with
any storage costs incurred.
d. RTI agrees to cooperate with MWS to accommodate
any deadlines of a customer purchasing a Model 2000 Machine
from MWS, but in any event, absent unforeseen circumstances
beyond RTI's control, RTI will have a Model 2000 Machine
available for shipment no later than 60 days after the date a
$30,000 deposit is paid to RTI. At the time an order is
placed, MWS and RTI will prepare a tentative schedule for the
manufacture of a Model 2000 Machine, date of anticipated
shipment, and installation (if RTI installs).
4. Shipment/Transfer of Title. Title to a Model 2000 Machine
shall pass to MWS upon loading a machine upon the transporter
for shipment, and RTI will warrant that each such Model 2000
Machine is free and clear of any and all liens, encumbrances
or interests of RTI or any third party at the time title is
transferred to MWS.
5. Installations. Based upon a tentative schedule prepared in
accordance with Section 3 above, RTI will be available to
install a Model 2000 Machine upon receipt of at least two
weeks notice from MWS (or such lesser time as the parties may
agree from time to time). For the installation of a Model 2000
Machine performed by RTI, RTI will be paid a fee determined in
accordance with Schedule I attached hereto, as the same may be
amended by RTI and MWS from time to time. Notwithstanding the
foregoing, RTI acknowledges and agrees that MWS shall not be
obligated to retain RTI's services for any installations. If
RTI's services are not utilized for the installation of a
Model 2000 Machine, RTI shall arrange for shipment at MWS's
request and all balances owing to RTI for such Model 2000
Machine shall be paid upon confirmation of the shipment.
6. RTI's Limited Warranties. As manufacturer of the Model 2000
Machines, RTI provides to MWS the following limited warranties
with respect to each Model 2000 Machine manufactured pursuant
to this Agreement: (i) that the Model 2000 Machine will be
free from any defects in material or workmanship at the time
of shipment and for 90 days thereafter; and (ii) that the
Model 2000 Machine conforms to the specifications set forth on
Schedule II hereto, as well as the components of the Model
2000 Technology, as defined above, or any other drawings or
specifications mutually agreed upon by RTI and MWS. This
warranty shall be exclusive of transportation costs to the
site. In addition, RTI shall provide a manufacturer's warranty
on parts (exclusive of conveyor belts, freight costs, and
transportation costs to the site) of 90 days from the date of
shipment. MWS shall provide written notice to RTI promptly
upon learning of a defect or claim of a breach of RTI's
warranties in a Model 2000 Machine or of a defective part,
prior to the expiration of the applicable warranty period, and
RTI agrees as its sole and exclusive remedy to repair such
defect or replace any such defective parts as soon as is
reasonably possible after receipt of such notification, at no
charge to MWS or the end-user/ customer. If RTI does not
install the Model 2000 Machine, RTI shall not be liable or
responsible for any problems or defects attributable to
installation, and RTI shall be reimbursed for any costs or
expenses incurred by RTI in repairing defects or in consulting
on problems directly related to installation not performed by
RTI, including transportation costs.
OTHER THAN AS SET FORTH IN THIS SECTION 6, SELLER DOES NOT
MAKE ANY REPRESENTATIONS OF ANY KIND AS TO THE CONFORMITY OF
THE MODEL 2000 MACHINE TO ANY REGULATIONS, RULES OR LAWS.
OTHER THAN AS SET FORTH IN THIS SECTION 6, SELLER DISCLAIMS
ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS OF ALL GOODS FOR A
PARTICULAR PURPOSE.
7. Covenant Not To Compete/Non-Solicitation. In light of their
respective interests in the Design Rights, Manufacturing
Rights and Distribution Rights of the Model 2000 Machines, and
to enable MWS and RTI to pool their resources as provided in
this Agreement in order to produce and distribute the Model
2000 Machines and to prevent the parties from engaging in
unfair competition, RTI and MWS hereby agree:
a. that for 36 months after the date hereof (the
"Noncompete Period"), other than the Model 2000
Machines which will be manufactured and distributed
pursuant to the terms of this Agreement, neither
party will manufacture or distribute a model of
fluorescent lamp recycling machine anywhere in North
America, except as expressly permitted in
subparagraph 7b. below; provided, however, that such
restriction does not apply to retort units, conveyors
and lamp and bulb crushers not designed to function
with or be added to the Model 2000 Machines, and
provided, further, that there shall be no restriction
on the research and development of fluorescent lamp
recycling machines;
b. that the parties acknowledge that other
technologies may evolve for recovery of mercury from
fluorescent light fixtures, and accordingly, after
the first six months of the Noncompete Period, the
restrictive covenant set forth in subparagraph 7a.
above will not prohibit either MWS or RTI from
manufacturing, distributing and/or selling
fluorescent lamp recycling devices or systems which:
(i) employ processes and means of operation
which do not include any of the components
of the Model 2000 Technology (as defined
above); or
(ii) employ processes and utilize any of the
components of the Model 2000 Technology,
that:
(A) are less than 30 feet 6 inches or
greater than 70 feet 6 inches of lineal feet
of floor space (whether in a straight line
or other configuration), and (B) the
published/stated technical specifications
for hourly processing capability are less
than 2,000 lamps or more than 3,000 lamps
(hereinafter such a device shall be referred
to as a "Recycling Machine");
provided, however, that any such fluorescent lamp
recycling machine (whether under (i) or (ii) above)
must be in a different color than the Model 2000
Machines, RTI agrees that it will not use or display
the names or marks "USA Lights", "Model 2000", or any
designation that is confusingly similar to either of
those names, and RTI agrees not to sell any such
machine in the state of Minnesota or any area in the
state of Wisconsin that is within a 200 mile radius
from MWS's Roseville, Minnesota plant.
c. that the parties will refrain from soliciting,
interfering with or endeavoring to entice away any
prospective or existing customer of the other party
in connection with sales of any such other
fluorescent lamp recycling machines. An existing
customer shall include any customer with whom an
order for a fluorescent lamp recycling machine has
been placed or for whom equipment has been installed
and which is listed on Schedule III attached hereto,
and a prospective customer shall include any party
with whom MWS or RTI has commenced discussions
(beyond the initial sales/marketing contact), prior
to any substantive initial contact by the other
party, relating to the sale of a fluorescent lamp
recycling machine and whom MWS or RTI has notified in
writing the other party that such business is being
actively pursued by means of a written or oral
proposal or other ongoing discussions or negotiations
which have a reasonable opportunity for success.
Nothing in this Agreement will prohibit or restrict
either party's ability to respond to or accept
business from identified existing or prospective
customers of the other party, provided that such
business was not directly or indirectly initiated or
affirmatively solicited by such party.
d. that if a party violates the restrictive covenants
set forth in this Section 7, the other party will
suffer immediate and irreparable harm which may not
be adequately compensated or determined by monetary
damages, and as such the parties agree that in the
event of a breach or threatened breach of these
restrictive covenants a party shall be entitled to
equitable relief, including without limitation,
injunctive relief, without necessity of posting bond;
and in connection with a violation of the restrictive
covenants described in paragraphs 7a and b above, the
violating party shall indemnify the other party
against any loss, damage, liability or expense
(including attorneys' fees) arising out of or in
connection with the breach or threatened breach of
such restrictive covenant.
8. Exclusive Territories/Royalties. RTI agrees that for a period
of 36 months, RTI will voluntarily agree to honor any
exclusive territories granted by USE to those buyers of Model
2000 Machines listed on the attached Exhibit A, provided that
at all times RTI receives a payment equal to 30% of any past,
present, or future royalties actually collected, which arise
out of such sales of the Model 2000 Machines and owing
pursuant to the terms of the purchase agreements described on
Exhibit A. MWS/USE shall distribute to RTI its 30% share of
any royalties collected within forty (40) days after the end
of each quarter. RTI shall not be obligated to honor any
exclusive territory with respect to which RTI has not received
its 30% share of royalty payments owing within 60 days after
the end of each quarter. MWS shall provide to RTI a quarterly
accounting for all royalties received from said buyers, and
RTI shall have the right to independently verify the accuracy
of said quarterly reports from MWS. Notwithstanding the
foregoing, RTI does not hereby agree to become bound by the
rights of first refusal granted by USE to certain buyers of
the Model 2000 Machines. RTI recognizes that MWS may grant
exclusive territories and rights of first refusal to
prospective purchasers of Model 2000 Machines pursuant to
which MWS will agree not to sell any other Model 2000 Machines
in an agreed upon territory as long as the purchaser pays a
royalty to MWS. RTI shall not be bound by the terms of any
such future exclusive territories and/or rights of first
refusal granted by MWS, unless RTI expressly consents in
writing to abide by such exclusive territory agreement and/or
rights of first refusal, in return for a royalty payment or
other consideration to be agreed upon by RTI and MWS on a case
by case basis. RTI shall have no claims or right to any
royalties paid to MWS in connection with any such exclusive
territories and/or rights of first refusal unless RTI has
given MWS its written consent to be bound to such exclusive
territory or rights of first refusal agreements.
9. Recitals. The parties hereto hereby confirm and reaffirm the
accuracy of the recitals set forth above.
10. Expiration. This Agreement shall expire upon the earlier of:
(i) mutual agreement of the parties hereto, which agreement
shall be evidenced by a writing signed by both parties, (ii)
either party shall become insolvent or unable to pay its
debts, suspends business, makes a general assignment for the
benefit of creditors, files or has filed against it a petition
in bankruptcy or a petition or answer seeking a
reorganization, arrangement with creditors or other similar
relief under the Federal bankruptcy laws or under any other
applicable law of the United States of America or any state
thereof, or consents to the appointment of a trustee or
receiver for it or for a substantial part of its properties,
or (iii) September 30, 1999. Upon the expiration of this
Agreement pursuant to any of the foregoing, MWS and RTI agree
that this Agreement shall be of no further force and effect
and the parties shall have no further obligations to each
other, the parties shall no longer have their respective
exclusive rights provided in Section 2 hereof, and accordingly
each of MWS and RTI shall have the right to utilize the Design
Rights, and to exercise the Manufacturing Rights and the
Distribution Rights without obligation to or recourse from the
other party. Notwithstanding anything to the contrary herein,
the parties agree that any modifications or changes to the
Design of the Model 2000 Machines developed by RTI or MWS
during the term of this Agreement, which constitutes
technology that is original or new to the existing design of
the Model 2000 Machine that is patented or on which a patent
is pending, shall be the exclusive property of such developing
party (both during and after the term of this Agreement) and
may not be used by the other party without the express written
consent of the developing party.
11. Assignment. Neither party may assign or transfer its rights or
obligations hereunder without the prior written consent of the
other party, which consent shall not be unreasonably withheld.
RTI agrees that MWS may assign its rights and obligations
hereunder to USE, and MWS shall promptly provide notification
to RTI of any such assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their
respective successors and permitted assigns.
12. Notices. Any notices required or contemplated hereunder shall
be effective upon the placing thereof in the United States
mails, certified mail and with return receipt requested,
postage prepaid, or delivered to a nationally recognized
overnight carrier, or by messenger or by facsimile (with hard
copy to follow), and addressed as follows (or at such other
address as may be designated by a party in a written notice to
the other party):
If to RTI: Resource Technology, Inc.
520 West Street
Van Meter, IA 50261
Tele/fax: (515) 996-2265
Attention: Michael Seiler
With Copy to: Best & Flanagan, P.L.L.P.
4000 First Bank Place
601 Second Avenue South
Minneapolis, MN 55402
Telephone: (612) 349-5641
Attention: John P. Boyle, Esq.
If to MWS: Mercury Waste Solutions, Inc.
302 N. Riverfront Drive
Mankato, MN 56001
Telephone: (507) 345-0520
Facsimile: (507) 345-1483
Attention: Brad Buscher
With Copy to: Briggs and Morgan, P.A.
2400 IDS Center
Minneapolis, MN 55402
Attention: Michelle Culligan, Esq
Telephone: (612) 334-8569
Facsimile: (612) 334-8650
13. Amendment and Waiver. No failure, forbearance, negligence or
delay of any kind or extent on the part of any party hereto in
connection with the enforcement or exercise of any rights
under this Agreement and no course in dealing between RTI and
MWS shall affect, impair or diminish the right to enforce or
take full benefit for any provisions of this Agreement at any
time. No waiver by any party of the performance of any
provision of this Agreement shall constitute or be deemed or
implied as a waiver as to such party's right to enforce any
provisions of this Agreement at any time in the future.
14. Superseding Effect. This Agreement, from and after the date
hereof, supersedes and has merged into it all prior oral and
written agreements on the same subjects by or between the
parties hereto, including without limitation the Letter of
Intent, with the effect that this Agreement shall control.
15. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one
and the same instrument and either of the parties may execute
this Agreement by executing any such counterpart.
16. Independent Contractors. MWS and RTI acknowledge and agree
that nothing in this Agreement shall be interpreted to
constitute a partnership, association, joint venture or other
organization or business entity between MWS and RTI, it being
the expressly agreed that each of MWS and RTI is an
independent contractor with respect to the other, and neither
shall be deemed to be an employee or agent of the other party.
17. Governing Law/Consent to Jurisdiction. All actions or
proceedings with respect to this Agreement shall be conducted
in the Courts of the State of Minnesota (State or Federal)
and, by execution and delivery of this Agreement, RTI
irrevocably and unconditionally submits to the jurisdiction
(both subject matter and personal) of such courts, and
irrevocably and unconditionally waives (i) any objection RTI
may have or hereafter have to the laying of venue in such a
court, and (ii) any claim that any action proceeding in such
court has been brought in an inconvenient forum. Service of
process may be effected upon RTI through such service outside
of the State of Minnesota due to its waiver of objection to
such service. This Agreement shall be solely governed by and
interpreted in accordance with the internal laws of the State
of Minnesota, without regard to conflicts of laws provisions.
18. Captions, Headings. Captions and section headings used herein
are for convenience only and are not part of this Agreement,
and shall not be used in construing this Agreement. References
herein to sections and paragraphs shall apply to the sections
and paragraphs of this Agreement.
19. Severability. Every provision of this Agreement is intended to
be severable. In the event any term or provision is declared
to be illegal or invalid by a court of competent jurisdiction,
for any reason whatsoever, such illegality or invalidity shall
not affect the remaining terms and conditions of this
Agreement, which terms and conditions shall remain binding and
enforceable.
20. Savings Clause. RTI and MWS agree that the scope and terms of
this Agreement are reasonable and it is the parties' intent
and desire that this Agreement be enforced to the fullest
extent permissible under the laws and public policies applied
in the jurisdiction in which enforcement is sought. If any
particular provision of the Agreement shall be adjudicated to
be invalid or unenforceable, the parties specifically
authorize the tribunal making such determination to replace
the invalid or unenforceable provision to allow this
Agreement, and the provisions hereof, to be valid and
enforceable to the fullest extent allowed by law and/or public
policy.
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Model 2000 Agreement to be duly executed by their authorized
representatives as of the date first above written.
RESOURCE TECHNOLOGY, INC.
By __________________________________
Its _____________________________
MERCURY WASTE SOLUTIONS, INC.
By __________________________________
Its _____________________________
Exhibits
A List of Buyers of Model 2000 Machines
Schedules
1 Installation Fees
2 Six Major Components of the Model 2000
3 List of Existing Customers (Orders/Installed) and Prospective Customers
The Company will provide copies of omitted schedules and exhibits upon request.
MERCURY WASTE SOLUTIONS, INC.
STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of this Stock Option Plan (the "Plan") of Mercury Waste
Solutions, Inc. (the "Company") is to provide an incentive to eligible employees
and directors whose present and potential contributions are important to the
continued success of the Company, to afford them an opportunity to acquire a
proprietary interest in the Company, and to enable the Company to enlist and
retain in its employ the best available talent for the successful conduct of its
business. It is intended that this purpose will be effected through the granting
of stock options.
2. DEFINITIONS
Wherever used in the Plan, the following terms have the meanings set
forth below:
2.1 "Board of Directors" means the Board of Directors of the Company.
2.2 "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations promulgated thereunder.
2.3 "Incentive Stock Option" or "ISO" means a stock option which is
intended to qualify as an incentive stock option as defined in Section 422 of
the Code.
2.4 "Non-Statutory Stock Option" or "NSO" means a stock option that is
not intended to, or does not, qualify as an incentive stock option as defined in
Section 422 of the Code.
2.5 "Option" means, where required by the context of the Plan, an ISO
or NSO granted pursuant to the Plan.
2.6 "Optionee" means a Participant in the Plan who has been granted one
or more Options under the Plan.
2.7 "Participant" means an individual described in Section 5 of this
Plan who may be granted Options under the Plan.
2.8 "Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
2.9 "Stock" means the par value, $.01 per share of the Company.
2.10 "Subsidiary" means any corporation, other than the Company, in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain which at the
time the Option is granted owns 50% or more of the voting stock in one of the
other corporations in such chain.
3. ADMINISTRATION
3.1 The Plan shall be administered by the Board of Directors, which
shall have full power, subject to the provisions and restrictions of the Plan,
to grant Options, construe and interpret the Plan, establish rules and
regulations with respect to the Plan and Options granted hereunder, and perform
all other acts, including the delegation of administrative responsibilities,
that it believes reasonable and necessary.
3.2 The Board of Directors shall have the sole discretion, subject to
the provisions of the Plan, to determine the Participants eligible to receive
Options pursuant to the Plan and the amount, type, and terms of any Options and
the terms and conditions of option agreements relating to any Option.
3.3 The Board of Directors may correct any defect, supply any omission,
or reconcile any inconsistency in the Plan or in any Option granted hereunder in
the manner and to the extent it shall deem necessary to carry out the terms of
the Plan.
3.4 Any decision made, or action taken, by the Board of Directors
arising out of or in connection with the interpretation and administration of
the Plan shall be final, conclusive and binding upon all Optionees.
4. SHARES SUBJECT TO THE PLAN
4.1 NUMBER. The total number of shares of Stock reserved for issuance
upon exercise of Options under the Plan is 185,500. Such shares shall consist of
authorized but unissued Stock. If any Option granted under the Plan lapses or
terminates for any reason before being completely exercised, the shares covered
by the unexercised portion of such Option may again be made subject to Options
under the Plan.
4.2 CHANGES IN CAPITALIZATION. In the event of any change in the
outstanding shares of Stock of the Company by reason of any stock dividend,
split, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, or rights offering to purchase stock at a price
substantially below fair market value, or other similar corporate change, the
aggregate number of shares which may be subject to Options under the Plan and
the terms of any outstanding Option, including the number and kind of shares
subject to such Options and the purchase price per share thereof, shall be
appropriately adjusted by the Board of Directors, consistent with such change
and in such manner as the Board of Directors, in its sole discretion, may deem
equitable to prevent substantial dilution or enlargement of the rights granted
to or available for Optionees. Notwithstanding the preceding sentence, in no
event shall any fraction of a share of Stock be issued upon the exercise of an
Option.
5. ELIGIBLE PARTICIPANTS
The following persons are Participants eligible to participate in the
Plan:
5.1 INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted
only to employees of the Company or any Subsidiary, including officers and
directors who are also employees of the Company or any Subsidiary.
5.2 NON-STATUTORY STOCK OPTIONS. Non-statutory stock options may be
granted to (i) any employee of the Company or any Subsidiary, including any
officer or director who is also an employee of the Company or any Subsidiary;
and (ii) any consultant to, or other independent contractor of, the Company who
is not a director of the Company.
6. GRANT OF OPTIONS
6.1 DISCRETIONARY GRANTS. Subject to the terms, conditions, and
limitations set forth in this Plan, the Company, by action of the Board of
Directors, may from time to time grant Options to purchase shares of the
Company's Stock to those eligible Participants as may be selected by the Board
of Directors, in such amounts and on such other terms as the Board of Directors
in its sole discretion shall determine. Any grant of Options to officers who are
subject to Section 16 of the Securities Exchange Act of 1934, as amended, shall
be made only by a committee of two or more directors, each of whom is a
"disinterested person" as defined in Section 16b-3(c)(2) of the Exchange Act
cited above.
6.2 LIMITATIONS. Options specified under Section 6.1 above may be (i)
"Incentive Stock Options" so designated by the Board of Directors and which,
when granted, are intended to qualify as incentive stock options as defined in
Section 422 of the Code; (ii) "Non-Statutory Stock Options" so designated by the
Board of Directors and which, when granted, are not intended to, or do not,
qualify as incentive stock options under Section 422 of the Code; or (iii) a
combination of both. The date on which the Board of Directors approves the
granting of an Option shall be the date of grant of such Option, unless a
different date is specified by the Board of Directors on such date of approval.
Notwithstanding the foregoing, with respect to the grant of any Incentive Stock
Option under the Plan, the aggregate fair market value of Stock (determined as
of the date the Option is granted) with respect to which Incentive Stock Options
are exercisable for the first time by an Optionee in any calendar year (under
all such stock option plans of the Company or Subsidiaries) shall not exceed
$100,000. Each grant of an Option under the Plan shall be evidenced by a written
stock option agreement between the Company and the Optionee setting forth the
terms and conditions, not inconsistent with the Plan, under which the Option so
granted may be exercised pursuant to the Plan and containing such other terms
with respect to the Option as the Board of Directors in its sole discretion may
determine.
7. OPTION PRICE AND FORM OF PAYMENT
7.1 OPTION PRICE AND FORM OF PAYMENT. The purchase price for a share of
Stock subject to an Incentive Stock Option granted hereunder shall not be less
than 100% of the fair market value of the Stock. The purchase price for a share
of Stock subject to a Nonstatutory Stock Option granted hereunder shall be
determined by the Board of Directors at the time of such grant. For purposes of
this Section 7.1, the "fair market value" of the Stock shall be determined as
follows:
7.1.1 If the Stock of the Company is listed or admitted to
unlisted trading privileges on a national securities exchange, the fair
market value on any given day shall be the closing sale price for the
Stock, or if no sale is made on such day, the closing bid price for
such day on such exchange;
7.1.2 If the Stock is not listed or admitted to unlisted
trading privileges on a national securities exchange, the fair market
value on any given day shall be the closing sale price for the Stock as
reported on the NASDAQ National Market System on such day, or if no
sale is made on such day, the closing bid price for such day as entered
by a market maker for the Stock;
7.1.3 If the Stock is not listed on a national securities
exchange, is not admitted to unlisted trading privileges on any such
exchange, and is not eligible for inclusion in the NASDAQ National
Market System, the fair market value on any given day shall be the
average of the closing representative bid and asked prices as reported
on the NASDAQ System, and if not reported on such system, then as
reported by the National Quotation Bureau, Inc. or such other publicly
available compilation of the bid and asked prices of the Stock in any
over-the-counter market on which the Stock is traded; or
7.1.4 If there exists no public trading market for the Stock,
the fair market value on any given day shall be an amount determined in
good faith by the Board of Directors in such manner as it may
reasonably determine in its discretion, provided that such amount shall
not be less than the book value per share as reasonably determined by
the Board of Directors as of the date of determination or less than the
par value of the Stock.
Notwithstanding the foregoing, in the case of an Incentive Stock Option
granted to any Optionee then owning more than 10% of the voting power of all
classes of the Company's stock, the purchase price per share of the Stock
subject to such Option shall not be less than 110% of the fair market value of
the Stock on the date of grant of the Incentive Stock Option, determined as
provided above.
Except as provided herein, the purchase price of each share of Stock
purchased upon the exercise of any Option shall be paid:
7.1.5 In United States dollars in cash or by check, bank draft
or money order payable to the order of the Company; or
7.1.6 At the discretion of the Board of Directors, through the
delivery of shares of Stock, having initially or as a result of
successive exchanges of shares, an aggregate fair market value (as
determined in the manner provided under this Plan) equal to the
aggregate purchase price for the Stock as to which the Option is being
exercised; or
7.1.7 At the discretion of the Board of Directors, by a
combination of both 7.1.5 and 7.1.6 above; or
7.1.8 By such other method as may be permitted in the written
stock option agreement between the Company and the Optionee.
If such form of payment is permitted, the Board of Directors shall
determine procedures for tendering Stock as payment upon exercise of an Option
and may impose such additional limitations and prohibitions on the use of Stock
as payment upon the exercise of an Option as it deems appropriate.
If the Board in its sole discretion so agrees, the Company may finance
the amount payable by an Optionee upon exercise of any Option upon such terms
and conditions as the Board may determine at the time such Option is granted
under this Plan.
7.2 WITHHOLDING TAXES. The Company shall have the right to require that
payment or provision for payment of any and all withholding taxes due upon the
grant or exercise of an Option hereunder or the disposition of any Stock or
other property acquired upon exercise of an Option be made by an Optionee. In
connection therewith, the Board shall have the right to establish such rules and
regulations or impose such terms and conditions in any agreement relating to an
Option granted hereunder with respect to such withholding as the Board may deem
necessary and appropriate.
8. EXERCISE OF OPTIONS
8.1 MANNER OF EXERCISE. An Option, or any portion thereof, shall be
exercised by delivering a written notice of exercise to the Company and paying
to the Company the full purchase price of the Stock to be acquired upon the
exercise of the Option. Until certificates for the Stock acquired upon the
exercise of an Option are issued to an Optionee, such Optionee shall not have
any rights as a shareholder of the Company with respect to such Stock.
8.2 LIMITATIONS AND CONDITIONS ON EXERCISE OF OPTIONS. In addition to
any other limitations or conditions contained in this Plan or that may be
imposed by the Board of Directors from time to time or in the stock option
agreement to be entered into with respect to Options granted hereunder, the
following limitations and conditions shall apply to the exercise of Options
granted under this Plan:
8.2.1 No Incentive Stock Option may be exercisable by its
terms after the expiration of 10 years from the date of the grant
thereof.
8.2.2 No Incentive Stock Option granted pursuant to the Plan
to an eligible Participant then owning more than 10% of the voting
power of all classes of the Company's stock may be exercisable by its
terms after the expiration of five years from the date of the grant
thereof.
8.2.3 To the extent required to comply with Rule 16b-3, Stock
acquired upon exercise of an Option granted under to the Plan may not
be sold or otherwise disposed of for a period of six months from the
date of grant of the Option.
9. INVESTMENT PURPOSES
Unless a registration statement under the Securities Act of 1933 is in
effect with respect to Stock to be purchased upon exercise of Options to be
granted under the Plan, the Company shall require that an Optionee agree with
and represent to the Company in writing that he or she is acquiring such shares
of Stock for the purpose of investment and with no present intention to
transfer, sell or otherwise dispose of such shares of Stock other than by
transfers which may occur by will or by the laws of descent and distribution,
and no shares of Stock may be transferred unless, in the opinion of counsel to
the Company, such transfer would be in compliance with applicable securities
laws. In addition, unless a registration statement under the Securities Act of
1933 is in effect with respect to the Stock to be purchased under the Plan, each
certificate representing any shares of Stock issued to an Optionee hereunder
shall have endorsed thereon a legend in substantially the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE
SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE
CORPORATION RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE CORPORATION STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
10. TRANSFERABILITY OF OPTIONS
No Option granted under the Plan shall be transferable by an Optionee
(whether by sale, assignment, hypothecation or otherwise) other than by will or
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined under the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder. An Option shall be exercisable
during the Optionee's lifetime only by the Optionee or, if permissible under
applicable law, by the Optionee's guardian or legal representative.
11. TERMINATION OF OPTIONS
11.1 GENERALLY. Except as otherwise provided in this Section 11, if an
Optionee's employment with the Company or Subsidiary is terminated (hereinafter
"Termination"), the Optionee may exercise any Option granted under the Plan, to
the extent the Optionee was vested in and entitled to exercise the Option at the
date of Termination, for a period of three months after the date of Termination
or until the term of the Option has expired, whichever date is earlier.
11.2 DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
Disability of an Optionee prior to expiration of an Option held by him or her,
the following provisions shall apply:
11.2.1 If the Optionee is at the time of his or her Disability
employed by the Company or a Subsidiary and has been in continuous
employment (as determined by the Board of Directors in its sole
discretion) since the date of grant of the Option, then the Option
shall be immediately exercisable in full and the Optionee shall be 100%
vested on the date of Optionee's Disability; provided, however, that
such Option must be exercised within one year of the date of the
Optionee's Disability, and in no event later than the date of
expiration of the Option. The term "Disability" shall mean any physical
or mental impairment of Optionee, whether total or partial, which
prevents Optionee, in the reasonable judgment of the Company, from
carrying out or performing the major duties of his or her association
with the Company. The determination of whether an Optionee has a
Disability within the meaning of this Section 11.2.1 shall be made in
writing by the Board of Directors in its sole discretion.
11.2.2 If the Optionee is at the time of his or her death
employed by the Company or a Subsidiary and has been in continuous
employment (as determined by the Board of Directors in its sole
discretion) since the date of grant of the Option, then the Option
shall be immediately exercisable in full by the Optionee's estate or by
a person who acquired the right to exercise the Option by will or the
laws of descent and distribution, and the Optionee shall be 100% vested
on the date of Optionee's Death; provided, however, that such Option
must be exercised within two years of the date of the Optionee's Death,
and in no event later than the date of expiration of the Option.
11.3 TERMINATION OF EMPLOYMENT. The Board of Directors shall have the
right to cancel any Options granted to the Optionee under the Plan if the
employment of an Optionee is terminated by the Company or a Subsidiary.
12. AMENDMENT AND TERMINATION OF PLAN
12.1 The Board of Directors, may at any time and from time to time
suspend or terminate the Plan in whole or in part or amend it from time to time
in such respects as may be in the best interests of the Company; provided,
however, that no such amendment shall be made without the approval of the
shareholders if it would: (a) materially modify the eligibility requirements for
Participants as set forth in Section 5 hereof; (b) increase the maximum
aggregate number of shares of Stock which may be issued pursuant to Options,
except in accordance with Section 4.2 hereof; (c) reduce the minimum Option
price per share as set forth in Section 7 hereof, except in accordance with
Section 4.2 hereof; (d) extend the period of granting Options; or (e) materially
increase in any other way the benefits accruing to Optionees.
12.2 No amendment, suspension or termination of this Plan shall,
without the Optionee's consent, alter or impair any of the rights or obligations
under any Option theretofore granted to him or her under the Plan.
12.3 The Board of Directors may amend the Plan, subject to the
limitations cited above, in such manner as it deems necessary to permit the
granting of Incentive Stock Options meeting the requirements of future
amendments to the Code.
12.4 In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action, unless otherwise provided by the Board of Directors. The
Board of Directors may, in the exercise of its sole discretion in such instance,
declare that any Option shall terminate as of a date fixed by the Board of
Directors and give each Optionee the right to exercise his or her Option as to
all or any part of the Option, including Stock as to which the Option would not
otherwise be exercisable. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Option shall be assumed or an equivalent
option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation, unless the Board of Directors
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, that the Optionee shall have the right to exercise
the Option in full including Stock as to which the Option would not otherwise be
exercisable. If the Board of Directors makes an Option fully exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Board of Directors shall notify the Optionee that the Option shall be fully
exercisable for a period of thirty (30) days from the date of such notice, and
the Option will terminate upon the expiration of such period.
13. MISCELLANEOUS PROVISIONS
13.1 NO RIGHT TO CONTINUED EMPLOYMENT. No person shall have any claim
or right to be granted an Option under the Plan, and the grant of an Option
under the Plan shall not be construed as giving an Optionee the right to
continued employment with the Company. The Company further expressly reserves
the right at any time to dismiss an Optionee or reduce an Optionee's
compensation with or without cause, free from any liability, or any claim under
the Plan, except as provided herein or in a stock option agreement.
13.2 TRANSFER OF STOCK AND PAYMENT OF WITHHOLDING TAXES. The Company
shall have the right to require that payment or provision for payment of any and
all withholding taxes due upon the grant or exercise of an Option hereunder or
the disposition of any Stock or other property acquired upon exercise of an
Option be made by an Optionee. The Board of Directors shall have the right to
establish such other rules and regulations or impose such other terms and
conditions in any agreement relating to an Option granted hereunder with respect
to tax withholding as the Board of Directors may deem necessary and appropriate.
13.3 GOVERNING LAW. The Plan shall be administered in the State of
Minnesota, and the validity, construction, interpretation, and administration of
the Plan and all rights relating to the Plan shall be determined solely in
accordance with the laws of such state, unless controlled by applicable federal
law, if any.
14. EFFECTIVE DATE
The effective date of the Plan is September 17, 1996. No Option may be
granted after ten (10) years; provided, however, that all outstanding Options
shall remain in effect until such outstanding Options have expired or been
canceled.
IN WITNESS WHEREOF, of the adoption of this Stock Option Plan, the
Company has caused its President to execute this Plan on the 17th day of
September, 1996.
MERCURY WASTE SOLUTIONS, INC.
By:_______________________________________
Its: President
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of January 22, 1997, by and
between MERCURY WASTE SOLUTIONS, INC., a corporation duly organized and existing
under the laws of the State of Minnesota, with a place of business at 302 North
Riverfront Drive, Mankato, Minnesota 56001, hereinafter referred to as "MWS,"
and BRADLEY J. BUSCHER, with an address at 302 North Riverfront Drive, Mankato,
Minnesota 56001, hereinafter referred to as "EXECUTIVE".
RECITALS
A. The following recitals shall be considered a part of this Agreement,
and explain the general nature and purposes of MWS's business and EXECUTIVE's
rights and obligations under this Agreement. Any interpretation or construction
of this Agreement shall be considered in light of these recitals.
B. MWS is a Minnesota corporation engaged in the business of (i)
recycling high intensity lamps which is conducted in Roseville, Minnesota, (ii)
recycling high intensity lamps and distilling/retorting mercury at a facility in
Union Grove, Wisconsin, and (iii) the sale and distribution of lamp processing
equipment (collectively, the "Business").
C. MWS desires to employ EXECUTIVE and EXECUTIVE desires to be employed
by MWS, on the terms, covenants, and conditions set forth in this Agreement.
D. In connection with the foregoing aspects of the Business, MWS
anticipates developing, from time to time, confidential business data and trade
secrets which it desires to protect from disclosure to competitors. "Trade
secret" means any information, formulae, patterns, computations, programs,
devices, methods, techniques, or processes relating to MWS' products and/or
services or its research, development, manufacture, design, marketing,
merchandising, selling and servicing.
E. The parties acknowledge that MWS' trade secrets and confidential
business data, have value to MWS only to the extent that they are not disclosed
to MWS' competitors.
F. For the purposes of this Agreement, a "competitor" shall mean any
firm, person, partnership, corporation, or any other entity, whether legal or
natural, engaged in the same or similar business as MWS as defined above,
whether that particular business comprises a part of or all of the competitor's
business.
NOW, THEREFORE, for the reasons set forth above, and in consideration
of the mutual promises and agreements set forth in this Agreement, MWS and
EXECUTIVE agree as follows:
ARTICLE 1
EMPLOYMENT
1.1 MWS hereby employs, engages, and hires EXECUTIVE as Chief Executive
Officer and EXECUTIVE hereby accepts and agrees to such hiring, engagement, and
employment, subject to the general supervision and pursuant to the advice of
MWS's Board of Directors.
1.2 EXECUTIVE shall perform such duties as may be assigned to him from
time to time by MWS's Board of Directors.
ARTICLE 2
EFFORTS OF EMPLOYEE
2.1 EXECUTIVE agrees to devote his time and skills to the conduct of
MWS's business operations, performing the duties of the Chief Executive Officer,
and such other duties as may be requested by the Board of Directors of MWS.
EXECUTIVE will comply with MWS's policies and personnel regulations as the same
may be adopted by MWS from time to time. EXECUTIVE shall perform his duties and
manage and operate the Business at all times in strict accordance with all
applicable federal and state laws and regulations, local ordinances, and any
compliance agreement or other agreement/authorization between MWS and the
Minnesota Pollution Control Agency ("MPCA"), the Wisconsin Department of Natural
Resources ("WDNR"), or any other applicable state agency for the conduct of the
Business.
ARTICLE 3
TERM OF EMPLOYMENT AND AGREEMENT
3.1 Subject to the provisions for termination hereinafter set forth,
the term of this Agreement and the performance of EXECUTIVE's services shall
commence as of January 1, 1997 (the "Effective Date") and shall continue
thereafter until December 31, 1997, unless earlier terminated as provided in
Article 6 hereof. The Agreement shall automatically renew for consecutive one
(1) year terms unless otherwise terminated as provided herein.
3.2 This Agreement shall be binding upon EXECUTIVE and MWS as of the
Effective Date.
ARTICLE 4
COMPENSATION AND BENEFITS
4.1 EXECUTIVE will be paid a base salary of Sixty Thousand and no/100
Dollars ($60,000.00) per year for each year of the term of this contract.
EXECUTIVE's compensation shall be payable in equal biweekly installments. MWS's
Board of Directors shall review EXECUTIVE's base salary compensation annually,
and may, within its sole discretion, raise EXECUTIVE's base salary based upon
EXECUTIVE's performance, MWS's performance or any other criteria it determines
is appropriate.
4.2 EXECUTIVE shall receive a bonus for fiscal 1997 as set forth in
Section 5.
4.3 MWS shall, to the extent permitted by law and the terms of the
applicable plans, provide EXECUTIVE with full participation in MWS's employee
benefit plans under the same terms as provided to other executive employees of
MWS from time to time in the exclusive discretion of MWS's Board of Directors.
Such benefits may include, but are not limited to, a medical and dental plan,
disability plan, life insurance plan, 401(k) plan and a profit sharing plan. MWS
is not obligated to provide or continue any of these benefits and may, without
any prior notice, discontinue any benefit already provided or as may be provided
in the future, within the exclusive discretion of MWS's Board of Directors.
4.4 EXECUTIVE shall be reimbursed for authorized traveling and other
out-of-pocket business expenses, provided they have been reasonably incurred in
the performance of EXECUTIVE's duties for MWS, and do not exceed a gross amount
as preapproved by MWS's Board of Directors. EXECUTIVE shall submit to MWS an
itemized account detailing the expenses on a form provided to EXECUTIVE by MWS,
accompanied by receipts. MWS reserves the right to reject reimbursement of
expense submissions not in compliance with the terms set forth in this Section
or which are not in compliance with Internal Revenue Service statutes, rules,
regulations or other controlling or interpretive authority.
4.5 EXECUTIVE is entitled to six (6) weeks of vacation per year upon
the same terms and conditions as provided to the other employees of MWS.
Vacation time will be scheduled taking into account the EXECUTIVE's duties and
obligations at MWS. Sick leave, holiday pay and all other leaves of absence also
will be in accordance with MWS's stated personnel policies.
ARTICLE 5
BONUS
5.1 Definitions. When the following terms are used in this Article 5
with initial capital letters, they shall have the following meanings:
5.11. Bonus Plan. The bonus plan set forth in this Article 5.
5.12. Code. The Internal Revenue Code of 1986, as it may be
amended from time to time, and any proposed, temporary or final Treasury
Regulations promulgated thereunder.
5.13. Committee. A committee of the Board of Directors of the
Company designated by such Board to administer the Bonus Plan, which shall
consist of outside directors appointed from time- to-time by the Board of
Directors.
5.14. Pre-Tax Income. With respect to each Performance Period,
the Company's income, prior to tax and prior to any reduction for amounts paid
pursuant hereto, but after taking into account all other expenses of the
Company, as computed in accordance with generally accepted accounting principles
as in effect for the Company's fiscal year ending December 31, 1996. For
purposes of the foregoing computation, extraordinary items, whether gains or
losses, shall also not be taken into account; provided, however, for purposes of
the foregoing computation, discontinued operations, restructuring costs and all
acquisitions and dispositions, as computed in accordance with generally accepted
accounting principles as in effect for the Company's fiscal year ending December
31, 1996 shall not be considered as extraordinary items.
5.15. Performance Bonus. The right to receive a cash payment
pursuant to Section 5.3 of the Bonus Plan.
5.16. Performance Period. The period which coincides with the
Company's fiscal year.
5.17. Performance Threshold. The Company's Pre-Tax Income in
excess of $500,000.
5.2. Administration.
5.21. Committee. The Bonus Plan shall be administered by the
Committee.
5.22. Computation. Following the close of the Performance
Period and prior to payment of any bonus under the Bonus Plan, the Committee
shall determine whether the Performance Threshold has been attained and shall
cause the amount of the Performance Bonus to be computed.
5.3 Performance Bonus. Subject to the terms and conditions of the Bonus
Plan, the EXECUTIVE shall receive a cash performance bonus for the Performance
Period in an amount equal to four percent (4%) of the difference (but not less
than zero) between (i) the Company's Pre-Tax Income for the Performance Period,
and (ii) and the Performance Threshold; provided that the cash bonus shall not
exceed $175,000.
5.4. Benefit Payments.
5.41. Time and Form of Payments. Subject to any deferred
compensation election pursuant to any such plans of the Company applicable
hereto, benefits shall be paid to the EXECUTIVE in a single lump sum cash
payment as soon as administratively feasible after the Committee has caused the
computations to be performed under Section 5.2 hereof.
5.42. Tax Withholding. In order to comply with all applicable
federal or state income tax laws or regulations, the Company may take such
action as it deems appropriate to ensure that all applicable federal or state
payroll, withholding, income or other taxes, which are the sole and absolute
responsibility of the EXECUTIVE, are withheld or collected from the EXECUTIVE.
5.5 Miscellaneous.
5.51. No Limit on Other Compensation Arrangements. Nothing
contained in the Bonus Plan shall prevent the Company from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
5.52. Qualified Performance-Based Compensation. All of the
terms and conditions of the Bonus Plan shall be interpreted in such a fashion as
to qualify all compensation paid hereunder as "qualified performance-based
compensation" within the meaning of Section 162(m) of the Code.
ARTICLE 6
TERMINATION
6.1 MWS may terminate EXECUTIVE's employment with MWS as follows:
(i) Upon at least ninety (90) days' written notice to
EXECUTIVE, with or without cause, after the end of
the first year term of this Agreement.
(ii) Upon the disability of EXECUTIVE for a period of at
least ninety (90) business days, whether or not
consecutive, during any twelve (12) month period. For
the purposes of this Agreement, the term "disability"
means any physical or mental impairment of EXECUTIVE,
whether total or partial, which prevents EXECUTIVE,
in the reasonable judgment of MWS's Board of
Directors, from carrying out or performing the major
duties of his employment. Upon the request of MWS's
Board of Directors, EXECUTIVE shall submit to
examinations by a physician or physicians, to assist
MWS's Board of Directors in determining whether
EXECUTIVE has been disabled for purposes of this
Agreement. The decision as to EXECUTIVE's disability,
if made in good faith by MWS's Board of Directors,
shall be conclusive and binding upon EXECUTIVE.
6.2 EXECUTIVE may terminate employment with MWS upon at least ninety
(90) days' prior written notice to MWS after the end of the first year term of
this Agreement.
6.3 Any other provision of this Agreement notwithstanding, MWS may
terminate EXECUTIVE's employment without notice if the termination is based on a
violation of this Agreement, or on fraud, embezzlement, securities law
violation, material violation or willful criminal violation of environmental
laws and regulations or an applicable agreement with a federal or state
environmental agency (including without limitation any Compliance Agreement or
other agreement/authorization with the MPCA or WDNR), sexual harassment of
fellow employees, or if EXECUTIVE takes employment in competition with MWS, or
if EXECUTIVE is guilty of a substantial, willful and material act or acts of
insubordination, misconduct, dishonesty, or disloyalty against MWS, or gross
misconduct involving moral turpitude.
6.4 Employment will be deemed terminated upon the death of the
EXECUTIVE.
ARTICLE 7
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
7.1 In the performance of his duties, EXECUTIVE may become aware of,
either directly or indirectly, information of the following types regarding or
belonging to MWS which constitutes trade secrets or confidential business data:
(a) Patterns, programs, devices, methods, techniques or
processes.
(b) Products or components.
(c) Merchandising aids, marketing or strategic planning
information.
(d) Pricing or price structure, customers, potential
customers.
(e) Research and development.
7.2 The foregoing list of trade secrets and confidential business data
is not intended to be exclusive. From time to time during the term of his
employment, EXECUTIVE may gain and has gained access to other information
concerning MWS's business of commercial value to MWS, which information shall be
included in the definitions under Section 7.1, above, even though not
specifically listed. MWS believes that such information constitutes trade secret
information because MWS derives economic value from the fact that such
information is not generally known or readily ascertainable by proper means by
MWS's competitors or potential competitors who may obtain economic value by its
disclosure or use. The provisions of this Article 7 apply to any form in which
the subject information, secrets or data may appear, whether written, oral or
any other form of recording or storage.
7.3 EXECUTIVE covenants and agrees that both during and after his
employment with MWS, the foregoing confidential business data and information
and trade secrets will not be communicated or disclosed by him (directly or
indirectly) to any person or entity, including but not limited to, the press,
other professionals, corporations, partnerships or the public. EXECUTIVE further
agrees to never use such information for EXECUTIVE's benefit or the benefit of
any other person, firm, corporation or entity, directly or indirectly. EXECUTIVE
agrees to take reasonable security measures to prevent accidental disclosure and
industrial espionage. EXECUTIVE further covenants and agrees that he will
faithfully abide by all rules and regulations established by MWS for insuring
the confidentiality of the foregoing information and data, including, but not
limited to, rules and regulations:
(a) Limiting access to authorized personnel;
(b) Limiting copying of any writing or recording;
(c) Requiring storage of documents in secure facilities
provided by MWS and limiting safe or vault lock
combinations or keys to authorized personnel; and
(d) Checkout and return or other procedures or
regulations promulgated by MWS from time to time.
The obligations of this Section 7.3 shall survive EXECUTIVE's employment with
MWS and continue until the information at issue is no longer confidential and
becomes generally publicly known, other than as a direct or indirect result of
the breach of this Agreement by EXECUTIVE or a breach of a confidentiality
obligation owed to MWS by any other person or entity.
7.4 Upon termination of his employment with MWS, whether voluntary or
involuntary, EXECUTIVE will return to MWS any and all written or other recorded
form of the foregoing information and data, and will take with him, upon leaving
MWS' place of business, no documents, writings, recordings or reproduction in
any form which may have been entrusted to him during the course of his
employment or to which he had access or possession.
ARTICLE 8
INVENTIONS OR DISCOVERIES
8.1 EXECUTIVE acknowledges that inventions or other discoveries may be
developed, conceived or otherwise made by EXECUTIVE during employment with MWS.
EXECUTIVE agrees that all such inventions or other discoveries shall be the
exclusive property of MWS. With respect to all such inventions or other
discoveries, EXECUTIVE agrees to:
(a) Keep accurate, complete and timely records, which shall be
MWS's property and be retained on MWS's premises; and
(b) Promptly and fully disclose and describe all such
inventions or other discoveries to MWS; and
(c) Assign (and EXECUTIVE does hereby assign) to MWS all of
EXECUTIVE's rights to these inventions or other discoveries,
and to application for letters patent or copyrights in all
countries and to letters patent or copyrights granted upon
these inventions or other discoveries in all countries; and
(d) To do such other acts as may be necessary in the opinion
of MWS to preserve property rights to these inventions or
other discoveries against forfeiture, abandonment or loss and
to obtain and maintain letters patent or copyrights and to
vest the entire right and title thereto exclusively in MWS.
8.2 The obligations of this Article 8 shall continue beyond the
termination of EXECUTIVE's employment with MWS with respect to inventions or
other discoveries conceived or otherwise developed during EXECUTIVE's employment
and shall be binding upon assigns, executors, administrators and other legal
representatives.
8.3 MWS hereby notifies EXECUTIVE, and EXECUTIVE understands and
agrees, that the foregoing terms of this Article 8 do not apply to any invention
or other discovery for which no equipment, supplies, facility, or trade secret
information of MWS was used and that were developed entirely on EXECUTIVE's own
time, and (a) that does not relate (1) directly to MWS's business or (2) to
MWS's actual or demonstrably anticipated business research or development, or
(b) that does not result from any work performed by EXECUTIVE for MWS.
ARTICLE 9
COVENANT NOT TO COMPETE
9.1 In view of the compensation and benefits set forth herein, as well
as EXECUTIVE's equity participation in MWS, EXECUTIVE agrees that at no time
during the term of this Agreement and EXECUTIVE's employment with MWS and for a
period of one (1) year following the termination of EXECUTIVE's employment
(whether voluntary or involuntary) (the "Noncompete Period"), will EXECUTIVE,
directly or indirectly, without the prior written consent of the MWS Board of
Directors, (a) solicit or do competitive business with any person or entity that
is or was a customer or vendor of MWS within the twelve (12) months prior to the
date of termination, or (b) engage within the United States or Canada in any
similar or related business in competition with MWS or have any direct or
indirect interest, whether as a proprietor, partner, employee, shareholder,
principal, agent, consultant, director, officer or in any other capacity or
manner whatsoever, in any enterprise that shall so engage. EXECUTIVE recognizes
and agrees that the geographic scope of this restriction is reasonable because
MWS's business will be conducted on a national and international scale and is
not limited to a particular geographic area within the United States or Canada.
9.2 EXECUTIVE shall not, during the Noncompete Period, directly or
indirectly, hire for employment or solicit, induce or otherwise attempt to cause
any individual who is an employee of MWS during the term of his or her
employment to leave the employ of MWS for any reason whatsoever; provided,
however, that this provision shall not apply to any such employee whose
employment or relationship with MWS has been terminated for at least six (6)
months prior to such hiring or other restricted activity. The term "employment"
for purposes of this paragraph means an arrangement for services as a full-time
or part-time employee, independent contractor, agent or otherwise.
ARTICLE 10
INJUNCTIVE RELIEF
10.1 The parties acknowledge that MWS will suffer irreparable harm if
EXECUTIVE breaches this Agreement, either during or after its term. Accordingly,
MWS shall be entitled, in addition to any other rights and remedy it may have,
at law or equity, to any injunction, without the posting of a bond or other
security, enjoining or restraining EXECUTIVE from any violation of this
Agreement, and EXECUTIVE hereby consents to MWS's right to the issuance of such
injunction. In any proceeding by MWS to enforce any provision of this Agreement,
MWS shall, in addition to any injunctive relief to which it may be entitled, be
awarded damages to be determined by a court of competent jurisdiction as well as
all court costs, disbursements, expenses and attorneys' fees incurred by MWS.
10.2 In the event EXECUTIVE violates the terms of Article 9, the
Noncompete Period shall be extended for one (1) year from and after the later
of:
(a) The date which EXECUTIVE ceases any violation; or
(b) The date on which a court issues an order or judgment
enforcing the terms of the covenant.
10.3 In the event a court of competent jurisdiction determines that a
provision of Section 9.1 above is unreasonable, it may limit such provision to
the extent it deems reasonable, without declaring the provision invalid in its
entirety. This provision shall not be construed as an admission by MWS, but is
only included to provide MWS with the maximum possible protection consistent
with the right of EXECUTIVE to earn a livelihood subsequent to the termination
of his employment.
ARTICLE 11
MISCELLANEOUS
11.1 Governing Law. This Agreement shall be governed according to the
laws of the State of Minnesota.
11.2 Successors. This Agreement is personal to EXECUTIVE and EXECUTIVE
may not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder, to any other person or entity. This Agreement
may be assigned by MWS.
11.3 Waiver. The waiver by MWS of the breach or nonperformance of any
provision of this Agreement by EXECUTIVE will not operate or be construed as a
waiver of any future breach or nonperformance under any such provision of this
Agreement or any similar agreement with any other employee.
11.4 Modification. This Agreement supersedes and replaces any and all
prior and written understandings, if any, between the parties relating to the
subject matter of this Agreement, including any previous employment contract
which is hereby revoked. The parties agree that this Agreement is the entire
understanding and agreement between the parties.
IN WITNESS WHEREOF the following parties have executed the above
Employment Agreement as of the day and year first above written.
MERCURY WASTE SOLUTIONS, INC.
a Minnesota corporation
By ______________________________________
Its __________________________________
_________________________________________
Bradley J. Buscher
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of January 22, 1997, by and
between MERCURY WASTE SOLUTIONS, INC., a corporation duly organized and existing
under the laws of the State of Minnesota, with a place of business at 302 North
Riverfront Drive, Mankato, Minnesota 56001, hereinafter referred to as "MWS,"
and DONALD J. WODEK, with an address at 8618 Galway Road, Woodbury, Minnesota
55125, hereinafter referred to as "EXECUTIVE".
RECITALS
A. The following recitals shall be considered a part of this Agreement,
and explain the general nature and purposes of MWS's business and EXECUTIVE's
rights and obligations under this Agreement. Any interpretation or construction
of this Agreement shall be considered in light of these recitals.
B. MWS is a Minnesota corporation engaged in the business of (i)
recycling high intensity lamps which is conducted in Roseville, Minnesota, (ii)
recycling high intensity lamps and distilling/retorting mercury at a facility in
Union Grove, Wisconsin, and (iii) the sale and distribution of lamp processing
equipment (collectively, the "Business").
C. MWS desires to employ EXECUTIVE and EXECUTIVE desires to be employed
by MWS, on the terms, covenants, and conditions set forth in this Agreement.
D. In connection with the foregoing aspects of the Business, MWS
anticipates developing, from time to time, confidential business data and trade
secrets which it desires to protect from disclosure to competitors. "Trade
secret" means any information, formulae, patterns, computations, programs,
devices, methods, techniques, or processes relating to MWS' products and/or
services or its research, development, manufacture, design, marketing,
merchandising, selling and servicing.
E. The parties acknowledge that MWS' trade secrets and confidential
business data, have value to MWS only to the extent that they are not disclosed
to MWS' competitors.
F. For the purposes of this Agreement, a "competitor" shall mean any
firm, person, partnership, corporation, or any other entity, whether legal or
natural, engaged in the same or similar business as MWS as defined above,
whether that particular business comprises a part of or all of the competitor's
business.
NOW, THEREFORE, for the reasons set forth above, and in consideration
of the mutual promises and agreements set forth in this Agreement, MWS and
EXECUTIVE agree as follows:
ARTICLE 1
EMPLOYMENT
1.1 MWS hereby employs, engages, and hires EXECUTIVE as Executive Vice
President Operations, Legal and Regulatory Affairs and EXECUTIVE hereby accepts
and agrees to such hiring, engagement, and employment, subject to the general
supervision and pursuant to the advice of the Chief Executive Officer and MWS's
Board of Directors.
1.2 EXECUTIVE shall perform such duties as may be assigned to him from
time to time by MWS's Chief Executive Officer and Board of Directors.
ARTICLE 2
EFFORTS OF EMPLOYEE
2.1 EXECUTIVE agrees to devote his part time beginning the date hereof,
and beginning March 1, 1997, his full time and skills to the conduct of MWS's
business operations, performing the duties of the Executive Vice President, and
such other duties as may be requested by the Board of Directors of MWS.
EXECUTIVE will not, without the express written permission of MWS, engage in any
substantial private business activities outside or separate from EXECUTIVE's
employment with MWS in any field which would prevent or interfere with the
performance of his services for MWS as contemplated herein. EXECUTIVE will
comply with MWS's policies and personnel regulations as the same may be adopted
by MWS from time to time. EXECUTIVE shall perform his duties and at all times in
strict accordance with all applicable federal and state laws and regulations,
local ordinances, and any compliance agreement or other agreement/authorization
between MWS and the Minnesota Pollution Control Agency ("MPCA"), the Wisconsin
Department of Natural Resources ("WDNR"), or any other applicable state agency
for the conduct of the Business.
ARTICLE 3
TERM OF EMPLOYMENT AND AGREEMENT
3.1 Subject to the provisions for termination hereinafter set forth,
the term of this Agreement and the performance of EXECUTIVE's services shall
commence on a part time basis as of the date hereof and on a full time basis as
of March 1, 1997 (the "Effective Date") and shall continue thereafter until
February 28, 1998 unless earlier terminated as provided in Article 5 hereof. The
Agreement shall automatically renew for consecutive one (1) year terms unless
otherwise terminated as provided herein. Either party may terminate this
Agreement if MWS has not completed the public offering of its common stock as
contemplated in the Form SB-2 filed with the Securities and Exchange Commission
on December 6, 1996.
3.2 This Agreement shall be binding upon EXECUTIVE and MWS as of the
Effective Date.
ARTICLE 4
COMPENSATION AND BENEFITS
4.1 EXECUTIVE will be paid a base salary of Eighty Thousand and no/100
Dollars ($80,000.00) per year for each year of the term of this contract.
EXECUTIVE's compensation shall be payable in equal biweekly installments. MWS's
Board of Directors shall review EXECUTIVE's base salary compensation annually,
and may, within its sole discretion, raise EXECUTIVE's base salary based upon
EXECUTIVE's performance, MWS's performance or any other criteria it determines
is appropriate.
4.2 EXECUTIVE shall be paid a bonus of Seven Thousand and no/100
Dollars ($7,000.00) on March 1, 1997.
4.3 EXECUTIVE shall be paid a bonus of Twenty Thousand and no/100
Dollars ($20,000.00) on February 28, 1998 if EXECUTIVE continues to be an
employee of MWS on such date in accordance with the terms of this Agreement.
4.4 EXECUTIVE shall receive an automobile allowance of Four Hundred and
no/100 Dollars ($400.00) per month throughout the term of this Agreement.
4.5 EXECUTIVE shall be granted options to purchase 35,000 shares of
Common Stock of MWS pursuant to the terms of a certain Nonstatutory Stock Option
Agreement entered into of even date herewith.
4.6 MWS shall, to the extent permitted by law and the terms of the
applicable plans, provide EXECUTIVE with full participation in MWS's employee
benefit plans under the same terms as provided to other executive employees of
MWS from time to time in the exclusive discretion of MWS's Board of Directors.
Such benefits may include, but are not limited to, a medical and dental plan,
disability plan, life insurance plan, 401(k) plan and a profit sharing plan. MWS
is not obligated to provide or continue any of these benefits and may, without
any prior notice, discontinue any benefit already provided or as may be provided
in the future, within the exclusive discretion of MWS's Board of Directors.
4.7 EXECUTIVE shall be reimbursed for authorized traveling and other
out-of-pocket business expenses, provided they have been reasonably incurred in
the performance of EXECUTIVE's duties for MWS, and do not exceed a gross amount
as preapproved by MWS's Board of Directors. EXECUTIVE shall submit to MWS an
itemized account detailing the expenses on a form provided to EXECUTIVE by MWS,
accompanied by receipts. MWS reserves the right to reject reimbursement of
expense submissions not in compliance with the terms set forth in this Section
or which are not in compliance with Internal Revenue Service statutes, rules,
regulations or other controlling or interpretive authority.
4.8 EXECUTIVE is entitled to four (4) weeks of vacation per year upon
the same terms and conditions as provided to the other employees of MWS.
Vacation time will be scheduled taking into account the EXECUTIVE's duties and
obligations at MWS. Sick leave, holiday pay and all other leaves of absence also
will be in accordance with MWS's stated personnel policies.
ARTICLE 5
TERMINATION
5.1 EXECUTIVE's employment with MWS shall terminate in accordance with
the following provisions:
5.1 (a) MWS may terminate EXECUTIVE's employment as follows:
(i) Upon at least ninety (90) days' written notice to
EXECUTIVE, with or without cause, after the end of
the first year term of this Agreement.
(ii) Upon the disability of EXECUTIVE for a period of at
least ninety (90) business days, whether or not
consecutive, during any twelve (12) month period. For
the purposes of this Agreement, the term "disability"
means any physical or mental impairment of EXECUTIVE,
whether total or partial, which prevents EXECUTIVE,
in the reasonable judgment of MWS's Board of
Directors, from carrying out or performing the major
duties of his employment. Upon the request of MWS's
Board of Directors, EXECUTIVE shall submit to
examinations by a physician or physicians, to assist
MWS's Board of Directors in determining whether
EXECUTIVE has been disabled for purposes of this
Agreement. The decision as to EXECUTIVE's disability,
if made in good faith by MWS's Board of Directors,
shall be conclusive and binding upon EXECUTIVE.
(iii) Pursuant to Section 3.1 hereof.
5.1(b) EXECUTIVE may terminate employment with MWS upon at least
ninety (90) days' prior written notice to MWS after the end of
the first year term of this Agreement.
5.1(c) Any other provision of this Agreement notwithstanding, MWS may
terminate EXECUTIVE's employment without notice if the
termination is based on a violation of this Agreement, or on
fraud, embezzlement, securities law violation, material
violation or willful criminal violation of environmental laws
and regulations or an applicable agreement with a federal or
state environmental agency (including without limitation any
Compliance Agreement or other agreement/authorization with the
MPCA or WDNR), sexual harassment of fellow employees, or if
EXECUTIVE takes employment in addition to that of MWS, in
competition with MWS, or if EXECUTIVE is guilty of a
substantial, willful and material act or acts of
insubordination, misconduct, dishonesty, or disloyalty against
MWS, or gross misconduct involving moral turpitude.
5.2 Employment will be deemed terminated upon the death of the
EXECUTIVE.
ARTICLE 6
PROTECTION OF TRADE SECRETS AND
CONFIDENTIAL BUSINESS DATA
6.1 In the performance of his duties, EXECUTIVE may become aware of,
either directly or indirectly, information of the following types regarding or
belonging to MWS which constitutes trade secrets or confidential business data:
(a) Patterns, programs, devices, methods, techniques or
processes.
(b) Products or components.
(c) Merchandising aids, marketing or strategic planning
information.
(d) Pricing or price structure, customers, potential
customers.
(e) Research and development.
6.2 The foregoing list of trade secrets and confidential business data
is not intended to be exclusive. From time to time during the term of his
employment, EXECUTIVE may gain and has gained access to other information
concerning MWS's business of commercial value to MWS, which information shall be
included in the definitions under Section 6.1, above, even though not
specifically listed. MWS believes that such information constitutes trade secret
information because MWS derives economic value from the fact that such
information is not generally known or readily ascertainable by proper means by
MWS's competitors or potential competitors who may obtain economic value by its
disclosure or use. The provisions of this Article 6 apply to any form in which
the subject information, secrets or data may appear, whether written, oral or
any other form of recording or storage.
6.3 EXECUTIVE covenants and agrees that both during and after his
employment with MWS, the foregoing confidential business data and information
and trade secrets will not be communicated or disclosed by him (directly or
indirectly) to any person or entity, including but not limited to, the press,
other professionals, corporations, partnerships or the public. EXECUTIVE further
agrees to never use such information for EXECUTIVE's benefit or the benefit of
any other person, firm, corporation or entity, directly or indirectly. EXECUTIVE
agrees to take reasonable security measures to prevent accidental disclosure and
industrial espionage. EXECUTIVE further covenants and agrees that he will
faithfully abide by all rules and regulations established by MWS for insuring
the confidentiality of the foregoing information and data, including, but not
limited to, rules and regulations:
(a) Limiting access to authorized personnel;
(b) Limiting copying of any writing or recording;
(c) Requiring storage of documents in secure facilities
provided by MWS and limiting safe or vault lock
combinations or keys to authorized personnel; and
(d) Checkout and return or other procedures or
regulations promulgated by MWS from time to time.
The obligations of this Section 6.3 shall survive EXECUTIVE's employment with
MWS and continue until the information at issue is no longer confidential and
becomes generally publicly known, other than as a direct or indirect result of
the breach of this Agreement by EXECUTIVE or a breach of a confidentiality
obligation owed to MWS by any other person or entity.
6.4 Upon termination of his employment with MWS, whether voluntary or
involuntary, EXECUTIVE will return to MWS any and all written or other recorded
form of the foregoing information and data, and will take with him, upon leaving
MWS' place of business, no documents, writings, recordings or reproduction in
any form which may have been entrusted to him during the course of his
employment or to which he had access or possession.
ARTICLE 7
INVENTIONS OR DISCOVERIES
7.1 EXECUTIVE acknowledges that inventions or other discoveries may be
developed, conceived or otherwise made by EXECUTIVE during employment with MWS.
EXECUTIVE agrees that all such inventions or other discoveries shall be the
exclusive property of MWS. With respect to all such inventions or other
discoveries, EXECUTIVE agrees to:
(a) Keep accurate, complete and timely records, which
shall be MWS's property and be retained on MWS's
premises; and
(b) Promptly and fully disclose and describe all such
inventions or other discoveries to MWS; and
(c) Assign (and EXECUTIVE does hereby assign) to MWS all
of EXECUTIVE's rights to these inventions or other
discoveries, and to application for letters patent or
copyrights in all countries and to letters patent or
copyrights granted upon these inventions or other
discoveries in all countries; and
(d) To do such other acts as may be necessary in the
opinion of MWS to preserve property rights to these
inventions or other discoveries against forfeiture,
abandonment or loss and to obtain and maintain
letters patent or copyrights and to vest the entire
right and title thereto exclusively in MWS.
7.2 The obligations of this Article 7 shall continue beyond the
termination of EXECUTIVE's employment with MWS with respect to inventions or
other discoveries conceived or otherwise developed during EXECUTIVE's employment
and shall be binding upon assigns, executors, administrators and other legal
representatives.
7.3 MWS hereby notifies EXECUTIVE, and EXECUTIVE understands and
agrees, that the foregoing terms of this Article 7 do not apply to any invention
or other discovery for which no equipment, supplies, facility, or trade secret
information of MWS was used and that were developed entirely on EXECUTIVE's own
time, and (a) that does not relate (1) directly to MWS's business or (2) to
MWS's actual or demonstrably anticipated business research or development, or
(b) that does not result from any work performed by EXECUTIVE for MWS.
ARTICLE 8
COVENANT NOT TO COMPETE
8.1 In view of the compensation and benefits set forth herein, as well
as EXECUTIVE's equity participation in MWS, EXECUTIVE agrees that at no time
during the term of this Agreement and EXECUTIVE's employment with MWS and for a
period of one (1) year following the termination of EXECUTIVE's employment
(whether voluntary or involuntary) (the "Noncompete Period"), will EXECUTIVE,
directly or indirectly, without the prior written consent of the MWS Board of
Directors, (a) solicit or do competitive business with any person or entity that
is or was a customer or vendor of MWS within the twelve (12) months prior to the
date of termination, or (b) engage within the United States or Canada in any
similar or related business in competition with MWS or have any direct or
indirect interest, whether as a proprietor, partner, employee, shareholder,
principal, agent, consultant, director, officer or in any other capacity or
manner whatsoever, in any enterprise that shall so engage. EXECUTIVE recognizes
and agrees that the geographic scope of this restriction is reasonable because
MWS's business will be conducted on a national and international scale and is
not limited to a particular geographic area within the United States or Canada.
8.2 EXECUTIVE shall not, during the Noncompete Period, directly or
indirectly, hire for employment or solicit, induce or otherwise attempt to cause
any individual who is an employee of MWS during the term of his or her
employment to leave the employ of MWS for any reason whatsoever; provided,
however, that this provision shall not apply to any such employee whose
employment or relationship with MWS has been terminated for at least six (6)
months prior to such hiring or other restricted activity. The term "employment"
for purposes of this paragraph means an arrangement for services as a full-time
or part-time employee, independent contractor, agent or otherwise.
ARTICLE 9
INJUNCTIVE RELIEF
9.1 The parties acknowledge that MWS will suffer irreparable harm if
EXECUTIVE breaches this Agreement, either during or after its term. Accordingly,
MWS shall be entitled, in addition to any other rights and remedy it may have,
at law or equity, to any injunction, without the posting of a bond or other
security, enjoining or restraining EXECUTIVE from any violation of this
Agreement, and EXECUTIVE hereby consents to MWS's right to the issuance of such
injunction. In any proceeding by MWS to enforce any provision of this Agreement,
MWS shall, in addition to any injunctive relief to which it may be entitled, be
awarded damages to be determined by a court of competent jurisdiction as well as
all court costs, disbursements, expenses and attorneys' fees incurred by MWS.
9.2 In the event EXECUTIVE violates the terms of Article 8, the
Noncompete Period shall be extended for one (1) year from and after the later
of:
(a) The date which EXECUTIVE ceases any violation; or
(b) The date on which a court issues an order or judgment
enforcing the terms of the covenant.
9.3 In the event a court of competent jurisdiction determines that a
provision of Section 9.1 above is unreasonable, it may limit such provision to
the extent it deems reasonable, without declaring the provision invalid in its
entirety. This provision shall not be construed as an admission by MWS, but is
only included to provide MWS with the maximum possible protection consistent
with the right of EXECUTIVE to earn a livelihood subsequent to the termination
of his employment.
ARTICLE 10
MISCELLANEOUS
10.1 Governing Law. This Agreement shall be governed according to the
laws of the State of Minnesota.
10.2 Successors. This Agreement is personal to EXECUTIVE and EXECUTIVE
may not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder, to any other person or entity. This Agreement
may be assigned by MWS.
10.3 Waiver. The waiver by MWS of the breach or nonperformance of any
provision of this Agreement by EXECUTIVE will not operate or be construed as a
waiver of any future breach or nonperformance under any such provision of this
Agreement or any similar agreement with any other employee.
10.4 Modification. This Agreement supersedes and replaces any and all
prior and written understandings, if any, between the parties relating to the
subject matter of this Agreement, including any previous employment contract
which is hereby revoked. The parties agree that this Agreement is the entire
understanding and agreement between the parties.
IN WITNESS WHEREOF the following parties have executed the above
Employment Agreement as of the day and year first above written.
MERCURY WASTE SOLUTIONS, INC.
a Minnesota corporation
By ______________________________________
Its __________________________________
_________________________________________
Donald J. Wodek
REVOLVING CREDIT PROMISSORY NOTE
$600,000.00 January 22, 1997
Minneapolis, Minnesota
FOR VALUE RECEIVED, the undersigned, MERCURY WASTE SOLUTIONS, INC.,
Minnesota corporation ("Maker") promises to pay to the order of BRAD J. BUSCHER,
an individual or his assigns ("Lender"), at his office c/o BANKERS AMERICAN
CAPITAL CORPORATION, 302 N. Riverfront Drive, Mankato, MN 56001, or any other
place subsequently designated in writing by the holder hereof, UPON DEMAND, the
principal sum of Six Hundred Thousand and no/100 Dollars ($600,000.00), or if
less, the aggregate unpaid principal outstanding hereon, together with interest
at a variable rate equal to the Prime Rate plus two percent (2%) per annum.
Interest shall be computed on the actual days elapsed in a year of 360 days. For
purposes of this Note, "Prime Rate" shall mean the rate of interest published
from time to time in the Money Rates Column of the Money & Investing Section of
the Wall Street Journal as the "Prime Rate," as the same may change from time to
time.
In addition to any other amounts payable by Maker to Lender, Maker
agrees to pay Lender an annual facility fee equal to Fifteen Thousand Six
Hundred and no/100 Dollars ($15,600.00) due and payable as of the date hereof
and on each anniversary date hereof.
Interest accruing on this Note shall be payable monthly, commencing
February 1, 1997, and on the first day of each month thereafter until demand for
repayment by Lender, at which time the entire principal balance outstanding plus
all unpaid accrued interest shall be due and payable in full.
Maker may borrow and repay and reborrow against this Note, up to the
maximum principal amount outstanding at any one time of $600,000 to fund Maker's
working capital needs.
Both principal and interest are payable in lawful money of the United
States of America to Lender at the office of Lender at the location described
above.
This Note is secured by the assets of the Maker pursuant to the terms
of that certain Security Agreement dated January 4, 1996 executed by Maker in
favor of Lender, as the same may be amended from time to time (the "Security
Agreement").
This Note may be prepaid in whole or in part at any time without
penalty or premium.
Maker hereby waives demand, presentment for payment, notice of
nonpayment, protest and notice of protest hereon, agrees that when or at any
time after this Note becomes due, the holder hereof may, without notice, offset
or charge this Note against any Lender account or other account when maintained
by Maker with the holders hereof, and agrees to pay, upon the occurrence of an
Event of Default, all costs of collection, including, but not limited to,
reasonable attorneys' fees, whether or not suit is commenced.
This Note shall be governed by, interpreted and construed in accordance
with the internal laws of the State of Minnesota. The undersigned here consents
to the personal jurisdiction of the state and federal courts located in the
State Of Minnesota in connection with any controversy related to this Note,
waives any argument that venue in such forums is not convenient and agrees that
any litigation instigated by the undersigned against the Lender in connection
with this Note, or any document or instrument securing payment of this Note
shall be venued in either the District Court of Hennepin County, Minnesota or
the United States District Court for the District of Minnesota, Court Division.
MERCURY WASTE SOLUTIONS, INC.
a Minnesota corporation
By _______________________________________
Its ______________________________________
MERCURY WASTE SOLUTIONS INC.
NON STATUTORY STOCK OPTION AGREEMENT
This AGREEMENT is dated as of the 22nd day of January, 1997, by and
between Mercury Waste Solutions, Inc., a Minnesota corporation (the "Company")
and Donald J. Wodek ("Optionee").
WHEREAS, pursuant to the Stock Option Plan of the Company (the "Plan"),
the Board of Directors of the Company has authorized granting to Optionee a
Nonstatutory Stock Option to purchase certain shares of common stock of the
Company reserved for issuance pursuant to the Plan, such option to be for the
term and upon the terms and conditions hereinafter stated.
NOW, THEREFORE, it is hereby agreed:
1. GRANT OF OPTION. Pursuant to said action of the Board of Directors,
the Company hereby grants to Optionee the option to purchase, upon and subject
to the terms and conditions of the Plan, the terms and conditions of which are
incorporated in full herein by reference, thirty-five thousand (35,000) shares
of common stock (the "Option Stock") of the Company at the option price of $2.75
per share (the "Option"). The Company does not intend that the Option shall be
an Incentive Stock Option governed by the provisions of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The Optionee (or any
other person claiming under the Optionee) shall not have any of the rights of a
shareholder with respect to the Option Stock until the due exercise of the
Option and payment of the option price in accordance with this Agreement.
Notwithstanding any other provision herein, the grant of the Option shall be
null and void if the initial public offering of the Company's common stock is
not effective by March 31, 1997.
2. TERMS AND CONDITIONS.
a. Term of Option; Exercise of Option. The Option shall terminate ten
(10) years after the date hereof, subject to the provisions contained herein.
The Optionee may exercise the Option for up to twenty percent (20%) of the
Option Stock each year commencing one year from January 22, 1997, with
additional installments of twenty percent (20%) exercisable on each of the
second, third, fourth and fifth year anniversary dates, in accordance with the
Nonstatutory Stock Option Vesting Schedule attached hereto as Exhibit A. Such
installments shall be cumulative and, if in any year the total number of shares
of Option Stock which may be purchased in such year is not purchased, the shares
not purchased may be purchased in any subsequent year during the term of the
Option.
b. Procedure for exercise. Subject to the foregoing, the Option may be
exercised in whole or in part from time to time by serving written notice of
exercise on the Company at its principal office, accompanied by the payment of
the option price in cash or check payable to the Company. As soon as is
practicable after such notice is received, Optionee shall be recorded on the
books of the Company as the owner of the Option Stock purchased and the Company
shall deliver to Optionee a stock certificate evidencing such ownership.
c. Death or Disability of Optionee. If the Optionee dies or becomes
Disabled (as hereinafter defined) and the Optionee has been at the time of his
death or Disability in continuous employment by the Company or a parent or
subsidiary corporation, the Option shall be exercisable in full on the date of
Optionee's death or Disability without regard to the installment percentages
provided in Section 2(a) above. The term "Disability" shall mean any physical or
mental impairment of Optionee, whether total or partial, which prevents
Optionee, in the reasonable judgment of the Company, from carrying out or
performing the major duties of his employment with the Company. The
determination of whether an Optionee has a Disability within the meaning of this
Section 2(c) shall be made in writing by the Board of Directors in its sole
discretion.
d. Termination of Employment for Cause. If Optionee's employment by the
Company or a parent or subsidiary corporation is terminated for cause, as is
hereafter defined ("Cause"), the Option, regardless of the extent vested, shall
be canceled immediately. Termination for Cause shall include termination for
violation of any employment agreement, or on fraud, embezzlement, securities law
violation, material violation or willful criminal violation of environmental
laws and regulations or an applicable agreement with a federal or state
environmental agency, sexual harassment of fellow employees, or if Optionee is
guilty of a substantial, willful and material act or acts of insubordination,
misconduct, dishonesty, or disloyalty against the Company, or gross misconduct
involving moral turpitude. The determination of the Board of Directors with
respect thereto shall be final and conclusive.
e. Termination of Employment other than for Cause. If Optionee's
employment shall terminate for any reason, voluntary or involuntary, other than
for Cause, the Optionee may at any time within three months after such
termination exercise the Option to the extent the Option was exercisable by the
Optionee on the date of the termination of his employment.
f. No Right to Continued Status as an Employee. This Option shall not
confer upon Optionee any right with respect to continued status as en employee
of the Company, nor shall it interfere in any way with the right of the Company
to terminate his status as an employee at any time.
3. OPTIONEE'S REPRESENTATIONS. In the event the Option Stock has not
been registered under the Securities Act of 1933, as amended, at the time this
Option is exercised, Optionee shall, concurrently with the exercise of all or
any portion of this Option, deliver to the Company his Investment Representation
Statement in the form attached hereto as Exhibit B.
4. LIMITATIONS ON TRANSFERABILITY. All Option Stock issued to Optionee
shall be subject to the terms of a Shareholder Agreement, a copy of which is
attached hereto as Exhibit C.
5. MODIFICATION AND TERMINATION BY BOARD OF DIRECTORS. The rights of
Optionee are subject to modification and termination in certain events as
provided in the Plan.
6. WITHHOLDING. Company shall be entitled to withhold from amounts due
to Optionee amounts required to be withheld for income taxes, FICA (social
security) taxes or other purposes as required under any federal, state or local
law. If Company fails to withhold in the full amount or at the time required by
law, Company may make up the deficiency by withholding from later amounts due.
If such amounts withheld are at any time for any reason insufficient to meet
Company's withholding obligations, Company may (i) withhold and deduct the
deficiency from any amounts due to Optionee for any reason, and (ii) require
that Optionee pay the amount of such withholding deficiency to Company (and
Optionee shall make such payment immediately upon demand).
7. OPTIONEE BOUND BY PLAN. The Optionee hereby acknowledges receipt of
a copy of the Plan and agrees to be bound by all the terms and provisions
thereof.
8. NOTICES. Any notice hereunder to the Company shall be addressed to
it at its principal office; and any notice hereunder to the Optionee shall be
addressed to him at the address set forth below; subject to the right of either
party to designate at any time hereunder in writing some other address.
9. ENTIRE AGREEMENT. This Agreement, together with the provisions of
the Plan, sets forth the entire agreement between the parties with respect to
the subject matter hereof, and supersedes and revokes all prior negotiations,
discussions, representations, understandings and agreements between the parties
with respect to such subject matter.
10. AMENDMENT; WAIVER. This Agreement may be amended only in a written
instrument signed by all parties hereto and setting forth the nature of such
amendment and the specific intent to so amend. Rights under this Agreement may
be waived only in a written instrument signed by the waiving party and setting
forth the specific right being waived and the specific intent to so waive. A
waiver of any particular right in any particular instance shall not be deemed a
waiver of any other right or a waiver of such right in any other instance.
11. BINDING NATURE. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto, and their respective legal
representatives, heirs, successors and permitted assigns.
12. HEADINGS. Headings in this Agreement are for convenience of
reference only, and shall not alter the interpretation, meaning or effect of any
provision of this Agreement.
13. GOVERNING LAW. The validity, enforceability, interpretation and
effect of this Agreement shall be governed in all respects by the laws of the
State of Minnesota.
14. COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERCURY WASTE SOLUTIONS, INC
By___________________________________
Its:_________________________________
OPTIONEE:
_____________________________________
Donald J. Wodek
Address and Telephone Number of Optionee:
8168 Galway Road
Woodbury, Minnesota 55125
(612) 731-4752
EXHIBIT A
NONSTATUTORY STOCK OPTION VESTING SCHEDULE
Name of Employee: Donald J. Wodek
Date of Commencement of Employment: part-time, January 22, 1997; full-time,
March 1, 1997
Number of Shares Subject to Option: 35,000
Date of Grant: January 22, 1997
OPTION VESTING SCHEDULE
NO. OF SHARES
DATE EXERCISABLE
---- -----------
January 22, 1998 7,000
January 22, 1999 7,000
January 22, 2000 7,000
January 22, 2001 7,000
January 22, 2002 7,000
The above vesting schedule assumes continuous employment. Reference is
made to the Plan and the Agreement for your rights to exercise your Option in
the event of termination of employment during lifetime or upon death or
disability. The above vesting schedule is in all respects subject to the terms
of the Plan.
EXHIBIT 11
MERCURY WASTE SOLUTIONS, INC.
COMPUTATION OF LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Year
Ended
December 31,
1996
Computation of weighted average number of common shares
outstanding and common stock equivalent shares:
Common shares outstanding at the beginning of the
period -
Weighted average number of shares issued during the
period 1,336,095
Common equivalent shares attributed to stock options
and warrants granted (A) 206,216
Common stock issued (B) 913,002
-----------
Weighted average number of common and common
equivalent shares 2,455,313
===========
Net loss $ (985,446)
===========
Loss per common and equivalent shares $ (0.40)
===========
(A) All stock options and warrants are anti-dilutive, however, pursuant to
the Securities and Exchange Commission Staff Accounting Bulletin No. 83
(SAB 83), stock options and warrants granted with the exercise price
below the assumed initial offering price during the twelve-month period
preceding the date of the initial filing of the Registration Statement
have been included in the calculation of common stock equivalent shares
as if they were outstanding for all periods presented, using the treasury
stock method.
(B) Pursuant to the Securities and Exchange Commission SAB 83, all stock
issued at a price below the assumed initial offering price issued during
the twelve-month period preceding the date of the initial filing of the
Registration Statement has been included in the calculation of common
stock as if it was outstanding for all periods presented.
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Mercury Waste Solutions, Inc.
Mankato, MN
We hereby consent to the use in this Registration Statement on Form
SB-2 of our report, dated January 22, 1997, relating to the financial statements
of Mercury Waste Solutions, Inc. and its predecessor, U.S. Environmental, Inc.,
and to the reference to our Firm under the caption "Experts" in the Prospectus.
McGladrey & Pullen, LLP
Minneapolis, MN
January 28, 1997
MERCURY WASTE SOLUTIONS, INC.
POWER OF ATTORNEY
The undersigned member of the Board of Directors of Mercury Waste
Solutions, Inc. hereby constitutes and appoints Bradley J. Buscher and Russell
F. Lederman, each or either of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, for purposes of signing in his
name and on his behalf as a director of Mercury Waste Solutions, Inc. and filing
with the Securities and Exchange Commission a Registration Statement on Form
SB-2, or any and all amendments (including post-effective amendments) thereto,
and to file the same with all exhibits thereto, and other documents in
connection therewith, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his or her substitutes, may lawfully do or cause to be done by virtue
thereof.
Dated: January 23, 1997 s/ Frank L. Farrar
-----------------------------------
Frank L. Farrar
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<PERIOD-TYPE> YEAR
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