U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,1997
( ) TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________TO__________
Commission File Number 0-22533
MERCURY WASTE SOLUTIONS, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
MINNESOTA 41-1827776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
302 North Riverfront Drive, Suite 100A
MANKATO, MINNESOTA 56001
(Address of principal executive offices)
(507) 345-0522
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes __X__ No ___
The number of shares outstanding of each of
the Issuer's Common Stock, $.01 Par Value,
as of September 30, 1997 was 3,464,097.
Transitional small business disclosure format:
Yes_____ No_ X__
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART 1. FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1996 and September 30, 1997 3
Consolidated Statements of Operations for the three month and nine month periods ended
September 30, 1997 and September 30, 1996 4
Consolidated Statement of Changes in Shareholders' Equity for the nine months ended
September 30, 1997 5
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997 and
September 30, 1996 6
Consolidated Notes to Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE>
PART 1-FINANCIAL INFORMATION
Item 1. Financial Statements
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------- -----------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,350,766 $ 0
Accounts receivable, less allowance for doubtful accounts of $15,000
at September 30, 1997 and $10,000 at December 31, 1996 691,123 381,064
Other current assets 213,028 34,119
----------- -----------
TOTAL CURRENT ASSETS 2,254,917 415,183
----------- -----------
Property and Equipment, at cost
Leasehold improvements 127,828 95,860
Furniture, fixtures, and equipment 260,616 150,430
Plant equipment 948,622 663,792
Construction in progress 43,541 0
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 1,380,607 910,082
Less accumulated depreciation 247,056 103,032
----------- -----------
NET PROPERTY AND EQUIPMENT 1,133,551 807,050
----------- -----------
Other Assets
Deferred offering costs 0 118,908
Cash restricted for closure 112,988 74,132
Deferred tax assets 43,000 0
Acquired equipment and facility rights, net of accumulated amortization
of $70,000 at September 30, 1997 and $40,000 at December 31, 1996 330,000 360,000
Goodwill, net of accumulated amortization of $166,366 at September 30, 1997
and $87,924 at December 31, 1996 1,167,179 791,312
----------- -----------
TOTAL OTHER ASSETS 1,653,167 1,344,352
----------- -----------
TOTAL ASSETS $ 5,041,635 $ 2,566,585
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Related party demand note $ 0 $ 45,000
Current portion of long-term debt 105,000 0
Accounts payable 197,127 113,922
Accrued expenses 207,962 59,102
----------- -----------
TOTAL CURRENT LIABILITIES 510,089 218,024
----------- -----------
Long-Term Liabilities
Long-term debt, net of current portion 278,213 1,919,567
Closure fund 10,300 10,300
Subordinated Debt 0 135,000
----------- -----------
TOTAL LONG-TERM LIABILITIES 288,513 2,064,867
----------- -----------
TOTAL LIABILITIES 798,602 2,282,891
----------- -----------
Shareholders' Equity
Common stock, $0.01 par value; shares issued and outstanding of
3,464,097 at September 30, 1997 and 2,249,097 at December 31, 1996 34,641 22,491
Additional paid-in capital 4,720,554 1,246,649
Accumulated deficit (512,162) (985,446)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 4,243,033 283,694
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,041,635 $ 2,566,585
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPT. 30, 1997 SEPT. 30, 1996 SEPT. 30, 1997 SEPT. 30, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 511,355 $ 338,865 $ 1,831,827 $ 835,832
Cost of Revenues 413,232 125,986 906,259 382,914
----------- ----------- ----------- -----------
Gross Profit 98,123 212,879 925,568 452,918
----------- ----------- ----------- -----------
Operating Expenses
Research & Development 45,242 47,571 101,886 340,660
Sales & Marketing 254,414 106,775 608,508 276,942
General & Administrative 351,883 249,141 841,283 646,200
----------- ----------- ----------- -----------
651,539 403,487 1,551,677 1,263,802
----------- ----------- ----------- -----------
Operating Income(Loss) (553,416) (190,608) (626,109) (810,884)
Interest Income 21,198 0 56,268 0
Interest Expense (10,080) (53,789) (62,841) (134,400)
----------- ----------- ----------- -----------
Net Income(Loss) before Income Taxes (542,298) (244,397) (632,682) (945,284)
Income tax expense(benefit) 0 0 (43,000) 0
----------- ----------- ----------- -----------
Net Income (Loss) ($ 542,298) ($ 244,397) ($ 589,682) ($ 945,284)
=========== =========== =========== ===========
Income(Loss) per share ($ 0.16) ($ 0.11) ($ 0.17) ($ 0.41)
Weighted average number of common and
common equivalent shares outstanding 3,464,097 2,302,966 3,509,984 2,302,966
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Period from December 31, 1996 to September 30, 1997
<TABLE>
<CAPTION>
Common Common Additional Total
Stock Stock Paid-In Accumulated Shareholders'
Shares Amount Capital Deficit Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 2,249,097 $ 22,491 $ 1,246,649 ($ 985,446) $ 283,694
Initial Public Offering of common stock, net of
commissions and offering costs of $1,065,062 1,095,000 10,950 4,398,988 4,409,938
Exercise of warrant 120,000 1,200 133,800 135,000
Reclassification of "S" corporation accumulated
deficit to additional paid-in capital pursuant to
termination of "S" corporation status (1,062,966) 1,062,966 0
Compensation expense on stock option grants 4,083 4,083
Net loss (589,682) (589,682)
----------- ----------- ----------- ----------- -----------
Balance, September 30, 1997 3,464,097 $ 34,641 $ 4,720,554 ($ 512,162) $ 4,243,033
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPT. 30, 1997 SEPT. 30, 1996
----------- -----------
<S> <C> <C>
Cash Flows From Operating Acitivities
Net Income(Loss) ($ 589,682) ($ 945,284)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 144,024 65,078
Amortization 108,442 95,943
Deferred income tax (43,000) 0
Non cash compensation 4,083 0
Purchased research and development 0 200,000
Provision for doubtful accounts 5,000 33,400
Changes in assets and liabilities, net of effects of business acquisitions
Accounts receivable (161,723) (125,447)
Other current assets (136,354) (23,989)
Accounts payable (29,772) 61,508
Accrued expenses 88,939 73,984
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (610,043) (564,807)
----------- -----------
Cash Flows from Investing Activities
Purchase of furniture, fixtures, and equipment (446,687) (394,412)
Settlement of contingent consideration (75,000) 0
Increase in restricted cash (38,856) (48,190)
Acquisition of businesses (251,139) (1,444,125)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (811,682) (1,886,727)
----------- -----------
Cash Flows From Financing Activities
Proceeds from long-term debt 0 2,020,000
Payments on long-term debt (1,711,354) 0
Net proceeds (payments) from related party demand note (45,000) 30,000
Net proceeds from issuance of common stock 4,528,845 414,123
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,772,491 2,464,123
----------- -----------
INCREASE IN CASH & CASH EQUIVALENTS 1,350,766 12,589
Cash and cash equivalents
Beginning 0 0
----------- -----------
Ending $ 1,350,766 $ 12,589
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash payments for interest $ 71,984 $ 76,751
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
MERCURY WASTE SOLUTIONS, INC.
Consolidated Notes to Financial Statements
September 30, 1997
Note 1. - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three and nine month periods ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997, or any other period. For further information, refer to the audited
financial statements and footnotes thereto for the year ended December 31, 1996
contained in the Company's Registration Statement on Form SB-2 (File No.
333-17399.)
Note 2. - Income (Loss) Per Share
Net income (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 SEC Staff Accounting Bulletin No. 83, common
stock issued and stock options and warrants granted with exercise prices below
the initial public offering price for the period from January 2, 1996 (date of
inception) through the effective date of the offering (through March 31, 1997)
have been included in the calculations as if they were outstanding for all
periods presented. In periods subsequent to March 31, 1997, common equivalent
shares are included in the calculation if their effect is dilutive using the
treasury stock method.
Note 3. - Pro Forma Information
Pro forma income tax and loss per share data for the periods when the Company
was an S corporation is not presented as it does not differ from the information
in the accompanying statement of operations.
Note 4. - Acquisition
In September, 1997, the Company acquired certain assets and liabilities of
Ballast & Lamp Recycling, Inc. (BLR) for approximately $250,000. The primary
business of BLR is the collection and storage of hazardous mercury containing
lighting debris and ballasts for recycling and ultimate mercury reclamation. BLR
has collection facilities in Indianapolis, Indiana and Atanta, Georgia. The
acquisition was accounted for as a purchase and accordingly, the results of
operations of BLR are included with the Company's since the date of the
acquisition. The assets acquired and liabilities assumed were transferred into a
newly formed 100% owned subsidiary. No pro forma information has been presented
as BLR was an immaterial acquisition.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in connection with the Company's
consolidated financial statements and related notes thereto included within this
document.
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 September, 1997, the Company acquired certain assets and liabilities of
Ballast & Lamp Recycling, Inc. ("BLR") for approximately $250,000. The primary
business of BLR is the collection and storage of hazardous mercury containing
lighting debris and ballasts for recycling and ultimate mercury reclamation. BLR
has collection facilities in Indianapolis, Indiana and Atanta, Georgia. The
acquisition of BLR increased the Company's customer base, placed the Company in
two additional strategic and growing markets and will leverage the Company's
processing capacity. Annual 1996 revenues for BLR were approximately $1 million.
In October, 1997, the Company signed a non-binding letter of intent to acquire
certain assets and liabilities of Mercury Refining Company, Inc., ("MERECO").
The acquisition is subject to the execution of a formal contract, regulatory
approvals and other closing considerations. The acquisition is expected to be
completed in late 1997 or early 1998. The primary business of MERECO, located in
Albany, NY, is the collection and storage of hazardous, mercury containing
materials for reclamation, refining and recycling.
For the three and nine month periods ended September 30, 1997, the Company's
revenues consisted primarily of recycling revenues generated from its Roseville
and Union Grove facilities. The Company's activities also included: (i) the
raising of $5,475,000 in capital through an Initial Public Offering of the
Company's common stock, (ii) research and development of lamp processing
equipment, (iii) research and development of hazardous waste storage facility
alternatives, (iv) commencement of expansion of the Union Grove Retorting
Facility and related expansion of processing capacity at the Union Grove
Retorting Facility, (v) pursuit of acquisition opportunities and (vi) continued
activities related to the organizational development of the Company.
RESULTS OF OPERATIONS
Total revenues were $511,355 and $1,831,827 for the three and nine month periods
ended September 30, 1997 respectively compared to $338,865 and $835,832 for the
comparable periods in 1996. Total revenues for the third quarter of 1997
decreased $309,685 or 38% from the second quarter of 1997.
Mercury retorting revenues were $252,221 and $1,009,786 for the three and nine
month periods ended September 30, 1997 compared to $162,586 and $347,736 for the
comparable periods in 1996. These increases are 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 continued to add
customers by targeting national waste management companies and Fortune 500
companies. However, mercury retorting revenues for the third quarter of 1997
decreased $239,920 or 49% from the second quarter of 1997. This decrease was due
to less than anticipated shipments of mercural debris to the Union Grove
Retorting Facility and constraints in receiving shipments due to limited storage
capacities. In addition, in September, the Company had an electrical power
problem that caused a short and took both of its ovens out of production at its
Union Grove facility causing a production interruption. These problems were
repaired in mid-October, the Company was fully insured for the equipment damage,
and the facility is currently at full processing capacity. The Company has
business interruption insurance and is in the process of filing a business
interruption claim for this time period which should be finalized in late 1997
or early 1998. The amount of the claim has not yet been determined.
<PAGE>
The Company is dependent on storage to ensure uninterruptible processing
capability. In May, 1997, the Company applied for a Part B storage permit for
the Union Grove Facility. The application is currently pending. However, to
hedge against production interruptions, the Company has committed to additional
independent systems to guard against future production problems. In early
October the Company leased additional storage space in Kenosha, Wisconsin to
operate a 10 day storage and transfer facility.
Lamp recycling revenues were $259,134 and $822,041 for the three and nine month
periods ended September 30, 1997 compared to $176,279 and $488,096 for the
comparable periods in 1996. These increases are due primarily to the continued
growth of ballast collection as a service to lamp recycling customers and the
growth of lamp recycling sales. However, lamp recycling revenues for the third
quarter of 1997 decreased $69,765 or 21% from the second quarter of 1997. The
decrease is primarily due to a decrease in ballast collection revenue and a
continued trend of decreased prices charged for lamp recycling due to
competitive pressures, offset by revenues from BLR.
Cost of recycling revenues consists primarily of direct labor costs to process
the waste and direct facility overhead costs. Gross profit as a percent of
revenue was 19% and 51% for the three and nine month periods ended September 30,
1997 respectively compared to 63% and 54% for the comparable periods in 1996.
The decrease in gross profit in the 1997 periods, particularly in the third
quarter, is due to increases in costs incurred related to the expansion at the
Union Grove Retorting Facility, coupled with lower than anticipated volumes.
Research and development expense was $45,242 and $101,886 for the three and nine
month periods ended September 30, 1997 respectively compared to $47,571 and
$340,660 for the comparable periods in 1996. The Company's development
activities in 1997 consisted of the development of new lamp processing
equipment. Research and development expense for the nine months ended September
30, 1996 included $200,000 allocated to purchased research and development
related to a continuous flow oven at the Union Grove Retorting Facility that had
no alternative use for the Company.
Selling expense was $254,414 or 50% of revenues and $608,508 or 33% of revenues
for the three and nine month periods ended September 30, 1997 respectively
compared to $106,775 or 32% of revenues and $276,942 or 33% of revenues for the
comparable periods in 1996. This increase in expense in 1997 was related to the
Company's continued development of its direct sales staff and related costs of
deploying its marketing plan, including increased travel and telephone expense.
In addition, approximately $50,000 in one time costs were incurred in the third
quarter of 1997 on marketing materials.
General and administrative expense was $351,883 or 69% of revenues and $841,283
or 46% of revenues for the three and nine month periods ended September 30, 1997
compared to $249,141 or 74% of revenues and $646,200 or 77% of revenues for the
comparable periods in 1996. The increase in expense in 1997 was principally due
to personnel and related costs resulting from the Company's continued investment
in organizational infrastructure.
Interest income was $21,198 and $56,268 for the three and nine month periods
ended September 30, 1997 respectively compared to no interest income for the
comparable periods in 1996. The increase was largely due to investment of
proceeds from the Company's Initial Public Offering. Interest expense was
$10,080 and $62,841 for the three and nine month periods ended September 30,
1997 compared to $53,789 and $134,400 for the comparable periods in 1996. The
decrease was due primarily to the payoff and cancellation of the $1,660,000
revolving bank credit line from proceeds of the Initial Public Offering.
Income tax provision (benefit) for the three and nine month periods ended
September 30, 1997 was $0 and ($43,000) compared to $0 for the comparable
periods in 1996. The benefit recorded in 1997 represents deferred tax assets
recorded on the conversion from S to C corporation tax status. The realization
of these deferred tax assets is dependent upon generating sufficient taxable
income during the period that deductible temporary differences are expected to
be available to reduce taxable income.
<PAGE>
Resulting from the factors discussed above, the Company's net loss was $542,298
and $589,682 for the three and nine months ended September 30, 1997 compared to
$244,397 and $945,284 for the comparable periods in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $1,350,766 and working capital of
$1,744,828 at September 30, 1997. Net cash used in operating activities was
$610,043 for the nine months ended September 30, 1997, primarily resulting from
the net loss of $589,682, an increase in other current assets of $136,354, and
an increase in accounts receivable of $161,723, offset by depreciation and
amortization of $252,466. The increase in other current assets was primarily due
to prepaid insurance. The increase in accounts receivable is due primarily to
increased sales.
Cash flows used in investing activities were $811,682 for the nine months ended
September 30, 1997, consisting of payments for the purchase of furniture,
fixtures and equipment of $446,687, an increase in cash reserved for closure
related to the Union Grove Retorting Facility of $38,856, $75,000 for a
settlement of a contingent liability related to the acquisition of U.S.
Environmental, Incorporated, and $251,139 paid for the acquisition of certain
assets and liabilities of BLR. The capital expenditures for the period relate
primarily to the expansion of the Union Grove Retorting Facility. The Company is
in the process of expanding the Union Grove Retorting Facility to increase the
retorting capacity, to add lamp recycling capability and to add a temporary
waste storage facility. The Company believes this expansion will be completed in
1997 or early 1998. After the expansion, the Company will continue to lease this
facility and has signed a long-term lease with the landlord.
Cash provided by financing activities consisted primarily of net proceeds from
the Initial Public Offering, offset by the payoff and termination of the
Company's revolving credit line with Norwest Bank, N.A. of $1,660,000.
The Company has a $600,000 revolving credit promissory note with Brad J.
Buscher, its Chairman of the Board and Chief Executive Officer of which $0 was
outstanding on September 30, 1997. The note is secured by all assets of the
Company and bears interest at prime plus 2%.
The Company's capital requirements will be significant for the remainder of 1997
and into 1998 to fund operations and planned capital expenditures related to
expansion of the Union Grove Retorting Facility, to manufacture and lease lamp
processing equipment, to develop consolidation and temporary hazardous waste
storage facilities and to fund the proposed MERECO and other potential
acquisitions. The Company anticipates that the net proceeds from the Initial
Public Offering will be sufficient to fund its operations and planned expansion
for at least 12 months, excluding any business acquisitions. The Company
anticipates it will fund the proposed MERECO acquisition with debt financing. In
addition to capital needed for acquisitions, if the Company's business grows
more rapidly than anticipated or if anticipated revenue increases do not
materialize, the Company may require additional capital. There can be no
assurance that additional financing will be available at all or that, if
available, such financing would be obtainable on terms favorable to the Company.
ISSUED BUT NOT YET ADOPTED STANDARD
In February 1997, the FASB issued Statement No. 128, "Earnings Per Share."
Statement No. 128 establishes standards for computing and presenting earnings
per share (EPS). This Statement simplifies the standards for computing EPS
previously found in APB Opinion No. 15. It replaces the presentation of primary
EPS with a presentation of basic EPS, which excludes dilution and is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding for the period. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures.
<PAGE>
The Company will be required to adopt Statement No. 128 in the fourth quarter of
1997. This statement requires restatement of all prior-period EPS data
presented. The adoption of Statement No. 128 would have no effect on reported
EPS.
FORWARD LOOKING STATEMENTS
Statements contained in this report regarding the Company's future operations,
performance and results, and anticipated liquidity are forward-looking and
therefore are subject to certain risks and uncertainties, including those
discussed herein. In addition, any forward-looking information regarding the
operations of the Company will be affected by the ability of the Company to
implement its marketing strategies and secure new customers, secure storage
facilities at the Union Grove Retorting Facility and other parts of the country,
manage anticipated growth, successfully integrate business acquisitions and
other Risk Factors included in the Registration Statement on Form SB-2, as
amended, filed with the Securities and Exchange Commission (Form 333-17399.)
<PAGE>
PART II OTHER INFORMATION
Item 2. Changes in Securities
Pursuant to Item 701 of Regulation S-B, following is a report of use of proceeds
resulting from the Form SB-2 of Mercury Waste Solutions, Inc., effective date
February 28, 1997, file no. 2-17399. Information is for the period since the
last filing of Form SR on May 28, 1997 through September 30, 1997.
<TABLE>
<CAPTION>
<S> <C>
Net proceeds (formerly reported as $4,416,927; decrease in net proceeds is
due to increase in other expenses of the offering of $6,989.) $4,409,938
==========
Construction of plant, building and facilities (primarily the Union Grove Facility) $ 31,455
Purchase and installation of machinery and equipment (primarily the Union Grove Facility) 130,912
Development and manufacture of lamp processors 37,397
Development of Waste Storage Facilities (Acquisition of BLR) 251,139
Working Capital 174,058
----------
Total use of proceeds for the period $ 624,961
==========
Cash Investments at September 30, 1997 $1,350,766
==========
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
11 - Statement re: computation of per share earnings
10.20 - Lease dated July 15, 1997 by and between Durand
Properties and Mercury Waste Solutions, Inc. for
premises located at 21211 Durand Ave., Union Grove,
Wisconsin 53182.
27 - Financial Data Schedule
(B) Reports on Form 8-K - no reports on Form 8-K were filed during
the fiscal quarter ended September 30, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized
Mercury Waste Solutions, Inc.
(registrant)
Dated: November 14, 1997. /s/ Brad J. Buscher
Brad J. Buscher
Chairman of the Board and Chief Executive
Officer
Dated: November 14, 1997. /s/ Todd J. Anderson
Todd J. Anderson
Chief Financial Officer
LEASE
THIS LEASE made as of this 15th day of July, 1997, by and between Wally
Haag, dba Durand Properties, ("Landlord"), and Mercury Waste Solutions, Inc., a
Minnesota corporation ("Tenant").
RECITALS
A. Landlord and Tenant are parties to a Lease (the "Old Lease") dated
January 25, 1995, (Tenant being an assignee of the lessee's leasehold interest
in such lease), for certain premises consisting of land and building with an
address of 21211-B Durand Avenue (referred to herein as "Building B"). Building
B currently consists of 8,000 square feet of interior floor area.
B. Landlord owns additional land and improvements thereon (referred to
herein as the "Building A"). Building A has an address of 21211-A Durand Avenue,
and currently consists of 7,350 square feet of interior floor area.
C. Landlord and Tenant desire to enter into this Lease to provide for
the improvement of both Building B and Building A.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations of the parties contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. LEASED PREMISES. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, the Leased Premises, consisting of:
(a) Building B and
(b) Building A.
Upon the effective date of this Lease, this Lease shall supersede in its
entirety the Old Lease, and all obligations which would have otherwise arisen
under the Old Lease are hereby released.
In addition, the Leased Premises shall include a non-exclusive easement
over the easterly and westerly driveway (the "Easement Area") of the property
immediately to the east of Building A (i.e. the driveway to the east of Building
A), which is owned by Landlord, for purposes of ingress, egress and loading and
unloading by Tenant and its invitees.
In addition, Tenant shall have certain rights with respect to the
leasing and purchasing of certain premises consisting of land and building
located behind Building A, referred to herein as Building C.
<PAGE>
The land which comprises Building B, Building A, and Building C and the
Easement Area is but one legal parcel as of the date of this lease, and this
parcel is legally described on Exhibit A attached hereto. Attached as Exhibit B
is a site drawing showing the areas designated as Building B, Building A, the
Easement area, and Building C.
2. LANDLORD'S WORK. Landlord shall perform the following work at its
sole cost and expense ("Landlord's Work") more fully detailed on Exhibit C
attached hereto:
(a) Landlord has delivered possession of Building A to Tenant,
free and clear of all other tenancies and ready for occupancy, and has
completed a substantial portion of Landlord's Work with respect
thereto. Landlord will as soon as reasonably possible hereafter
complete the remaining agreed-upon items of construction in Building A.
(b) Landlord shall promptly commence and thereafter diligently
complete the 10,000 square foot addition to Building B, and deliver
possession thereof to Tenant not later than November 1, 1997. Upon
completion of the addition ("Building B Completion Date"), Landlord
will deliver possession of the Building B addition to Tenant, free and
clear of all other tenancies and ready for occupancy.
(c) Landlord will as soon as reasonably possible change the
roofline of Building A to give the conform to Building B's roofline..
All of Landlord's Work shall be performed in accordance with all applicable
laws, ordinances, codes and regulations.
3. EFFECTIVE DATE AND TERM. This Lease is for a term of ten (10) years,
commencing on the date hereof, and terminating on May 31, 2007. This ten (10)
year term is referred to herein as the "Original Term." In addition, Tenant
shall have four (4) options to extend the Lease for additional periods of five
(5) years each ("Extended Terms"). Tenant shall notify Landlord of its intent to
exercise any of said options at least six (6) months prior to the termination of
the Original Term, in the case of the First Option Term, or at least six (6)
months prior to the termination of the current Option Term, in the case of any
subsequent Option Term, or said option will be null and void; provided, however,
that Tenant's six (6) month notice period shall not be deemed to have commenced
until Landlord shall have given Tenant, no earlier than seven (7) months prior
to the end of the current Term, notice of Tenant's option rights under this
Section 3 (the purpose of this provision being to avoid an unintentional
forfeiture of Tenant's option rights). Any Extended Term shall be on the same
terms and conditions set forth in this Lease, but the Rent shall be as provided
in Section 5 hereof.
4. RENT -- ORIGINAL TERM. Tenant shall pay to Landlord Rent for the
Original Term of this Lease as follows:
<PAGE>
(a) On July 15, 1997, $12,000, and commencing on August 15,
1997, $6,000.00 per month, payable on the 15th day of each month.
(b) Commencing on the Building B Completion Date, $9,275.00
per month.
(c) If the Building B Completion Date occurs on other than the
first day of a calendar month, Rent for that month shall be pro rated
as to each rental rate to the number of days in such month during which
said rental rate is in effect.
(d) Commencing on the first day of the 61st calendar month of
the Term, Rent shall be adjusted to Market Rent, determined in the same
manner as provided in Section 5 hereof. Landlord shall give Tenant
notice of its determination of Market Rent not later than thirty (30)
days before the first day of the 61st calendar month of the Term.
5. RENT -- EXTENDED TERMS. For each Extended Term, Tenant shall pay to
Landlord Rent equal to "Market Rent" determined pursuant to this Section 5:
(a) "Market Rent" means the monthly rent which a landlord
would receive by then renting the space in question assuming the
landlord to be a prudent person willing to lease but being under no
compulsion to do so, assuming the tenant to be a prudent person willing
to lease but being under no compulsion to do so, assuming a lease term
equal to the term in question, and assuming a lease containing the same
terms and provisions as those contained in this Lease.
(b) Landlord shall initially determine the Market Rent and
shall thereupon give Tenant notice of such determination and of the
amount of Rent for the Extended Term. Such notice shall be given not
later than thirty (30) days after Tenant has exercised its option. If
no notice is given within such thirty (30) day period, then the Rent
for that Extended Term shall be the same as the Rent for the
immediately preceding Term.
(c) If Tenant does not agree with Landlord's determination of
Market Rent, Tenant shall give notice to Landlord of such disagreement
within twenty (20) days after Landlord gives notice to Tenant under
Subsection 5(b). If Tenant fails to give such notice of disagreement
for any reason, then Tenant shall be bound by Landlord's determination
of Market Rent.
(d) If Tenant gives Landlord notice of disagreement within the
time permitted, each party will choose a person with at least five (5)
years experience as a commercial/industrial real estate appraiser in
the Burlington-Franklin-Sturdevant-Bristol, Wisconsin, area who shall
be a member in good standing of the American Institute of Real Estate
Appraisers (or successor organization or if no such organization
exists, then persons of similar professional qualification), with the
designation M.A.I., and give notice of the name and address of such
person to the
<PAGE>
other within thirty (30) days of the notice of disagreement from
Tenant. If only one party appoints an appraiser, then the lone
appraiser shall within twenty (20) days render his or her opinion as to
the Market Rent. If each party appoints an appraiser, they shall meet
and attempt to agree upon the Market Rent within twenty (20) days. If
the two appraisers cannot reach agreement as to Market Rent, then those
two persons shall within the twenty (20) day period select a third
person who is experienced in the determination of commercial/industrial
rental rates for similar space in the
Burlington-Franklin-Sturdevant-Bristol, Wisconsin area and the three
appraisers shall make a determination of Market Rent as expeditiously
as possible thereafter and in any event within thirty (30) days after
the selection of the third appraiser. The determination of the
appraisers shall be made as follows:
(i) Each appraiser will independently determine the
Market Rent and then all will meet and simultaneously
disclose to the others their respective
determinations.
(ii) If neither the highest nor the lowest determination
differs from the middle determination by more than
ten percent (10%) of such middle determination, then
the Market Rent shall be the average of all three
determinations.
(iii) If subparagraph (ii) does not apply, then the Market
Rent shall be the average of the two determinations
closest by dollar amount.
(iv) The appraisers shall promptly notify Landlord and
Tenant of each of their separate determinations and
the resulting Market Rent. The determination of
Market Rent pursuant to this procedure shall be
final, binding and conclusive upon Landlord and
Tenant.
(d) Each party will pay any and all fees and expenses incurred in
connection with such party's appraiser and the fees and
expenses for the third appraiser will be borne equally by the
parties.
6. PAYMENT OF RENT. The monthly installments of Rent shall be paid in
advance on or before the first day of each calendar month during the Term. Any
payment more than five (5) days late shall bear interest at the rate of twelve
percent (12%) per annum.
7. SPECIAL ASSESSMENTS. Landlord shall be responsible for and pay all
special assessments levied against or attributable to the Leased Premises.
Special assessments shall include any assessment made by governmental or
municipal entity for improvements to the Leased Premises, including sewer,
water, roads, curbs, gutters and sidewalks. Tenant shall pay any and all
personal property taxes as may be levied upon Tenant's personal property and
equipment, and any fixtures installed by Tenant at the Leased Premises.
<PAGE>
8. REAL PROPERTY TAXES. Landlord shall cause the appropriate taxing
authority to separately assess Building B and Building A, and Tenant shall pay
all real estate taxes for the Leased Premises as so assessed.
9. UTILITIES. The Leased Premises are not presently served by a
municipal sewer or water. The Leased Premises receives its water from a well
maintained by the Landlord. The sewage and waste water from the Leased Premises
are directed to holding tanks. Landlord, shall at its own cost, maintain the
well and the holding tanks and Tenant shall have no responsibility to pay any
costs associated with the supply of fresh water to the Leased Premises from the
well. Tenant shall be responsible for the emptying of the holding tanks.
It is understood that at some time during the Term of this Lease, the
Leased Premises may be connected to a municipal sewer and water utility. As
provided in Section 7 of this Lease, Tenant shall not be responsible to pay for
any special assessments or hook-up charges levied against or attributable to the
Leased Premises for municipal and sewer water systems. Tenant does agree,
however, to pay when due, and to save Landlord harmless therefrom, any and all
charges caused by Tenant's use of the municipal water and/or sewer system,
provided that such service is separately metered for the Leased Premises. Tenant
further agrees to pay when due, and save Landlord harmless therefrom, any and
all charges as may be levied against the Leased Premises for the use of
electrical or gas service, provided such services are separately metered to the
Leased Premises.
10. CHARACTER OF OCCUPANCY. Tenant agrees that the Leased Premises
shall be used for its business of processing mercury-containing lamps, mercury
waste storage, mercury waste retorting, universal waste storage, PCB ballast
storage, and other businesses consistent with zoning for the Leased Premises, or
other use approved by Landlord, such approval not to be unreasonably withheld.
Tenant agrees that the Leased Premises shall be used and occupied in a careful,
safe and proper manner, and that no waste will be committed or permitted
thereon, or any damage done to said premises. Tenant agrees that it will not
conduct nor permit any act, nor keep on said premises any property which may be
contrary to, or in violation of, any law or ordinance of the United States, the
State of Wisconsin, or the County of Racine, or any municipality in which the
Leased Premises are located. Landlord acknowledges that the Leased Premises
shall be used for processing mercury-containing lamps, mercury waste storage,
mercury waste retorting, universal waste storage, PCB ballast storage.
11. ALTERATIONS AND IMPROVEMENTS. Tenant agrees that it will make no
alterations in, additions or improvements to the Leased Premises without first
obtaining Landlord's written consent; provided, however, that Tenant may make
non-structural changes to the Leased Premises in an aggregate amount of $50,000
per year without the Landlord's consent. All improvements or alterations made by
Tenant which become a part of the Leased Premises shall belong to Landlord upon
the termination of this Lease, unless Landlord and Tenant shall have agreed to
the contrary in writing at the time the improvement or alteration is made. In
the event Tenant is to remove the alteration or
<PAGE>
improvement, it must do so at its own expense and restore the Leased Premises to
the same condition as it was in before making such alterations and improvements,
reasonable wear and tear excepted. Tenant agrees it will save Landlord harmless
from and against all expenses, liens, claims or damages to either property or
persons which arise by reason of making alterations or improvements to the
Leased Premises.
12. INSURANCE. Tenant shall at all times, during the term of this Lease
keep the Leased Premises insured for liability to anyone for bodily injury,
property damage, personal injury and advertising injury in the sum of at least
$1,000,000 in the aggregate. In addition, Tenant shall keep in force pollution
legal liability insurance in the sum of at least $5,000,000 for pollution caused
by Tenant on the Leased Premises. In both cases, the Landlord shall be named as
an additional insured, and Tenant shall deliver certificates of such insurance
to Landlord, with a provision that the insurer shall undertake to give Landlord
notification of cancellation of such insurance at least thirty (30) days prior
to such cancellation. Tenant shall also provide Landlord with a copy of the
policies.
Landlord shall at all times and its expense maintain a policy of fire
and all risk coverage insurance for the full insurable replacement value of all
real property improvements on the Leased Premises, including an endorsement for
Building Ordinance Coverage in the amount of $250,000, or higher amount if
Tenant agrees to pay the additional premium. Tenant shall insure at its expense
its own property and leasehold improvements.
Anything in this Lease to the contrary notwithstanding, it is agreed
that each party (the "Releasing Party") hereby releases the other party (the
"Released Party") from liability, including liability for negligence, which the
Released Party would, but for this Section, have had to the Releasing Party
during the term of this Lease resulting from the occurrence of any accident or
casualty:
(1) which is normally covered by fire and all risk coverage policy
(irrespective of whether such coverage is being carried by the
Releasing Party); or
(2) which is covered by any other property insurance being carried
by the Releasing Party at the time of such occurrence.
If any insurance policy required by this Lease cannot be obtained with
a waiver of subrogation endorsement, or is obtainable only by the payment of an
additional premium charge above that charged by insurance companies issuing
policies without waiver of subrogation, the party undertaking to obtain the
insurance shall notify the other party of this fact. The other party shall then
have a period of thirty (30) days after notice either to place the insurance
with a company which is reasonably satisfactory to the other party and that will
carry the insurance with a waiver of subrogation without additional cost, or to
agree to pay the additional premium if such a policy is obtainable at additional
cost. If the insurance cannot be obtained or the party in whose favor a waiver
of subrogation is desired refuses
<PAGE>
to pay the additional premium charged, the other party is relieved of the
obligation to obtain a waiver of subrogation rights with respect to the
particular insurance involved.
13. REPAIR. Landlord agrees to maintain and repair the exterior of the
Buildings, and all exterior areas adjacent thereto and owned by Landlord.
Landlord further agrees to maintain and repair the mechanical systems
of the Leased Premises including major plumbing, heating, cooling, glass
replacement, roof leaks, structural repairs, and parking lots and driving lanes.
Tenant is responsible for standard daily maintenance procedures, i.e. leaking
pipe fittings, filter changes, etc., and all other maintenance necessitated by
either the intentional wrongdoing of Tenant or Tenant's agents and employees. If
Landlord defaults in its obligations hereunder, and such default continues for a
period of ten (10) days after written notice thereof by Tenant, then Tenant
shall have the right to perform such repair or maintenance and deduct the cost
thereof from its Rent as it comes due. If Tenant defaults in its obligations
hereunder, and such default continues for a period of ten (10) days after
written notice thereof by Landlord, then Landlord shall have the right to
perform such repair or maintenance and charge the Tenant for Landlord's actual
cost in doing so. Landlord's repair obligations shall not extend to additional
heating and cooling equipment installed by Tenant.
Tenant agrees to return the Leased Premises to Landlord upon the
termination of this Lease, in the same condition of repair as at the completion
of Landlord's Work, normal wear and tear, damage by casualty occurrence, and the
obligations of Landlord herein excepted.
14. SIGNS AND SITE ADVERTISING. Except as may be otherwise agreed by
Landlord, in writing, Tenant shall be permitted only one exterior sign
advertising Tenant's business. Such a sign shall be placed upon that exterior
portion of the Leased Premises designated by Landlord. The purpose of this
clause is to maintain a uniform exterior appearance to the Leased Premises.
15. ASSIGNMENTS AND SUBLETTING. The Tenant may not assign this Lease or
sublet the Leased Premises without the prior written consent of the Landlord,
which consent, however, shall not be unreasonably withheld or delayed. Upon any
such subletting or assignment, the Tenant shall remain liable for all rents and
obligations payable hereunder, and the performance of all of its obligations
hereunder. Notwithstanding the foregoing, if Tenant assigns the lease to a party
who (a) as of the date of the assignment has a net worth at least equal to
Tenant's as of the date of such assignment (as verified by an independent
certified public accountant) and (b) assumes all of the obligations of Tenant
hereunder as of the date of the assignment, then Landlord shall release the
assigning Tenant from any and all obligations arising under the Lease from and
after the date of the assignment.
16. TERMINATION BY INSOLVENCY. It is further agreed between the parties
hereto that if the Tenant shall be declared insolvent or adjudicated a bankrupt,
or if the Tenant shall make an assignment for the benefit of creditors or
otherwise, or if the Tenant's
<PAGE>
leasehold interest shall be sold under execution or if a Trustee in bankruptcy
or a receiver be appointed for the Tenant, whether under the operation of
Federal or of state statutes, and any of the foregoing have not been set aside
within ninety (90) days from its occurrence, then, and in any of said cases the
Landlord without prejudice to the rights of the Landlord hereunder, at the
option of the Landlord, immediately and without notice to the Tenant or any
assignee, transferee, receiver, trustee, or any other person or persons, may
terminate this Lease and immediately retake possession of the Leased Premises,
using such legal proceedings as are available under Wisconsin law.
17. DEFAULT. In the event of default by Tenant not remedied under the
provisions of this Section, Landlord shall have the right to: (1) declare the
Lease at an end and terminate it; (2) sue for the Rent due under the Lease; (3)
sue for any damages sustained by the Landlord; (4) continue the Lease in effect
and relet the Leased Premises on such terms and conditions as the Landlord may
deem commercially reasonable with the Tenant remaining liable for the monthly
Rent plus the reasonable cost of obtaining possession of the Leased Premises and
any repair or alterations necessary to prepare the Leased Premises for
reletting; less the rentals received from such reletting, if any (5) resort to
any and all legal remedies or combinations of remedies which the Landlord may
desire to assert.
No action of either the Tenant or the Landlord shall be construed as an
election to terminate the Lease unless written notice of such intention be given
to the other party. In the event of default, the prevailing party shall be
entitled to reasonable attorney's fee and other costs and expenses incurred in
enforcing the obligations under this Lease.
No default shall be declared hereunder until the expiration of the
following cure periods: (1) In the case of an obligation involving the payment
of money, fifteen (15) days after notice of such default; and (2) in the case of
any other obligation, thirty (30) days after notice of such default; provided,
however, that if the default is of such a nature as to reasonably require more
than thirty (30) days to cure, then such cure period shall be extended for a
reasonable period of time required to complete such cure, providing the
defaulting party has within the thirty (30) day period commenced such cure and
thereafter has diligently prosecuted such cure to completion.
18. LOSS OR DAMAGE TO TENANT'S PROPERTY. All personal property of any
kind or description in the Leased Premises shall be held at Tenant's own risk,
and Landlord shall not be liable for any damage suffered by Tenant's business,
provided that such loss or damage was not caused by the negligence or
intentional wrongful act of Landlord, or Landlord's agents and employees.
19. PAYMENTS AFTER TERMINATION. No payment of money by Tenant to
Landlord after the termination of this Lease, in any manner or after the giving
of any notice (other than a demand for the payment of money) by the Landlord to
Tenant, shall reinstate, continue or extend the term of this Lease. The Original
Term shall be extended only by the provision of the notice required in Section
3. The acceptance by Landlord of
<PAGE>
one month's rent for the first month after the expiration or termination of this
Lease shall constitute a renewal for a period of one month only and each
subsequent acceptance of month's rent shall constitute a further renewal for one
month only.
20. FIRE CLAUSE. If the Leased Premises shall be so damaged by fire,
lightning, tornado or similar catastrophe so as to render the Leased Premises
untenantable to the Tenant in whole or in part and the damage is so great that
the Leased Premises cannot be rebuilt within one hundred eighty (180) days, then
Landlord and Tenant, at either's option, may terminate this Lease, and Tenant
shall pay Rent only up to the time the Leased Premises became untenantable, and
shall then surrender the Leased Premises to Landlord. If the Leased Premises can
be made tenantable to this Tenant within one hundred eighty (180) days, Landlord
shall proceed to do so, and Tenant's Rent shall abate during the period the
Leased Premises are untenantable.
21. RIGHT OF ENTRY. The Landlord with prospective tenants shall have
the right to enter the Leased Premises during the ninety (90) day period next
prior to the expiration of the Term hereof, and during said period shall have
the right to place on the Leased Premises signs advertising the Leased Premises
for rent or lease; and Landlord at any time during the Term shall have the
right, upon reasonable advance notice to Tenant, to enter upon the Premises to
inspect the same and perform its obligations hereunder.
22. WAIVERS. No waiver of any conditions or covenant of this Lease by
either party hereto shall be deemed to imply or constitute a further waiver by
such party of any other condition or covenant of said Lease.
23. MUTUAL INDEMNIFICATION. Landlord and Tenant agree to indemnify and
save, protect and keep harmless each other from every and all cost, loss,
damage, liability, expense, penalty, and fine whatsoever, which may arise from
or be claimed by any person or persons for any injuries to person or property,
or damage of whatever kind of character arising from the negligence or
intentional wrongdoing of the indemnifying party or the agents and employees of
the indemnifying party.
Landlord and Tenant shall each comply and conform with all laws,
statutes, ordinances and regulations of the United States, the State of
Wisconsin, the County of Racine, and the municipality in which the Leased
Premises are situated, now and for all times hereafter that this Lease is in
effect; if any suits or proceedings are brought against Landlord or Tenant on
account of any alleged violation of any law, statute, ordinance or regulation by
such party, or an account of negligence or intentional wrongdoing by such party
or the agent or employee of such party, the party in violation will defend the
same and pay whatever judgments may be recovered on account thereof.
Notwithstanding anything to the contrary contained in this Lease, if
Tenant is for any reason precluded from operating its business in the Leased
Premises due to any applicable laws, statutes, ordinances and regulations of the
United States, the State of Wisconsin, the County of Racine, and the
municipality in which the Leased Premises are situated, Tenant
<PAGE>
shall have the right to terminate this Lease upon ninety (90) days prior written
notice to Landlord, and during the period Tenant is precluded from such
operation, all Rent shall abate. If Tenant elects to terminate this Lease for
this reason during the Original Term, Tenant shall reimburse Landlord for its
actual costs of construction of Landlord's Work, amortized on a monthly basis
over the ten-year life of the Original Term. The Original Term shall not
terminate hereunder, however, until Tenant shall have complied with Section
29(e) hereof.
24. OUTSIDE STORAGE. Any outside storage by Tenant shall be approved in
advance by Landlord and must be maintained in an orderly fashion.
25. LAWN CARE AND SNOW REMOVAL. All lawn care shall be performed by
Landlord. Snow removal shall be the responsibility of Tenant.
26. OPTION TO PURCHASE. Tenant shall have the option (the "Purchase
Option") to purchase the Leased Premises for its Fair Market Value (as
determined pursuant to Section 26 hereof), by giving written notice of the
exercise of such Purchase Option at any time during the Term but no later than
one hundred eighty (180) days prior to the expiration of the Original Term or of
any Extended Term of this Lease if Tenant has not exercised its option to extend
the Term of the Lease, the purchase to occur on a date specified by Tenant which
shall be no more than 90 days after the determination of the purchase price as
provided herein. Upon the giving of such notice, the parties shall proceed to
determine the Fair Market Value in accordance with Section 26 hereof, and
Landlord shall deliver to Tenant an ALTA commitment for title insurance and an
ALTA survey of the Leased Premises, certified to Tenant as of a current date.
Tenant shall have ten (10) business days to review such title commitment and
survey and make objections to title and survey matters. Any objections not made
in writing shall be deemed to be waived. If objections are so made, Seller shall
be allowed thirty (30) days in which to satisfy Tenant's objections. Seller
agrees to use due diligence in connection with any effort to satisfy Seller's
objections to title. If such objections are not satisfied within thirty (30)
days from the date of such written objections, this Agreement shall become null
and void at the option of Buyer. If Buyer elects to proceed to closing despite
such defect, Buyer shall be deemed to have waived such objection provided Seller
has used due diligence in attempting to cure such defect; provided, however,
that Buyer shall have the right to satisfy any liens in an ascertainable amount
by payment of such amount and deduction of the amount of such payment from the
purchase price. At closing, Seller shall execute all affidavits and other
documents required by the title company to eliminate all of the standard or
preprinted exceptions in the commitment, and shall deliver fee title to the
Leased Premises by warranty deed, free and clear of all liens and encumbrances
except those shown on the title commitment and not objected to by Buyer. Seller
shall take all necessary steps to subdivide the Leased Premises so as to be able
to convey it separate and apart from the balance of the Landlord's land.
27. FAIR MARKET VALUE. For purposes of Section 26 hereof, Fair Market
Value shall be determined as follows:
<PAGE>
(a) Fair Market Value shall mean the amount that a willing buyer
would pay, and a willing seller would accept, in arm's length
bona fide negotiations, assuming such buyer to be a prudent
person willing to buy but being under no compulsion to do so
and assuming the seller to be a prudent person willing to sell
but being under no compulsion to do so, and assuming the
Leased Premises is unencumbered by the Lease.
(b) Tenant shall specify in its notice of exercise of the Purchase
Option Tenant's opinion as to Fair Market Value. Landlord
shall be deemed to have agreed with Tenant's opinion of Fair
Market Value unless within fifteen (15) business days after
Tenant has delivered its notice of exercise of the Purchase
Option, Landlord shall have notified Tenant of its
disagreement with Tenant's opinion.
(c) If Landlord notifies Tenant of its disagreement with Tenant's
opinion as to Fair Market Value, then within ten (10) business
days after Landlord's notice, Landlord and Tenant shall each
appoint a Qualified Appraiser to determine the Fair Market
Value, by written notice to the other party given within such
period. If only one party appoints a Qualified Appraiser
within such time period, then the lone Qualified Appraiser
shall within twenty (20) business days render his or her
opinion as to Fair Market Value and notify both parties of
such opinion. If two Qualified Appraisers are appointed, they
shall meet and attempt to agree upon the Fair Market Value
within twenty (20) business days. If the two Qualified
Appraisers cannot reach agreement as to Fair Market Value,
then the two Qualified Appraisers shall jointly appoint a
third Qualified Appraiser. If the two Qualified Appraisers
cannot agree upon a third Qualified Appraiser, then either
party may apply to the court of general jurisdiction in Racine
County, Wisconsin, for the appointment of the third Qualified
Appraiser. The decision of any two Qualified Appraisers shall
constitute the Fair Market Value. If no two Qualified
Appraisers agree as to Fair Market Value, then the average of
the two Qualified Appraisers closest to each other shall
constitute the Fair Market Value. Landlord and Tenant shall be
conclusively bound by the determination of Fair Market Value
pursuant to this Section 26.
(d) A "Qualified Appraiser" is an MAI appraiser having at least
five (5) years of commercial/industrial real estate appraisal
experience in the Burlington-Franklin-Sturdevant-Bristol,
Wisconsin area. Each party shall pay the cost of the Qualified
Appraiser appointed by it, and the parties shall share equally
the cost of the third Qualified Appraiser, if any.
28. BUILDING C -- RIGHTS OF FIRST REFUSAL.
Landlord hereby grants to Tenant the rights to purchase and lease
Building C upon the terms and conditions set forth herein.
<PAGE>
(a) RIGHT OF FIRST REFUSAL (PURCHASE). Landlord agrees that in
the event it receives an offer (the "Purchase Offer") to purchase
Building C at any time during the term of this Lease, which the
Landlord intends to accept, or which the Landlord does accept, then the
Landlord shall give notice of such Purchase Offer, in the manner
hereafter provided, to the Tenant and shall submit with the notice a
copy of such Purchase Offer. The Purchase Offer must contain all of the
essential terms of sale sufficient to create a legally binding sale
contract. At the same time, the Landlord shall submit to the Tenant an
offer in the form of a purchase agreement (the "Tenant Agreement")
signed by the Landlord, as seller, and showing the Tenant, as buyer,
and containing the same terms, conditions and purchase price as the
Purchase Offer. (The notice of sale, the Purchase Offer, and the Tenant
Agreement are herein collectively referred to as the "Sale Notice".)
i) The Tenant shall be allowed ten (10) business days
following the receipt of the Sale Notice (the "First
Refusal Period") in which to agree to purchase
pursuant to the Tenant Agreement.
ii) The Tenant shall give notice to the Landlord of its
intent to purchase by executing the Tenant Agreement
and returning it to the Landlord, together with such
earnest money as may be specified in the Tenant
Agreement (consistent with the Purchase Offer) within
the First Refusal Period.
iii) In the event the Tenant does not give such notice
within the First Refusal Period, then Landlord may
sell Building C on the same terms as contained in the
Tenant Agreement for a period of one hundred twenty
(120) days after the date of expiration of the First
Refusal Period, and if such sale is consummated
within such period and is pursuant to a bona fide,
arms'-length contract, then Tenant's rights under
this Section 3 shall terminate without further act or
notice. If such sale is other than a bona fide,
arms'-length contract, then Tenant's rights under
this Section 3 shall continue notwithstanding such
sale.
iv) In the event Landlord does not sell Building C on the
terms contained in the Tenant Agreement within one
hundred twenty (120) days after the date of the
expiration of the First Refusal Period, then Tenant's
rights under this Agreement shall continue in full
force and effect.
(b) RIGHT OF FIRST REFUSAL (LEASE). Landlord agrees that in
the event it receives an offer (" Lease Offer") from any third party at
any time during the Term of this Lease, to lease Building C, or any
portion thereof, which the Landlord intends to accept, or which the
Landlord does accept, then the Landlord shall give notice of such Lease
Offer to the Tenant, in the manner hereafter provided. The Lease Offer
must contain all of the essential terms of lease sufficient to create a
legally binding lease contract. At the same time, the Landlord shall
submit to the
<PAGE>
Tenant an offer in the form of an amendment to this Lease ("Amendment
to Lease") signed by the Landlord, as lessor, reciting the amendment of
this Lease to include Building C as a part of the Premises, but as to
Building C containing the same economic terms and conditions as the
Lease Offer and Third Party Lease (the notice of lease, Lease Offer,
and the Tenant Lease are herein collectively referred to as the "Lease
Notice").
(1) The Tenant shall be allowed ten (10) business days
following the receipt of the Lease Notice (the "First
Refusal Period") in which to agree to lease Building
C, or any portion thereof, as hereinafter provided.
(2) The Tenant shall give notice to the Landlord of its
intent to lease Building C by executing the Tenant
Lease and returning it to the Landlord, together with
such lease deposits as may be specified in the Tenant
Lease (consistent with the Lease Offer), within the
First Refusal Period.
(3) In the event the Tenant does not give such notice
within the First Refusal Period, then Landlord shall
be free for a period of one hundred twenty (120) days
after the expiration of the First Refusal Period to
enter into the Third Party Lease on the same terms as
contained in the Tenant Lease (except for the use
clause, which shall be as contained in the Lease
Offer).
(4) In the event Landlord does not lease Building C as
provided in (3) above within one hundred twenty (120)
days after the date of the expiration of the First
Refusal Period, then Tenant's rights with respect to
the Lease Offer shall continue in full force and
effect and Landlord shall again follow the procedures
outlined above before executing a lease pursuant to
the Lease Offer.
(5) Tenant shall again have the right of first refusal
under this Section 4 as to any proposed lease
transaction subsequent to Landlord's execution of any
lease executed in compliance with the provisions of
this Section 28.
29. ENVIRONMENTAL.
(a) Definitions The following terms used in this Section are defined as
follows:
i) "Environmental Laws" is defined as any and all federal, state
and local laws, regulations, ordinances, codes, standards or
criteria, orders or decrees of any jurisdiction where the
Premises are located pertaining to the pollution of or
protection of the environment as now or at any time hereafter
in effect
<PAGE>
including but not limited to those related to the air, water,
noise, odor, pesticides, land, soil, hazardous or toxic
substances and wastes and specifically including, but not
limited to, the Comprehensive Environmental Response and
Liability Act ("CERCLA"), as amended by Superfund Amendments
and Reauthorization Act of 1986 ("SARA"); the Resource
Conservation and Recovery Act, as amended ("RCRA"); Clean Air
Act; Clean Water Act; and the Toxic Substances Control Act.
ii) "Regulated Substances" is defined as toxic, radioactive or
hazardous substances or wastes, pollutants or contaminants
including but not limited to asbestos, urea formaldehyde; the
group of organic compounds known as polychlorinated biphenyls;
petroleum products including gasoline, fuel oil, crude oil and
the various constituents of such products; and any substance
or material whose generation, storage, treatment, handling,
release or disposal is regulated by the Environmental Laws.
(b) Original Environmental Report. The Leased Premises has had
a Phase I Environmental Site Assessment (the "Original Environmental
Report"), dated August 23, 1994, a true and complete copy of which has
been furnished to Tenant.
(c) Landlord Compliance. If a Regulated Substance is found at
any time or times to exist in, on or under the Leased Premises (unless
introduced by Tenant or any of its agents, employees, contractors or
invitees), Landlord shall promptly comply with any reporting
requirements of any Environmental Laws and shall, at its sole cost and
expense, remove and dispose of such Regulated Substances to the extent
required by any Environmental Laws. All of the foregoing shall be
completed in accordance with any Environmental Laws and shall be
completed so as to minimize any interference with any business
operations by Tenant at the Leased Premises. Landlord will indemnify
and hold harmless Tenant from any losses, liabilities, damages, costs
or expenses (including reasonable attorneys' fees) which Tenant may
suffer or incur as a result of the presence or introduction into or
onto the Leased Premises or any part thereof of any underground storage
tanks (and any leakage or contamination from such tanks) or any
Regulated Substances, unless introduced by Tenant or any of its agents,
employees, contractors or invitees, or as a result of Landlord's
violation of any Environmental Law during the Term.
(d) Tenant Compliance. Tenant will conduct its business and
operations on the Leased Premises in compliance with all Environmental
Laws. In the event any Regulated Substance is brought or caused to be
brought into or onto the Leased Premises by Tenant or any of its
agents, employees, contractors or invitees, it shall be done in
compliance with Environmental Laws. Tenant will indemnify and hold
harmless Landlord from any losses, liabilities, damages, costs, or
expenses (including reasonable attorneys' fees) which Landlord may
suffer or incur as a result of the introduction into or onto the Leased
Premises of any Regulated Substance by Tenant
<PAGE>
or Tenant's subtenants, agents or contractors, or as a result of
Tenant's violation of any Environmental Law during the Term.
(e) Termination Environmental Report. At the termination of
the Lease (unless Tenant has elected to purchase the Leased Premises),
Tenant shall cause to be conducted a Phase I Environmental Site
Assessment (the "Termination Environmental Report") by a reputable
Wisconsin environmental engineer or consultant. Tenant shall remediate
any contamination caused by Regulated Substances due to Tenant's
occupancy of the Leased Premises.
30. WHO BOUND; AUTHORITY TO EXECUTE. All terms, covenants and
conditions hereof shall be binding upon the respective parties, their successors
and assigns. The corporate parties represent their boards of directors have
approved the execution of this Lease and that the respective officers who
executed the same have the power and authority to do so.
31. MEMORANDUM OF LEASE. Landlord and Tenant agree that neither shall
record this Lease; provided, however, that the parties hereto agree that each
will promptly after the commencement date of this Lease execute, acknowledge and
deliver a memorandum of lease, in recordable form, specifying the parties
hereto, the Premises, and the Term hereof, and reciting the existence of the
options to extend the term and to purchase contained herein. The Memorandum of
Lease shall be in substantially the form of Exhibit E attached hereto. This
Memorandum of Lease shall be recorded, and recording and like charges shall be
paid for by Tenant.
32. SECURITY DEPOSIT. Tenant shall at the commencement of the Term
deposit with Landlord the sum of $9,250 as a "Security Deposit" on the
understanding: (a) that the Security Deposit or any portion thereof may be
applied to the curing of any default that may exist, without prejudice to any
other remedy or remedies which the Landlord may have on account thereof; and (d)
that if Tenant shall faithfully perform all of the covenants and agreements in
this Lease contained on the part of Tenant to be performed, the Security
Deposit, or any then remaining balance thereof, shall be returned to Tenant,
without interest, within thirty (30) days after the expiration of the Original
Term. Landlord acknowledges that Landlord already holds the sum of $3,250 as a
deposit under the Original Lease, which shall be applied to the $9,250 due as a
Security Deposit, so that the actual amount due hereunder shall be $6,000; but
the total $9,250 Security Deposit shall be returned at the end of the Original
Term.
IN WITNESS WHEREOF, the undersigned parties have hereto executed this
Lease this 15th day of July, 1997.
<PAGE>
DURAND PROPERTIES
By /s/ Wally Haag
-------------------------------------
Its Owner
MERCURY WASTE SOLUTIONS, INC.
By /s/ Bradley J. Buscher
-------------------------------------
Its Chairman - CEO
<PAGE>
EXHIBIT A
(LEGAL DESCRIPTION OF THE LAND)
<PAGE>
PARCEL NO. 2
A tract of land in the Northeast 1/4 and the Southeast 1/4 of the
Northeast 1/4 of Section 36, Town 3 North, Range 20 East, in the Town of Dover,
County of Racine, State of Wisconsin, bounded and described as follows:
Commence at the East 1/4 corner of said Section; thence South 87
degrees 51 minutes 20 seconds West for a distance of 1329.80 feet, along the
South line of said 1/4 Section, to the point of beginning; thence North 01
degrees 38 minutes 05 seconds West for a distance of 1076.28 feet, along the
West line of the East 1/2 of said 1/4 Section, to a point; thence North 87
degrees 51 minutes 20 seconds West for a distance of 153.61 feet, to a point;
thence North 01 degrees 38 minutes 05 seconds West for a 620.88 feet, to a
point; thence South 89 degrees 53 minutes 38 seconds East for a distance of
361.56 feet, along the existing centerline of S.T.H. "11", to a point; thence
South 01 degrees 38 minutes 05 seconds East for a distance of 1682.95 feet, to a
point; thence South 87 degrees 51 minutes 20 seconds West for a distance of
515.02 feet, along the South line of said 1/4 Section, to the point of
beginning.
Reserving the Northerly 33.00 feet for public road purposes.
Contains 17.817 acres of land.
Tax ID #51-006-03-20-36-031-000
<PAGE>
EXHIBIT B
(SITE DRAWING)
<PAGE>
EXHIBIT C
(LANDLORD'S WORK)
BUILDING B
Construct a 80' wide X 125' long X 18' eve height building addition matching
existing construction. Included:
a. all concrete work
b. loading docks
c. insulated masonry 8'8" high on east and west walls
d. metal building, insulation, gutters and down spouts
e. interior and exterior lighting
f. overhead doors and service doors
g. heating system and 110 volt wiring at all building columns
h. gravel parking areas
Construct a 20' wide X 26' long X 10' insulated metal building between buildings
A & B.
Not included are special curbing and ramps for permitted storage area or any
interior walls.
The above work to be completed in conformance with the Drawings and
Specifications prepared by Korsunsky Krank Erickson Architects, Inc., issued
4/21/97 and Conditional Use Permit issued 4/23/97. Drawings and Specifications
depicting the improvements to Building B are C-1 - Site Plan, A-1 - Floor Plan,
and A-2 - Exterior Elevations.
BUILDING A
Remaining remodeling to building to be completed as follows:
a. change roof line on north end of building to match building B
b. add split face block to north and east walls to match
building B
c. metal siding and insulation on remaining sides of building
d. insulate interior of roof with 6" fiberglass WMP-10 or equal
to match building B
e. ROOF DECK INSULATION
Products: Owens Corning FLAME SPREAD 25 batt insulation or
equal with W-PSK (white
polypropylene-skrim-kraft) facing. Provide units
in width necessary to span existing on-center
joist spacing in either R-19 or R-30 thickness
necessary to completely fill joist depth.
Insulation shall comply with property
requirements of ASTM C665, Type II, Class A.
<PAGE>
Provide polypropylene tape to seal lap seam at
each joist sealing all gaps between lapped
facings to ensure continuous vapor barrier.
f. EXPOSED WOOD BOW TRUSS FINISHING
Products: Sherwin Williams or equal WALL AND WOOD PRIMER
and WATERBORNE ACRYLIC DRYFALL PAINT.
Installation: Pressure clean wood bow trusses and allow to dry
as required by paint manufacturer. Apply one (1)
coat primer and one (1) coat dry fall paint to
all truss surfaces.
<PAGE>
EXHIBIT D
(MEMORANDUM OF LEASE)
MEMORANDUM OF LEASE
THIS MEMORANDUM, dated as of this 28th day of July, 1997, is executed
and recorded by Wally Haag, dba Durand Properties, ("Landlord"), and Mercury
Waste Solutions, Inc., a Minnesota corporation ("Tenant"), for the purpose of
giving record notice of the existence of a lease affecting that certain real
property (the "Premises") located in the County of Racine, State of Wisconsin, a
portion of the land legally described on Exhibit A attached hereto and made a
part hereof, and improvements thereon. The portion of the land subject to the
Lease is depicted on a site drawing attached hereto as Exhibit B, and consists
of Buildings A, B and C and the easement areas shown on said Exhibit B. Building
A and B and the easement area comprise the Premises; Building C is subject to a
right of first refusal as further described herein.
The instrument referred to above which is the subject of this
Memorandum is a Lease (the "Lease"), dated June 1, 1997, whereby Landlord has
leased the Premises to Tenant for a period of ten (10) years commencing on June
1, 1997, and terminating on May 31, 2007.
The Lease grants to Tenant the option to lease the Premises for four
(4) additional period of five (5) years each.
The Lease further grants to Tenant the option to purchase the Premises
at its fair market value as of the end of the Original Term of 10 years or as of
the end of any Extended Term.
The Lease further grants to Tenant a right of first refusal to lease or
buy Building C.
This Memorandum is executed and is to be filed for record for the
purpose of giving notice of the existence of the Lease. Reference is made to the
Lease for the full description of the rights and duties of the parties thereto,
and this Memorandum shall in no way limit, expand or affect the terms and
conditions thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Memorandum as
of the 28th day of July, 1997.
/s/ Wally W. Haag
--------------------------------------
Wally Haag, dba Durand Properties
MERCURY WASTE SOLUTIONS, INC.
By /s/ Bradley J. Buscher
-----------------------------------
Its Chairman and CEO
-----------------------------------
STATE OF WISCONSIN )
) ss
COUNTY OF RACINE )
The foregoing instrument was acknowledged before me this 28th day of
July, 1997, by Wally Haag, dba Durand Properties.
/s/ Karen Badtke
--------------------------------------------
Notary Public
STATE OF _________ )
) ss
COUNTY OF ________ )
The foregoing instrument was acknowledged before me this 28th day of
July, 1997, by Brad J. Buscher, the Chairman/CEO of Mercury Waste Solutions,
Inc., a Minnesota corporation.
--------------------------------------------
Notary Public
<PAGE>
EXHIBIT A
(LEGAL DESCRIPTION)
<PAGE>
PARCEL NO. 2
A tract of land in the Northeast 1/4 and the Southeast 1/4 of the
Northeast 1/4 of Section 36, Town 3 North, Range 20 East, in the Town of Dover,
County of Racine, State of Wisconsin, bounded and described as follows:
Commence at the East 1/4 corner of said Section; thence South 87
degrees 51 minutes 20 seconds West for a distance of 1329.80 feet, along the
South line of said 1/4 Section, to the point of beginning; thence North 01
degrees 38 minutes 05 seconds West for a distance of 1076.28 feet, along the
West line of the East 1/2 of said 1/4 Section, to a point; thence North 87
degrees 51 minutes 20 seconds West for a distance of 153.61 feet, to a point;
thence North 01 degrees 38 minutes 05 seconds West for a 620.88 feet, to a
point; thence South 89 degrees 53 minutes 38 seconds East for a distance of
361.56 feet, along the existing centerline of S.T.H. "11", to a point; thence
South 01 degrees 38 minutes 05 seconds East for a distance of 1682.95 feet, to a
point; thence South 87 degrees 51 minutes 20 seconds West for a distance of
515.02 feet, along the South line of said 1/4 Section, to the point of
beginning.
Reserving the Northerly 33.00 feet for public road purposes.
Contains 17.817 acres of land.
Tax ID #51-006-03-20-36-031-000
<PAGE>
EXHIBIT B
(SITE DRAWING OF LEASED PREMISES)
INSTRUMENT DRAFTED BY:
Briggs and Morgan, P.A. (JEN)
2400 IDS Center
Minneapolis, MN 55402
EXHIBIT 11
MERCURY WASTE SOLUTIONS, INC.
COMPUTATION OF LOSS PER COMMON
AND COMMON EQUIVALENT SHARE
Nine Nine
Months Months
Ended Ended
September 30, September 30,
1997 1996
------------- -------------
Computation of weighted average number of common
shares outstanding and common stock equivalent
shares:
Common shares outstanding at the beginning of
the period 2,249,097 1,000,000
Weighted average number of shares issued during
the period 906,213 53,676
Common equivalent shares attributed to stock
options and warrant granted (A) 45,887 182,966
Common stock issued (B) 308,787 1,066,324
---------- ----------
Weighted average number of common and common
equivalent shares 3,509,984 2,302,966
========== ==========
Net Income (loss) $ (589,682) $ (945,284)
========== ==========
Income (loss) per common and equivalent shares $ (.17) $ (0.41)
========== ==========
(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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,350,766
<SECURITIES> 0
<RECEIVABLES> 706,123
<ALLOWANCES> 15,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,254,917
<PP&E> 1,380,607
<DEPRECIATION> 247,056
<TOTAL-ASSETS> 5,041,635
<CURRENT-LIABILITIES> 510,089
<BONDS> 0
0
0
<COMMON> 34,641
<OTHER-SE> 4,208,392
<TOTAL-LIABILITY-AND-EQUITY> 5,041,635
<SALES> 1,831,827
<TOTAL-REVENUES> 1,831,827
<CGS> 0
<TOTAL-COSTS> 906,259
<OTHER-EXPENSES> 1,551,677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,841
<INCOME-PRETAX> (632,682)
<INCOME-TAX> (43,000)
<INCOME-CONTINUING> (589,682)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (589,682)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
