SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934 (Fee Required) for the fiscal year ended September 30, 1997.
Commission File Number: 0-17963
(DEL) U. S. ENVIRONMENTAL, INC.
(Exact name of Registrant as specified in Charter)
Delaware 11-2906904
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
201 East Kennedy Blvd.
Suite 1900
Tampa, Florida 33602
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(Address of principal (Zip Code)
executive office)
630 Parkview Tower
First Avenue
King of Prussia, Pennsylvania 11520
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(Previous Address of principal (Previous Zip Code)
executive office)
Registrant's telephone number,
Including area code (813) 228-0285
(Previous telephone number) (610) 337-3945
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.0001 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES [ ] NO [ X ]
Check if there is no disclosure of delinquent filers in response to Item
402 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10_KSB or any amendment to this form. [ ]
1<PAGE>
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of September 30, 1997 was approximately $9,774,407 based on
the average bid and asked prices for such Common Stock as appearing on NASD
Electronic Bulletin Board under the symbol "USEV." This price does not
reflect inter-dealer markdowns, commissions, or actual sales.
The number of shares of Common Stock outstanding as of September 30, 1997
was 81,453,394.
Documents incorporated by reference: Various exhibits from 1933 Act and
1934 Act filings. See "Exhibits and Reports on Form 8-K."
FORWARD LOOKING STATEMENTS
Certain Statements included in this Annual Report are not based on
historical facts, but are forward looking statements. These statements can be
identified by the use of forward-looking terminology such as "believes,
"expects", "may", "will", "should", or "anticipates" or the negative thereof
or variations thereof or comparable terminology, or by discussions of
strategy. These statements reflect the Company's reasonable judgments with
respect to future events and are subject to risks and uncertainties that could
cause actual results to differ materially from those in the forward looking
statements. Such risks and uncertainties include, but are not limited to the
implementation and completion of an economically viable "vitrification" system
based on the Company's licensed "Melt All Electric Fusion Process, Plant and
Equipment" and the development marketing of additional systems. The company
must also generate additional financial resources to enable it to continue the
implementation of its commercial vitrification system under the current
license. Such additional resources may be generated through the sale of
additional equity securities, the sale of sublicenses, joint ventures or other
business transactions or alliances which would generate the resources
required. Other factors such as changes in business conditions and/or changes
in regulations and laws may also impact the outcome as it relates to forward
looking statements.
2<PAGE>
(DEL) U.S. ENVIRONMENTAL, INC.
Form 10-KSB
Fiscal Year Ended September 30, 1997
TABLE OF CONTENTS
Page No.
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PART I
Item 1. Description of Business 4
Item 2. Description of Property 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Common Equity and Related Stockholder 16
Matters
Item 6. Management's Discussion and Analysis or Plan of 17
Operation
Item 7. Financial Statements 19
Item 8. Changes In and Disagreements With Accountants on 19
Accounting and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control 20
Persons; Compliance With Section 16(a) of the Exchange Act
Item 10. Executive Compensation 22
Item 11. Security Ownership of Certain Beneficial Owners and 23
Management
Item 12. Certain Relationships and Related Transactions 23
Item 13. Exhibits and Reports on Form 8-K 27
3<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(A) BUSINESS DEVELOPMENT
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The Company (previously known as Windfall Capital Corporation)is a
development stage company with its principal activity being the marketing of a
proprietary, licensed solid and hazardous waste treatment technology for
future commercial application. The Company was incorporated in the State of
Delaware on February 18, 1988.
The Company became a Public Company by filing and registering with the
Securities and Exchange Commission under Form S-18, certain Units consisting
of one share of common stock and five redeemable common stock purchase
warrants. Its registration statement became effective on February 10, 1989,
closing was held in August, 1989. A total of 1,000,000 Units were sold at the
offering price of $.05 per Unit for gross total proceeds of $50,000.The net
total proceeds after deducting the various costs of the offering was
$40,200.
On August 28, 1989, Windfall Capital Corporation acquired all of the
outstanding common stock of U.S. Environmental, Inc., a Delaware Corporation,
which became a wholly owned subsidiary of Windfall Capital Corporation.
Pursuant to said Agreement, Windfall Capital Corporation amended its
Certificate of Incorporation to change its name to U.S. Environmental, Inc.
and the wholly owned subsidiary changed its name to U.S. Waste Conversion
International, Inc.
(DEL) U.S. Environmental, Inc. (hereinafter referred to as "USE" or
"The Registrant" or "The Company"), is an environmental services company
which, effective October 13,1989, acquired a twenty (20) year exclusive,
worldwide license of a proprietary "Solid Waste Melt-All Electric Fusion
Process and Plant Equipment" (the "Process") technology, developed by Geotech
Development Corporation ("Geotech"), an Ohio Corporation. The Process is an
adaptation of a technology previously utilized by Geotech in Europe and Japan
for induced electrical melting of minerals to create either a dense glass-rock
like material in the form of aggregate or block, or upon application of a
spinning process to produce ceramic and mineral wool fibers.
The Company has established a marketing program to provide integrated
services to industrial, commercial and public entities for processing ash/
residues of various types resulting from the combustion of "Municipal Solid
Waste" (MSW), biomass, coal and other fossil fuels, remediation of
contaminated soils and the permanent disposal of other wastes of concern by
utilizing Geotech's licensed melting technology to convert such wastes into
environmentally benign and beneficially reusable products.
The company intends to design, engineer, finance and construct
vitrification facilities either as owner/operator or as general contractor and
to market the end products to the public or private sector alike through its
own staff or by retaining the services of various experts in engineering,
industrial and commercial waste disposal as well as sales and marketing.
The company also intends to sell sublicenses to other entities and may
serve these sublicensees as Project Manager and/or Construction Manager as
well as providing program development, engineering and other support services.
4<PAGE>
The company and the sublicensees will be subject to all federal, state
and local environmental regulations in the United States and similar laws in
foreign countries.
(B) BUSINESS OF ISSUER
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Overview
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(DEL) U.S. Environmental, Inc., incorporated in Delaware, is a Florida
based company which intends to provide environmental engineered disposal,
remediation and operational services by use of "Vitrification" (the melting
and conversion of mineral waste streams) of combustion ash/residues and other
wastes of concern as listed by the U.S. Environmental Protection Agency
(USEPA).
USE owns the exclusive worldwide license to the proprietary "Melt-All
Electric Fusion Process™" developed by Geotech Development Corporation
which operates at elevated temperature, melting and vitrifying MSW combustion
ash/residue, contaminated soils, utility coal combustor fly ash/residue,
asbestos containing materials and other EPA listed industrial mineral waste
residues of concern into a rock-like, basaltic, durable and environmentally
sound products not unlike the rock produced from volcanic action.
The Company intends to offer its vitrification plant equipment and
operational services mainly to the public sector (federal and state
governments, counties, municipalities, etc.) as well as heavy industry in the
U.S. and internationally.
USE will provide an all-inclusive service by accepting its customers
waste stream for a fee (tipping fee) on a "Put or Pay" basis and converting
the waste into reusable, value added products. These products can be utilized
for road construction (curb stone, aggregate, retention walls, acoustical
walls etc.), general construction (mineral wool for insulation, wallboard,
ceiling tiles etc.), the prevention of shore erosion (block and other retainer
systems) or as intermediary materials and components for other products.
USE views its mission as providing communities and the private sector
with cost effective, alternative services by converting waste of concern
having no current use, into valuable, environmentally benign and beneficially
reusable products. The potential conversion of these waste materials will
avoid the necessity to landfill and thus avoid the potential financial and
environmental long-term liabilities of the communities and the private sector
alike.
Additionally, the permanence of vitrification of such waste eliminates
potential health risks arising from exposure to constituents considered
harmful. The vitreous glass-rock material is in compliance with the various
federal, state, and local laws regulating the public's exposure to such
substances.
5<PAGE>
Technology License
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Subsequent to the original agreement on December 2, 1988, as amended on
January 2, 1989, and other subsequent dates, effective October 13, 1989, as
amended and restated on October 20, 1989 and other and subsequent dates, the
Company obtained from Geotech a 20 (twenty) year worldwide license of rights
(renewable in successive 20 year periods), to develop, explore, market, sell,
lease, engineer, design, install, build, operate and maintain the proprietary
process known as the "Solid Waste Melt-All Electric Fusion Process and Plant
Equipment" (the "Process").
The license includes the right to sublicense the Process to others and to
utilize any improvements or enhancements to the Process made by Geotech during
the term of its license.
As consideration for the license, Geotech was issued 2,370,249 shares of
common stock of the Company (subsequently said stock was retransferred to
Geotech's five shareholders).
As additional consideration, the Company is required to pay Geotech a
license fee of 5% of all process use fees received by the Company from
sublicensees; 5% of all output or by-product income received by the Company
from sublicensees, which results from the processing of any recovered
material; and a technology fee of 5% of any technology fees received by the
Company from any sublicensees for the construction by such third party of a
plant; and if the Company uses Geotech for architecture or engineering
services, then the Company would pay Geotech 4% of the construction costs of
the plant, but in no event more than $200,000 per site.
In addition to the grant of rights and in conjunction with its ownership
interests, the Company has the right to utilize, with not less than ten days
prior notice, the "Research and Demonstration Plant" located in Niagara Falls,
New York. The commercial size "Research and Demonstration Plant", while fully
operational, is used only as a demonstration model for the use of the Process
in treating solid waste, and is operated only as a marketing tool to
demonstrate to potential sublicensees, joint venture partners and prospective
customers of the process, the use of the Process. Geotech has also warranted
to the Company that the waste conversion and the by-products thereof, will be
neither hazardous nor toxic and has agreed to indemnify the Company and its
sublicensees for claims or losses arising from use of the Process of its
products or by-products.
On October 18, 1991, the Company entered into a Third Amendment to the
License Agreement that allows Geotech on a non-exclusive basis to build plants
utilizing the Process as owner/operator or joint venture partner for their own
account in a specified territory as long as Geotech does not compete on any
project USE is working on or solicit any prospective customers of USE that
have been identified as such by the Company to Geotech in written form. Under
the terms of this Amendment, Geotech would be obligated to pay the Company a
license fee, as well as a royalty of 5% of the material that is actually
processed through the Plant ("throughput").
Effective September 30, 1995, the company and Geotech entered into a
Forth Amendment by which Geotech has agreed that any order or contract it
receives to furnish equipment for an environmental related mineral melting and
conversion plant installation will be turned over to or offered to USE on a
right of first refusal basis for a period of twenty (20) working days.
6<PAGE>
Technology
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To date, six melting systems have been supplied by Geotech at locations
in Europe and Japan utilizing the Geotech process. In most instances, the
feedstock utilized is high-grade minerals material rather than combustion
ash/residue which is melted and spun into ceramic fibers (high temperature
insulation) for use in the refractory industry. These high-grade mineral
applications are not covered by the Company's license agreement. Two of the
systems were built for research and development and are located in Wiesbaden,
Germany (1983) and Nagoya, Japan (1992). The four systems that are producing
insulation fibers are located in Teplice, Czech Republic (1981), Lorette,
France (1984), Altella (Potenza), Italy (1985) and Nagano, Japan (1986).
USE believes that the primary advantages of the Company's Process are as
follows: (1) the ability to render inert inorganic solid waste, such as MSW
ash/residue, coal flyash etc.; (2) substantially reduce (60%-75%) the volume
of waste matter; (3) yield beneficially useful products, such as glass-rock
like blocks and mineral wool fibers; and (4) avoid the potential long-term
liability of landfill disposal.
The only materials introduced to the electric melting process are
granular inorganic materials to be converted. All of the electric power used
is consumed in producing the molten mass of the material introduced. The
molten mass, surrounded by the feedstock, is located immediately over the
tapping orifice and is drained as a continuous stream, which can be cast
either into blocks or granulated when rapidly quenched in a flume of cold
water. The only heat or energy that leaves the melting crucible is the heat
within the molten mass and the cooling water. By feeding the melting crucible
with granular inorganic material at the same rate as the molten mass is tapped
on a continuous basis, all of the energy is used very efficiently in the
conversion of the waste materials.
The Company's melting process with electrodes focused just above the
tapping orifice can develop temperatures of up to 5200°F. As the granular
feedstock of mineral, inorganic waste melts and flows into the tapping
orifice, it must first pass trough the highly turbulent arc zone at the
electrode's tips. This avoids possible stratification and instead provides a
very homogeneous molten stream resulting in high-density vitreous product
(approximately 185 lbs./cu.ft.). The collected molten mass is totally inert,
non-leachable and non-biodegradable.
Since only mineral, inorganic waste materials are introduced to the
electric melting process, there is no additional tonnage added to the mass
produced. If there are any organics present in the material, there will be a
reduction by that amount since the organics will be consumed in the melting
process. Although the tonnage of material tapped may be equal to the tonnage
of material fed into the melting crucible, there is a dramatic volumetric
reduction. The high-density vitrified products will usually be 1/4 to 1/3 the
volume that was originally fed into the melting crucible.
7<PAGE>
Business Strategy
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USE is advocating the "Merchant Plant" concept, whereby a third party
(either USE or an independent owner/operator) will finance, build, own and
operate a vitrification facility at their own cost in order to provide the
handling and conversion services of certain waste streams on behalf of the
waste generator. Such third party financing and ownership allows the Company's
prospective customers to adopt USE's technology at no capital investment or
any other additional disposal costs to them other than the above mentioned
tipping fee. Depending on the economics of the individual projects USE's
services can be competitive in price with current landfill disposal methods.
Third party financing for the implementation of a vitrification plant is
paramount, especially for the majority of public sector projects. The public
sector, which in the last two decades has been faced with a growing need for
permanent, environmentally benign and cost effective disposal of its ever
expanding mountain of waste, is not always in a position to assume additional
financial expenditures and indebtedness to implement such a facility.
Additionally, public entities are not in the business of marketing products
but are trying to provide the most efficient and cost effective waste disposal
services to its citizens.
The vitrification of the inorganic residues produces road construction
materials of better quality and longer durability at an equal if not lower
price than conventional materials. The vitrified products can be purchased by
the public works departments at all levels of government. Such entities are
likely to achieve a direct long-term reduction of cost by defraying some of
the expenditure involved in road maintenance as a result of having to replace
conventional materials more frequently.
Additionally, vitrification offers the communities as well as the private
sector a permanent solution to their potential environmental and financial
long-term liabilities by providing a viable alternative to the disposal of
certain waste of concern into landfills, and assist the waste generators in
limiting their "Cradle to Grave" liability. This disposal method should also
eliminate the cost and the necessity of having to monitor landfills for
leachate (leachate, is the term used for liquids permeating through the
landfill, carrying varying concentrations of chemical constituents and their
reaction products) from the waste in the landfill which may enter the
groundwater aquifer and in some cases surface water conduits outside the
landfill for thirty years after their closure.
Management can also derive revenue from its rights to the Process through
the following methods:
8<PAGE>
(1) Sale by the Company directly or through the use of sales agents of the
right to use "the Process." Potential sublicensees may include:
municipalities, corporations, asbestos abatement contractors, landfill owners,
owners of Waste-to-Energy (WTE) and other Resource Recovery facilities, waste
generators, environmental cleanup companies, Superfund site owners/agents,
governmental agencies, power utilities and waste removal companies; (2) sale
by the Company of the territorial right to use "the Process" to entities
through License Agreements (state, county, etc.); (3) sale by the Company of
the right to use "the Process" to joint ventures by and between the Company
and third parties; (4) lease of "the Process" to customers or users, whereby
the Company and/or others are the owner and/or plant operators.
Marketing and Sales
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The primary targeted initial customers are entities responsible and
liable for the disposal of the following solid waste material:
(1) Municipal Solid Waste ("MSW") combustion ash/residue, (2) flyash/residue
derived from coal fired electric generating plants, (3) asbestos containing
materials ("ACM"), (4) soils contaminated with volatile metals, and (5) other
ash/residue derived from the combustion of mixed waste.
The Company recommends that plants utilizing the Process should be a
minimum of 100-200 tons per day capacity for combustion ash/residue. For
increased capacity the design of these plants is modular in nature and
additional processing tonnage can be added in parallel increments of 100 tons
per day (tpd).
The Company has developed a substantial database of potential public
entity customers which own, financially guarantee and/or operate WTE
facilities of various types in the U.S. There are currently 112 such
facilities operating throughout the U.S. generating approximately 7 million
tons of combustion ash/residue per annum of which approximately 6.5 million
tons are discarded into regulated landfills. A significant number of public
entities are currently evaluating alternative disposal methods as well as
refinement technologies for the beneficiation of MSW combustion ash/residue.
Another important sector of targeted markets is the fossil-fueled power
generation facilities. It is estimated that approximately 59 million tons of
coal flyash and about 4 million tons of oil ash are generated annually in the
U.S. About 28% of the coal flyash is used commercially in construction as
cement and concrete additives. The remaining 42.5 million tons are disposed
into landfills.
In addition, test runs at USE's demonstration facility in Niagara Falls,
NY, have shown that the melting system is ideally suited for the remediation
of contaminated soils as part of cleanup programs of designated "Superfund"
sites.
Other emerging markets for the application of the Company's technology,
would be the hot purged residuals from energy generating facilities such as
fluidized bed systems combusting biomass, mixed fossil fuels and other
combustible waste materials which produce vast quantities of ash/residue. It
is estimated that 80 such plants are already in operation throughout the U.S.
Other potential customers are asbestos abatement contractors, waste
generators, environmental cleanup companies and waste disposal firms.
9<PAGE>
The Company intends to initiate contact with these concerns through
referrals, cold calls, advertising, mailings, personal visits and attending
appropriate industry conferences, and by utilizing commissioned sales agents.
The Company intends that the basic sales approach should include:
1. Introduction to the Process and its advantages, which include cost
effectiveness, conversion to inert salable products, detoxification, reduction
in volume and recovery of marketable products as well as the elimination of
the need for conventional landfill disposal and its inherent "Cradle to Grave"
and long-term environmental and financial liability.
2. Economic feasibility studies performed by Company staff and its
affiliate Swiss American Capital Management, Inc. (SwissAm).
3. Commercial vitrification test and demonstration runs to be conducted
by Company officers, employees and affiliated entities at the Niagara Falls
demonstration facility with solid, inorganic, non-combustible waste material
supplied by the customer. The customer or the Company depending on the nature
of the project will cover the cost of demonstrations.
Construction/Operations
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Upon securing a commitment to purchase or build a plant, the Company
intends to serve as overall project coordinator either as owner/operator for
its own account or as representative of a third party, i.e. sublicensee, joint
venture partner, purchaser etc.. The company will be assisting in locating and
identifying an appropriate constructor (design/builder), and
operator/maintenance organization.
Wherever applicable, the Company intends to enter into joint ventures
with current operators of either WTE facilities, fossil fueled power
generation plants and operators of other residue generating facilities in
order to contract for the actual operation of the vitrification facility.
Financing
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There are three principal means to finance plant construction: (1) the
user provides capital; (2) the Company arranges off balance sheet financing
for its own account or on behalf of customers through Special Purpose Vehicles
(SPV) based on long-term, turn-key service contracts with the waste generator,
long term supply contracts, and syndication; (3) joint ownership of plants
between the Company and other entities.
The choice of the financing of plant construction to use the Process will
be negotiated separately with each customer. The Company will emphasize the
implementation of "Merchant Plants" as described above where it will either
own the plants through a SPV (wholly owned subsidiary) or will have a residual
interest in the overall service agreement between the waste generator and the
third party owner/operator. It is intended that SwissAm will arrange funding
on behalf of third party customers as well as USE.
10<PAGE>
Competition
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Increasing public and governmental attention to MSW and Refuse Derived
Fuel (RDF) combustion ash residue; mass burn combustion ash residue; biomass
and coal flyash residue and environmental liability/regulatory compliance
issues have stimulated research efforts and exploration of alternatives to
landfill disposal. Many companies, research centers and universities are
actively pursuing research and development activities, for the detoxification,
conversion and reduction of solid waste to non-toxic, value added and
beneficially reusable products.
There are at least six technologies with variations on each being offered
by more than 40 systems suppliers and developers worldwide. Some utilize
electric energy, while others use oil, gas or coal/coke to supply the heat to
melt ash/residue and other inorganic waste streams. This great interest by
industry reflects the recognition of the worldwide need for a permanent
solution and beneficial reuse of certain waste streams in lieu of interim
ground burial. It is widely recognized that the permanent conversion and
utilization of waste substances is the ideal solution to the owner disposal
related liability issues.
Management believes that the "Melt-All Cold-Top Process" is capable of
addressing these problems in a technologically superior and cost effective
manner. USE does not consider itself to be just another "systems supplier" but
a provider of comprehensive services from waste processing to marketing and
sales of products as owner, co-owner, joint venture partner or operator of the
individual vitrification facilities.
While no attempt has been made to assess the potential impact of all of
these competitors and alternative technologies to U.S. Environmental's
efforts, the major elements of known potentially competitive systems and
methods are profiled below:
I. Mineral Electrode Conversion Process
Management is presently aware of three insulating material supply
companies in the United States operating their own proprietary design of
electrode melting furnaces, using select mineral feedstock which is processed
exclusively for the production of high-grade, high temperature ceramic fibers
which are utilized primarily in the refractory industry.
The Company believes that none of these companies have currently adapted
or intend to market their furnaces for melting waste. However, such electrode
melting processes may be adapted for such purposes, provided considerable
plant modification and equipment replacements are undertaken and new materials
are employed at potentially considerable cost and time.
The production rate for high-grade ceramics for utilization in the
refractory industry is a low production activity (less than ten tons per day)
while the treatment of mineral waste materials of heterogeneous composition
requires high volume production (from 100 to 600 tons per day).
11<PAGE>
II. Ash/Residue Solidification/Fixation Processes
Studies have shown that in some specific cases, MSW combustor ash residue
which is presently disposed of in regulated landfills, may leach toxic heavy
metals, primarily cadmium and lead, and at levels that potentially could
contaminate the groundwater and thereby endanger human health and the
environment.
Various fixation technologies under development are designed to reduce
the toxicity and mobility of the leachate from these combustor ash residues
with the expectation to recover the treated material for resale. USE believes
that to date there are few if any commercial and cost effective production
plants in full-scale operation treating ash/residue and thereby completely
avoiding landfill disposal. USE's management has not encountered any
vitrification, fusion or thermal processes that is as cost effective as the
Company's licensed melting process.
Waste solidification, although not comparable to the Company's electric
melting technology, is a physical and chemical engineered process in which the
beneficial results of hazardous waste treatment are obtained primarily through
the production of a monolithic product that has some structural integrity. The
MSW ash/residue, both flyash and bottom ashes are blended together. The
wastes' contaminants do not necessarily interact chemically with any added
solidification agents (lime-silica, pozzalan, portland cement, kiln dust),
instead they are mechanically locked (encapsulated) within the solidified
matrix when mixed with water. The recovered material, when hardened, is used
as substitute concrete which may be used selectively for paving.
The major difference between the Company's technology and the
solidification process are twofold. First, the significant quantity of
additives required for waste solidification increases the volume of the final
product while the Company's technology produces a substantial decrease in
volume of more than 50%. Secondly, the Company's process produces permanent
absorption of the heavy metals which eliminates the leaching of substances of
environmental concern.
Government Regulations
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Solid Waste Disposal Regulation:
Federal, state and local environmental laws govern discharges of
pollutants to air and water and the transportation, storage, treatment and
disposal of solid waste.
These laws (1) establish standards governing most aspects of the scope
and operation of the Company's electric melting facilities and (2) often
require an array of regulatory permits before these facilities can be
constructed, modified or operated. The efforts to obtain such permits can be
time consuming and expensive and often can cause delays, including delays
caused by third party appeals challenging permit issuance.
Ideally, any vitrification facility would be integrated within the plant
producing the ash/residue to be processed. The principal siting thrust of
USE's management, is to locate the Company's vitrification facility including
the furnace feedstock preparation, storage and retrieval system within the
confines of the combustion plant, preferably contiguous with the building
housing the ash/residue handling and/or the ash/residue refinement system.
12<PAGE>
Such an ideal location of the vitrification facility would lead to
superior integrated control of the total operation; simplify material
(ash/residue) handling; prompt greater automation; reduces maneuvering space
and usage of vehicles; provide better control of possible fugitive emissions;
allow common disposal of residuals that can not be processed or recovered;
more readily permit direct supply of power and integration of other utilities
and environmental control systems.
Additionally, by situating the vitrification facility within the
combustion plant and depending on the existing permits under which the
existing plant is operated, the permitting requirements and the application
process might be substantially reduced resulting in considerably lower initial
project expenditures which generally have to be born up front.
Some of the environmental laws that the Company must abide by are the
USEPA's "Clean Air Act and Clean Water Act" and their state equivalents which
govern discharges of pollutants to air as well as the "Resource Conservation
and Recovery Act" of 1976, as amended (RCRA) comprehensively governing the
transportation, storage, treatment and disposal of solid waste. The
"Comprehensive Environmental Response, Compensation and Liability Act" of
1980, as amended (CERCLA/Superfund) make the Company potentially liable for
environmental contamination of land associated with its activities or
properties.
Pending Legislation
- -------------------
Recent and proposed federal legislation could benefit the utilization of
the Company's electric melting facilities and increase the waste generators
awareness of alternative and more beneficial disposal methods of ash/residue
than landfill disposal.
Current Projects
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New Jersey Department of Environmental Protection (NJDEP)
- ---------------------------------------------------------
On February 1 and March 11, 1997, Geotech, on behalf of the New Jersey
Institute of Technology (NJIT), under contract to the NJDEP, conducted a test
run for the melting and conversion of contaminated soil at the demonstration
facility in Niagara Falls, NY. Several tons of soil contaminated with
hexavalent chrome from two sites in New Jersey, representing residue from two
types of chromate-ore processing, have been successfully processed with the
Company's licensed technology and converted to inert, amorphous glass block
and aggregate.
The sites, from which the contaminated soils were obtained, had been
selected by the NJDEP as part of an ongoing program to clean up over 150
hexavalent-chromium-contaminated sites throughout the state. The test run was
performed in association with the USEPA's "Superfund Innovative Technology
Evaluation" (SITE) program. The test run procedures and some preliminary
findings were documented by the USEPA in their "Demonstration Bulletin" in
August of 1997 and a final report was expected to be published by the end of
the year.
Town of Hempstead, Long Island, New York
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13<PAGE>
In May of 1996, USE responded to a "Request for Proposal" (RFP) by the
Town of Hempstead, Long Island, NY, in which the town was inviting vendors to
submit proposals for the "Beneficial Reuse and Management" of combustion
ash/residue from the American Ref-Fuel Waste-to-Energy (WTE) 2,500 tpd plant
at Westbury, Hempstead.
According to the RFP's tentative schedule, the town was due to award a
contract to the selected bidder on August 22, 1996, or within 30 days after
completing its evaluation process.
After several extensions of its own deadline and before the evaluation
process was completed, the Town of Hempstead was legally challenged by the
Town of Brookhaven as to whether Hempstead has the right to end an existing
"Inter Municipal Agreement" (IMA), commonly known as the "Ash for Trash"
agreement.
It is management's understanding, that subsequent to the legal
challenge, the case was submitted to an independent arbitrator and a potential
settlement of the dispute is still being negotiated.
Town of Babylon, Long Island, New York
- --------------------------------------
The Town of Babylon, Long Island, NY, owns a Waste-to-Energy facility
with a capacity of handling up to 750 ton of MSW a day which produces
approximately 200 tons of combustion ash/residue a day. Additionally, the town
is under contract with other municipalities on the island to receive another
400 tons of combustion ash/residue from other WTE facilities in its landfill.
In March of 1997, SwissAm submitted an economical proposal to the town
for the implementation of a vitrification system that is initially capable of
converting 400 tpd of combustion ash/residue into value added products.
The planned vitrification facility would allow the town to preserve
capacity within its landfill and simultaneously avoid having to dispose of its
own ash/residue. The additional capacity will allow the town to prolong the
economical life span of the landfill.
Babylon has officially expressed its favorable consideration of the
project in a letter of interest and during a follow-up meeting at the end of
October 1997, several issues were identified which need to be resolved to the
satisfaction of all parties involved in order to move the project forward.
The Company intends to conduct a test run utilizing Babylon ash/residue
at the beginning of 1998 in order to provide the regulatory authorities with
new data and to produce an array of different end products.
Management's expects, that such new data will allow the company to obtain
a supplement to its existing "Beneficial Use Determination" (BUD) from the New
York State Department of Environmental Conservation (NYDEC) allowing it to
market within the State of New York a wider range of products made from
converted WTE combustion ash/residue.
14<PAGE>
ITEM 2. PROPERTIES
The Company offices are currently located in 5,000 square feet of leased
office space in a class "A" office building in Tampa, FL. The space is leased
on a month to month basis and furnished to the Company under the Management
Services Agreement with Swiss American Capital Management, Inc.
The Company has a three year prepaid lease on the building which houses
the commercial size demonstration facility located at 201 13th Street, Niagara
Falls, New York.
ITEM 3. LEGAL PROCEEDINGS
The Company is plaintiff in a pending litigation identified as (DEL)
U.S. Environmental, Inc. v. Geotech Development Corporation (Geotech) and
Thomas B. West and Thomas R. Tate and Thomas W. West and Philomena A.
Dietrich, Civil Action 97-6339, in the United States District Court for the
Eastern District of Pennsylvania.
The Company seeks adjudication with respect to whether Geotech has a
partial ownership interest in the Niagara Falls demonstration facility, the
validity of certain cash and stock payments to certain former controlling
persons of the company between 1990 and 1997 and certain infringements of
various articles of the "Technology License Agreement" of October 13, 1989 and
its subsequent amendments.
The litigation is currently in a state of discovery and negotiations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
15<PAGE>
PART II
ITEM 5. MARKET COMMON EQUITY AND RELATED STOCKHOLDER HOLDER MATTERS
Common Stock
- ------------
The Company has been advised that there were at least three market makers
trading the Company's common stock in the Over-The-Counter (OTC) market. After
July 1990, the quotes were determined from the NASDAQ Electronic Bulletin
Board under symbol "USEV." Such quotes reflect inter-dealer prices without
retail markup, markdown or commission and are not necessarily representative
of actual transactions and of the true value of the common stock.
The following high and low bid quotes were obtained from the electronic
"Bloomberg Financial Information System".
Low Bid High Bid
------- --------
1995
- ----
4th Quarter $0.04 $0.13
1996
- ----
1st Quarter $0.08 $0.17
2nd Quarter $0.07 $0.10
3rd Quarter $0.07 $0.20
4th Quarter $0.07 $0.14
1997
- ----
1st Quarter $0.05 $0.10
2nd Quarter $0.02 $0.05
3rd Quarter $0.125 $0.03
4th Quarter $0.03125 $0.14
Shareholders
- ------------
As of September 30, 1997, the Company had 1488 shareholders of record of
its Common Stock.
Dividend Policy
- ---------------
The Company has never declared a dividend and does not intend to pay cash
dividends on its common stock in the foreseeable future. The Company intends
to follow a policy of retaining earnings, if any, to finance the development
and expansion of its business.
Transfer Agent
- --------------
American Stock Transfer & Trust Company of New York, NY is acting as the
Company's Transfer Agent.
16<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
------------------------------------------------------------
(A) General
-------
The Company has had significant operating losses since inception resulting
in an accumulated deficit of approximately $4,600,000.
The previous management's strategies of marketing the Company's licensed
technology, foremost as a vendor of vitrification systems and as a provider of
limited operational and support services, could have resulted in substantial
additional losses due to the lack of appropriate funding for the adaptation
and implementation of the proprietary technology by its prospective customers
as well as the limited financial incentives and benefits for the same.
Since the change in management control of the Company on April 18, 1997,
the new management has been actively promoting "turnkey" solutions in the form
of "Merchant Plants". Such Merchant Plants offer the Company's prospective
customers a range of comprehensive environmental and waste treatment services
including the appropriate funding for such projects.
This present strategy anticipates a more systematic introduction of the
Company's technology and its commercial application providing its customers
the necessary financial benefits and incentives to implement the technology.
FORWARD LOOKING PLAN OF OPERATIONS
Although the Company has not yet generated sufficient revenues from its
operations to be profitable, management anticipates that it's new strategy of
marketing "Merchant Plants will yield profitable results and could lead to the
implementation of its first vitrification system for a municipal client in the
U.S. if appropriate funding can be secured.
The additional working capital will be used for the further development
of the Company's marketing efforts, improvement of its current technology and
to continue its current projects.
Some additional funds will also be needed for future test runs to comply
with implementation protocols such as permitting, environmental impact
studies, Beneficial Use Determinations (BUD etc. which are set forth by
federal, state and local regulatory authorities. Particularly at state and
local government level, such implementation protocols can vary significantly
which potentially will require multiple test runs for projects in different
regions.
For certain end products, new markets will have to be established which
will require adequate funding for research, marketing and to establish sales
support services.
(B) Liquidity and Capital Resources
-------------------------------
Operating Activities
- --------------------
The Company's cash position at fiscal year end September 30, 1997,
decreased to $18,179 from $351,713 at year end September 30, 1996. The
reduction in cash can be attributed to the increase in operating expenses.
This increase is due to the change in management's strategy to aggressively
market turn key solutions to municipal and other public entities as opposed to
previous expenditures on research and development directed toward systems and
equipment development.
17<PAGE>
Investment Activities
- ---------------------
Additionally, on November 22, 1996, the Company expended $250,000 for the
acquisition of the demonstration facility at Niagara Falls, NY, as result of
the bankruptcy proceedings against the previous owners Energy Fibers
International Corporation.
Financing Activities
- --------------------
The Company's primary sources of funds to date have been proceeds from
the sales of its securities, nominal interest income on such proceeds,
convertible debenture loans, loans from affiliated and non-affiliated third
parties, and from customer demonstration and research runs at the commercial
sized demonstration facility in Niagara Falls, NY.
The operating and investment activities for fiscal year ended September
30, 1997 were financed through the issuance of Company common stock which
raised a total of $476,000.
In the opinion of management, the Company does not have sufficient
working capital to be able to implement its current "Merchant Plant"
philosophy unless it is able to raise the necessary funds during fiscal year
1997/1998. Management is seeking capital from the sale of equity by means of
private placements or other equity related private financing such as fixed
income debentures with equity warrants attached and/or convertible notes,
bridge loans and other borrowings.
(C) Results of Operations
---------------------
SELECTED FINANCIAL DATA FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
The following presents selected financial information of the Company as
of and for the periods ended September 30, 1997, September 30, 1996, and
September 30, 1995. The information set below is qualified by, and should be
read in conjunction with, the consolidated statements and related notes in
their entirety.
Operations Data Years ended September 30, 1997 1996 1995
---- ---- ----
Revenue from operations $ 5,000 $95,000 $150,000
Net development stage expenses 708,591 467,778 68,542
Net loss (1,371,188) (490,233) (68,542)
Earnings/(Net loss per share) (0.24) (0.14) (0.002)
Balance Sheet Data Years ended September 30, 1997 1996 1995
---- ---- ----
Current assets $ 34,846 $ 357,213 $ 11,419
Total assets 1,518,785 2,566,747 2,408,525
Current Liabilities 260,602 611,043 558,278
Long term liabilities 167,127 148,000 154,000
Shareholders' equity $1,091,056 $1,955,704 $1,805,247
Subsequent to the change in control and appointment of new management
(see May 9, 1997 8-K filing), the appointment of Independent Accountant was
also changed to the firm of Pender Newkirk & Co. (see July 29, 1997 8-K
filing) Several transactions of significant economic impact where recorded
which materially affected both the Balance Sheet and Operating Statements.
18<PAGE>
Extraordinary gain on forgiveness of debt in the amount of $154,181
represents the elimination of accrued liability net of income tax for
management fees to Geotech Development Corporation. The income tax benefit in
the amount of $98,600 represents the current portion of losses carried forward
necessary to offset the tax liability generated. (see Notes to Consolidated
Financial Statements #8)
The Company continues to carry substantial income tax benefit in the
amount of $4,637,900 as loss carryforwards. (See Consolidated Financial
Statements note #8)
A significant change in the Company's balance sheet is represented in the
addition of the carrying value of the Pilot Plant at $250,000. This amount
represents the amount paid for the asset as part of the settlement agreement
on November 22, 1996. (see Notes to Consolidated Financial Statements note #4)
The lease on the building which houses the Pilot Plant is owned by the
Company. Prepaid rent on this lease is accounted for in the Consolidated
Financial Statement Balance Sheet as both a current asset and as other assets
representing the long term portion. The rent is prepaid to November 22, 1999
and represents a value of $36,252.
The substantial increase in net loss is primarily due to changes in
accounting policies implemented by management. (see Notes to Consolidated
Financial Statements note #2)
Interest expense in the amount of $122,341 represents previously
unrecorded accrued interest on outstanding notes payable. The accrued
interest and part of the principal balance was forgiven in lieu of shares
authorized to Maria Sepe and Ernest Micciche.(see Consolidated Financial
Statements Balance Sheet - Stock payable)
Loss on impairment of assets in the amount of $793,770 represents the
realization of the write off of assets for patents. (see Notes to Consolidated
Financial Statements note #2 and #5). These two items account for the majority
increase in net loss.
The Company's net development stage expenses for 1996 were $467,778 which
includes $187,589 of depreciation as compared to the Company's net development
stage expenses for 1997 which were $708,591 which includes $201,721 of
depreciation. Aside from the increase in non-cash depreciation expense, the
majority increase in development stage expenses can be attributed to costs
associated with new management's aggressive Marketing efforts which include
the design of a new logo, development of point of sale literature and
brochures, third party marketing material printing costs and numerous
presentations to municipalities and regulatory agencies in the states of New
York, New Jersey, Pennsylvania and Florida.
Research and development expenses declined from $112,512 in 1996 to zero
or 1997 as the Company conducted no test runs.
Revenues from demonstration fees in 1996 were $95,000 as compared to
$5,000 in 1997. The fees generated in 1997 as a result of the use of the Pilot
Plant by Geotech were not realized and were subsequently deemed not
collectable and charged off.
Inflation has not proven to be a factor in the Company's business since
its inception and is not expected to have a material impact on the Company's
business in the foreseeable future.
19<PAGE>
ITEM 7. FINANCIAL STATEMENTS
See annexed financial statements
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Subsequent to the relocation of the Company's main corporate offices to Tampa,
Florida, on July 29, 1997, the Board of Directors recommended and approved the
dismissal of its principal accountant, Stan A. Metter, CPA, and to engage
Pender Newkirk & Co., a local firm (Incorporated by reference on Form 8-K
filed on July 29, 1997, SEC File No. 33-25969NY)
There were no disagreements on accounting and financial disclosure with the
Company's current principal accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The directors and executive officers of the Company during fiscal 1997
prior to April 18, 1997 were as follows:
Name Age Position With the Company
- ---- --- -------------------------
Thomas B. West * 67 Chief Executive Officer and
Director (Chairman of the Board)
Thomas R. Tate * 61 President and Director
Philomena Dietrich* 58 Secretary, Treasurer and
Chief Financial Officer
Karl G. Fassnacht* 46 Director
Karen von Dreusche* 41 Director
Jack B. Dietrich * 61 Director
Maurice Spatt* 48 Director
Thomas W. West* 42 Vice President Design Engineering,
Purchasing Manager
Max Schmid 38 Director
The above directors marked with an asterisk (*) have resigned either on
or before April 18, 1997 as part of the restructuring and re-capitalization of
the Company.
On April 18, 1997, Max Schmid, the sole remaining director of the
Company, appointed Thomas Dolan and Robert Lewis to the Board of Directors of
the Company in accordance with the Company's By-laws requiring a minimum of
three directors.
As of April 18, 1997, the directors and officers of the Company are as
follows:
Name Age Position with the Company
- ---- --- -------------------------
Max P. Schmid 38 President and Director (Chairman of the Board)
Thomas P. Dolan 44 Secretary, Director
Robert W. Lewis Jr. 43 Chief Financial Officer, Treasurer, Director
All directors hold office until the next annual meeting of stockholders
of the Company and thereafter until their successors are chosen and qualified.
All officers hold office at the selection and choice of the Board of Directors
of the Company.
20<PAGE>
MAX P. SCHMID, Chairman of the Board, President, is a native of
Switzerland and Italy. He graduated from Neue Sprach-und Handelschule, Basle,
Switzerland with a degree in Business Finance and Business Administration. Mr.
Schmid started his professional career in 1978 as a stock trader with Union
Bank of Switzerland (UBS). In 1982, Mr. Schmid was transferred to UBS
Securities, Ltd., London. During his 10 year stay in London, Mr. Schmid was
also engaged by Bank of America Intl., Ltd. and Credit Suisse First Boston
(CSFB) Ltd., where he was responsible for the syndication and trading of
equity, equity linked and fixed income securities new issues. In his capacity
as a member of the CSFB syndication team, Mr. Schmid participated in numerous
lead managements of international primary and secondary securities offerings.
Mr. Schmid is a direct representative of the majority shareholder Kilgarvan.
THOMAS P. DOLAN, Secretary, Mr. Dolan has over 16 years of experience in
investment banking and was employed with various responsibilities by
investment and commercial banks such as First Boston Corp., New York, and
Banque Nationale de Paris (BNP), London and Paris. His professional background
includes structured bond trading, structured proprietary risk arbitrage
trading, risk management, strategic investment management for internal trust
departments. Mr. Dolan has over 10 years of international experience overseas
and worked in major financial centers including, New York, London, Paris and
Chicago.
ROBERT W. LEWIS, Jr., Director, Chief Financial Officer and Treasurer, a
graduate of the Indiana University School of Business, began his career in the
Financial Services Industry as an Examiner for the Federal Deposit Insurance
Corporation (FDIC). Robert Lewis received his commission as an examiner from
the Board of Directors of the Federal Reserve in 1978, to conduct supervisory
examinations of commercial banks. Subsequent positions included Manufacturers
Financial Group as a Managing Associate of their Registered Investment
Advisory division as well as Equity Coordinator of their Broker Dealer
operation.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Based upon a review of Forms 3,4 and 5 and amendments thereto, the
company has ascertained that Kilgarvan Investment & Holding Company which
currently holds 51% of the outstanding shares of the Company common stock has
not filed the requisite disclosure forms.
21<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
(A) General
-------
During the fiscal years ended September 30, 1995-1997 the Company had no
employment contracts with employees or management. Members of the Board of
Directors were compensated for their efforts with shares of the Company's
common stock as outlined in the following table:
(b) Summary Compensation Table
<TABLE>
<C> <S> <S> <S> <S> <S> <S> <S> <S>
Long Term Compensation
Annual Compensation Awards Payouts
------------------- ----------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name Other Other Securities All
and Annual Annual Restricted Underlying LTIP Other
Principal Compen- Compen- Stock Options/SARs Payouts Compen-
Position Salary Bonus sation sation Award(s) (#) ($) sation
($) ($) ($) ($) ($) ($)
- --------- ------ ----- ------- ------- ---------- ------------ ------- -------
Thomas B. 1994/5 -0- -0- -0- 322,000 3,000 -0- -0-
West 1995/6 -0- -0- -0- 336,000 26,880 -0- -0-
CEO/ 1996/7 -0- -0- -0- 46,000 4,368 -0- -0-
Chairman
Max P. 1996/7 -0- -0- -0- 12,000 -0- -0- -0-
Schmid,
President
</TABLE>
(c) Option/SAR Grants Table - not applicable
(d) Aggregated Option/SAR Exercise and FY-End Options/SAR Values -
not applicable
(e) Long-Term Incentive Plan ("LTIP") Awards Table - not applicable
(f) Compensation of Directors
Company Directors did not receive any cash compensation for their
services during the fiscal years ending September 30, 1995-1997.
(1) Standard Arrangement
The members of the Board of Directors received 10,000 shares annually for
serving as directors and 12,000 shares for every attended meeting of the
board.
(g) Employment Contracts and Termination of employment and
Change-in-Control Arrangements
not applicable
(h) Report on Pricing of Options/SARs - not applicable
22<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth as of September 30, 1997 certain
information with regard to the record and beneficial ownership of the
company's Common Stock by (a) each shareholder owning of record or
beneficially 5% or more of the Company's Common Stock:
(a) Security Ownership of Certain Beneficial Owners
Title of Name and Address of Amount and Nature Percent of
Class Beneficial Owner Beneficial Owner Class
________ ___________________ _________________ __________
Common Kilgarvan Investment & 41,541,231 51.0%
Holding, Ltd.
4th Floor, Dollard House
Wellington Quay
Dublin 2
Ireland
(b) Securities Ownership of Management
Title of Name and Address of Amount and Nature Percent of
Class Beneficial Owner Beneficial Owner Class
________ ___________________ _________________ __________
Common Max Schmid 12,000 0.015%
60 Woodglen Court
Oldsmar, FL 34677
All officers and Directors as a group (3 persons) 0.015%
and old Directors (3 persons)
(c) Changes in Control
The information required by this item is incorporated in the company's
report on Form 8-K which was filed on July 7, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Geotech, Management and Service Fee Agreement
- ---------------------------------------------------------------------
Effective October 1, 1995, The Company and Geotech Development
Corporation, Ohio (Geotech) entered into a new "Management and Service Fee
Agreement" whereby the Company agreed to pay Geotech $10,000 per month for
providing personnel, management, office space, furniture, office equipment
etc. and other support services.
23<PAGE>
The Company also agreed to pay Geotech 10% (ten percent) of the gross
funds received including but not limited to sales and services, loans,
investor funds, private placement stock sales, and the issuance of convertible
debentures.
Placement fees of $4,250 were paid to Geotech relating to the exercise of
the conversion in the convertible note during August 1996. An additional
$50,000 was paid to Geotech relating to 6,333,746 shares sold in September
1996.
On September 30, 1996, the Company owed Geotech $257,548 for consulting
fees, other expenses, and monthly management fees as a result of the October
1, 1995 and previous similar agreements. On February 20 1997, Geotech agreed
to terminate the "Management and Service Fee Agreement". Geotech was paid
$170,000 for the period October 1, 1995 - February 28, 1997. All other fees
owed to Geotech were forgiven which resulted in an extraordinary gain of
$252,781.
It is the Company's understanding that Geotech is controlled and/or owned
by Thomas B. West, Tomas R Tate and Philomena A. Dietrich who were all members
of the Company's management and Board of Directors until February 20, 1997.
The Company has currently no affiliation with Geotech other than by the nature
of the "Technology License Agreement" as stipulated in this report under PART
1, ITEM 1 (B)(BUSINESS OF ISSUER)(Technology License).
Tully Construction, Joint Venture
- ---------------------------------
On June 4, 1996, the Company entered into a 50/50 joint venture
agreement with Tully Construction Co. (Tully) of Flushing, New York for the
purpose to jointly submit a proposal for the construction of a vitrification
facility in response to a "Request for Proposal" for "Ash Management Services"
by the Town of Hempstead, Long Island, New York.
Tully was granted options for a total of 10,000,000 shares the Company's
Common Stock at $0.125 (1/8) exercisable in increments of minimum 2,000,000
shares each on August 1, September 1, October 1, November 1, and December 1,
1996 respectively or at any time during the aforementioned period in
increments in excess of the minimum of 2,000,000 shares of Common Stock each.
Tully elected not to exercise these options and the options rights
subsequently expired on December 31, 1996.
The joint venture partner is not affiliated with the Company in any
manner other than by this joint venture agreement.
Kilgarvan Investment & Holding, Ltd., Stock Subscription Agreements
- -------------------------------------------------------------------
In September 1996, the Company entered into a three-phase stock purchase
agreement with Kilgarvan Investment & Holding, Ltd. (Kilgarvan), Dublin,
Ireland, an outside investor.
24<PAGE>
The Agreement committed Kilgarvan to a total stock purchase to equal
40.47% of the Company's fully diluted shares of Common Stock for an aggregate
amount of $4.0 million. The purchase was to take place in stages based on the
occurrence specified events and within certain periods of time.
The Agreement gave Kilgarvan also the option to purchase an additional
12,000,000 shares of Company Common Stock as part of a forth and final funding
at a share price that was not to exceed $2.00 per share and to give the
investor a 51% controlling stake of the Company's fully diluted voting stock.
The operating capital from the equity purchases by Kilgarvan was to be used to
expand the Company's efforts to further develop its marketing and sales effort
for the implementation of vitrification plants.
The initial purchase (Phase 1) of 6,333,746 shares of Common Stock was
for $500,000 giving Kilgarvan an 14.53% stake of the fully diluted equity
security of the Company. The company paid $60,000 in costs and issued 300,000
shares of Common Stock in connection with this purchase.
On April 17, 1997, due to disagreements between the Company's former
management, directors and Kilgarvan as to the Company's performance as
stipulated in the September 1996 stock purchase agreement as well as the usage
of proceeds of the initial funding, the Company terminated the existing
agreement prior to its completion of the second, third and optional forth
phase and replaced it with a new subscription agreement.
The new stock purchase agreement dated April 17, 1997, increased
Kilgarvan's interest to 51% of the fully diluted equity securities of the
Company. The company issued 30,447,394 shares of Company Common Stock for
$326,000.
The subscription agreement provides the investor with an anti-dilution
clause to retain its 51% stake on a fully diluted basis up to the point when
all 100 million authorized shares haven been issued. In September 1997,
additional 4,760,091 shares of Company Common Stock were issued to the
investor pursuant to this clause. Subsequent to fiscal year end September 30,
1997, the Company reserved and additional 1,144,898 shares to be issued in
accordance with the anti-dilution clause.
Commodity Trade, Ltd., Stock Subscription Agreement
- ---------------------------------------------------
In November of 1996 the Company pursuant to Regulation S issued 2,000,000
shares of Company Common Stock to Commodity Trade, Ltd., Gibraltar, a foreign
outside investor for $150,000. The proceeds of this transaction were allocated
towards the purchase of EFIC's interest in the demonstration facility at
Niagara Falls, New York as part of the bankruptcy proceedings against EFIC. As
part of the acquisition the Company also prepaid a three-year lease for the
exclusive use of the building housing the demonstration facility.
Basle Holdings, Ltd.
- --------------------
The Company issued 300,000 and 100,000 shares of Company Common Stock to
Basle Holdings, Ltd., Bermuda, a related company for the years ended September
30, 1996 and 1997 respectively. The company provided financial consulting
services and assisted the Company in obtaining working capital. These services
for which Basle Holdings received 400,000 shares as a finder's fee were valued
at $23,700 and $7,500 for the years ended September 30, 1996 and 1997
respectively.
25<PAGE>
Change in Management and Appointment of new Directors
- -----------------------------------------------------
As part of the restructuring and refinancing process at the beginning of
the reporting year ending September 30, 1997, the entire management and Board
of Directors with the exception of Max Schmid, a representative of Kilgarvan,
resigned on or before April 17, 1997.
Subsequently, two new members, Thomas P. Dolan and Robert W. Lewis, Jr.
were appointed to the Board of Directors and as executive officers of the
Company. Details and personal information regarding Mr. Schmid, Mr. Dolan and
Mr. Lewis can be found in Part III, ITEM 9 of this report.
Swiss American Capital Management, Inc., Financing Agreement
- ------------------------------------------------------------
On November 20, 1996, The Company entered into a "Financing Agreement"
with Swiss American Capital Management, Inc. (SwissAm) of Tampa, Florida, an
affiliated company.
Pursuant to the financing agreement, the Company grants SwissAm the right
of first refusal for any vitrification plant project requiring financing.
Prior to the Company submitting an offer, responding to an RFP or other bids
and offers for the development of a vitrification facility and the relating
service agreements, the Company will provide SwissAm with all relevant project
related information and allow SwissAm a 90-day period for evaluation as to
whether it is willing to undertake the project financing.
In the event that SwissAm accepts the terms and conditions of the offer,
RFP bid, tender etc., SwissAm shall have the right and the obligation to
finance the respective project. In exchange for financing, the Company assigns
all its interests in the project including the related service contracts and
other agreements to SwissAm, its Special Purpose Vehicle (SPV) or its assigns.
Should SwissAm not accept the Company's proposal during the 90-day
evaluation period, then company then has the right to explore alternative
financing options.
Upon successful financing of a vitrification project, the Company will
receive 40% of the project development contract value as down payment. The
remainder shall be made available to the company in increments of 10% of the
development contract value every 60 days thereafter. During the development
and construction phase of any vitrification facility, the Company shall
receive a management fee.
The Board of Directors of SwissAm and its executive officers, Mr. Max P.
Schmid, Chairman & CEO, Mr. Thomas P. Dolan, President and Director, and Mr.
Robert W. Lewis, Jr., CFO and Director, are the same as the Board of Directors
and the executive officers of the Company. The Company and SwissAm are
currently sharing office space at the same facilities in Tampa, FL.
26<PAGE>
Swiss American Capital Management, Inc., Management Agreement
- -------------------------------------------------------------
On April 18, 1997, the Company entered into a "Management Agreement" with
Swiss American Capital Management, Inc. (SwissAm). Under the terms of this
agreement, SwissAm is providing support for general management and operations
including budgeting, accounting and control systems, reporting, regulatory
compliance, sales and marketing efforts and provide specialized expertise
through its duly licensed and competent personnel.
SwissAm also provides the Company with office space and logistics such
as computers, communications equipment etc. The Company paid $254,649 in
management fees to this related company.
Louis & Maria Sepe, Ernie Micciche, Satisfaction of Debt
- --------------------------------------------------------
On September 29, 1997, in its efforts to reduce the company's long-term
liabilities, the Company was able to satisfy and/or to restructure some of its
outstanding debt with the creditors listed below as follows:
Ernie Micciche
--------------
In exchange for the original promissory note in the principal amount of
$16,646, due on June 17, 1992, and forgiveness of $15,981.46 in accrued
interest since the date of issuance, the Company issued 100,000 unrestricted
shares of Company Common Stock to the above creditor. The shares were valued
at $0.326 each.
Louis & Maria Sepe
------------------
Louis & Maria Sepe's original notes in the combined principal amount of
$66,187 were replaced with a new, non interest-baring note of $66,000. The new
principal amount is to be repaid over a period of 33 months at a rate of
$2,000 a month, commencing October 15, 1997.
In exchange for forgiveness of the accrued interest on the original notes
in the combined amount of $92,313, the Company issued 1,000,000 restricted
shares of Company Common Stock. The shares are restricted for a period of two
years from the date issuance and their voting rights have been assigned to the
Board of Directors of the Company. The shares have been valued at $0.093 each.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
DOCUMENTS FILED AS PART OF THIS REPORT
- --------------------------------------
Financial Information
See Index to Financial Statements on Page F-1
Financial Statement Schedules
Supplemental schedules are omitted because they are not required,
inapplicable or required information is shown in the financial
statements or notes thereto.
27<PAGE>
Exhibits
--------
3.1* Certificate of Incorporation of Company (Exhibit to Registrant's
Form S-18 Registration Statement, SEC File No. 33-95969NY)
3.2* Amended Certificate of Incorporation of Company (Exhibit to
Registrant's Form S-18 Registration statement, SEC File No.
33-95969NY)
3.3* By-Laws of the Company (Exhibit to Registrant's Form S-18
Registration Statement, SEC File No. 33-95969NY)
3.4* Acquisition Agreement between Windfall Capital Corp. and the
Company (Exhibit to Registrant's Form S-18 Registration Statement,
SEC File No. 33-95969NY)
10.1* Amended and Restated Technology License Agreement between the
Company and Geotech Development Corporation, et al, dated October
13, 1989 (Exhibit to Registrant's Form S-18 Registration Statement,
SEC File No. 33-95969NY)
10.2* First Supplement to Amended and Restated Technology License
Agreement between Company and Geotech Development Corporation, et
al, dated October 16, 1989 (Exhibit to Registrant's Form S-18
Registration Statement, SEC File No. 33-95969NY)
10.3* The Acquisition of U.S. Waste Conversion International, Inc.
(formerly Windfall Capital Corp.)(Incorporated by reference on Form
8-K filed on October 18, 1989)
10.4* Agreement of Sale between Registrant and Frank Franza regarding the
"Metal Separation Patent" (Incorporated by reference on Form 10-Q
for quarter ended March 31, 1990)
10.5* Purchase Agreement between the Registrant and Geotech Development
Corporation regarding Niagara Falls Demonstration Plant
Incorporated by reference on Form 8-K on May 31, 1990)
10.6* Second Supplement to "Amended and Restated License Agreement"
between the Registrant and Geotech Development Corporation dated
May 31, 1990 (Incorporated by reference on Form 8-K on May 31,
1990)
10.7* Asbestos Guard International License Agreement dated December 24,
1990 between the Registrant and Asbestos Guard International Joint
Venture (Incorporated by reference on Form 10-Q for quarter ended
December 31, 1990)
10.8* Carl Massara Agreement (Incorporated by reference on Form 10-Q for
quarter ended March 31, 1991)
10.9* Amendment to Purchase Agreement (Incorporated by reference on Form
10-Q for quarter ended June 30, 1991)
28<PAGE>
10.10* Third supplement to "Amended and Restated License Agreement"
between the Registrant and Geotech Development Corporation dated
October 18, 1991 (Incorporated by reference on Form 10-K for fiscal
year ended September 30, 1991)
10.11* Agreement dated December 9, 1991 between the Registrant and "Noel
Drago and Associates (Incorporated by reference on Form 8-K filed
November 9, 1992)
10.12* Agreement leading to "Change of Control" dated September 22, 1992
modifying the agreement dated December 9, 1991 (Incorporated by
reference on Form 8-K filed on November 9, 1992)
10.13* Agreements for restructuring and/or satisfaction of outstanding
"Convertible Notes" (Incorporated by reference on Form 10-Q for
quarter ended June 30, 1993)
10.14** Fourth Supplement to Amended and Restated License Agreement between
the Registrant and Geotech Development Corporation effective
September 30, 1995.
10.15** "Management and Service Fee Agreement" between Registrant and
Geotech Development Corporation dated October 1, 1995
10.16** "Joint Venture Agreement" between Registrant and Tully Construction
Company dated June 4, 1996
10.17** Subscription Agreement for the purchase of shares of Company Common
Stock between Registrant and Kilgarvan Investment & Holding, Ltd.,
an outside investor, leading to change of control, reorganization
of Board of Directors and appointment of new Executive Officers of
Registrant (Incorporated by reference on Form 8-K filed on May 9,
1997)
10.18** Subscription Agreement for the purchase of Company Common Stock
between Registrant and Commodity Trade, Ltd., an outside investor,
dated November 20, 1996
10.19** "Financing Agreement" between Registrant and Swiss American Capital
Management, Inc. dated February 1, 1997
10.20** "Management Agreement" between Registrant and Swiss American Capital
Management, Inc. date April 18, 1997.
10.21** "Satisfaction and/or conversion of Long-Term Debt" between
Registrant and Ernie Micciche, and Louis and Maria Sepe, both dated
September 29, 1997
16.1 * Change of certifying accountant (Incorporated by reference on Form
8-K filed July 29, 1997)
24.1 ** Irrevocable Proxy between Registrant and Louis Sepe dated September
29, 1997
- --------------------------------------
* - Except as noted, all exhibits have been previously filed
** - Filed herewith
29
<PAGE>
(b) Reports on Form 8-K
-------------------
1. Report on Form 8-K, Date of earliest event reported:
February 20, 1997, filed March 21, 1997
2. Report on Form 8-K, Date of earliest event reported:
May 9, 1997, filed July 8, 1997
3. Report on Form 8-K, Date of earliest event reported:
July 29, 1997, filed August 5, 1997
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
U.S. ENVIRONMENTAL, INC.
(Registrant)
Date: March 10, 1998
/S/ Max P. Schmid
--------------------------------
Max P. Schmid, President,
Chief Executive Officer
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
U.S. ENVIRONMENTAL, INC.
(Registrant)
Date: February 27, 1998
/S/ Max P. Schmid
-----------------------------
Max P. Schmid, Director
/S/ Thomas P. Dolan
------------------------------
Thomas P. Dolan, Director
/S/ Robert W. Lewis, Jr.
------------------------------
Robert W. Lewis, Jr., Director
31
<PAGE>
Consolidated Financial Statements
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Years Ended September 30, 1997 and 1996
Independent Auditors' Report
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
Contents
Independent Auditors' Report on Consolidated Financial Statements F1-F2
Consolidated Financial Statements:
Balance Sheets F3
Statements of Operations F4
Statement of Changes in Stockholders' Equity F5-F8
Statements of Cash Flows F9-F10
Notes to Consolidated Financial Statements F11-F25
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Tampa, Florida
We have audited the accompanying consolidated balance sheet of (DEL) U.S.
Environmental, Inc. and Subsidiary (a development stage enterprise) as of
September 30, 1997 and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the management of
U.S. Environmental, Inc. and Subsidiary. Our responsibility is to express an
opinion on the consolidated financial statements based on our audit.
The financial statements of (DEL) U.S. Environmental, Inc. and Subsidiary for
the year ended September 30, 1996 were audited by other auditors whose report
was dated October 30, 1996 and included an explanatory paragraph that
described the uncertainty of the realization of the license agreement, the
Company's ability to resolve liquidity problems, and the Company's ability to
generate revenues sufficient to result in future profitable operations.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully discussed in
Notes 1, 2, and 3, the Company is in the development stage with its principal
activities being negotiating, obtaining, and marketing a solid and hazardous
waste treatment technology for the purpose of future commercial application.
The Company has sustained substantial losses in prior years. Its current
liabilities exceed current assets by approximately $226,000 and it has no
significant revenues. These issues
F1
<PAGE>
raise substantial doubt about the Company's ability to continue as a going
concern. Its major asset is a license agreement stated at approximately
$1,227,000. Realization of this and substantially all of the Company's assets
is dependent upon the Company's ability to resolve liquidity problems, future
sales of technology, and the ability of the Company to generate revenues
sufficient to result in future profitable operations. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of (DEL) U.S.
Environmental, Inc. and Subsidiary as of September 30, 1997 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Pender Newkirk & Co.
Certified Public Accountants
Tampa, Florida
November 13, 1997
F2
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Balance Sheet
September 30, 1997
Assets
Current assets:
Cash $ 18,179
Prepaid rent 16,667
------
Total current assets 34,846
------
Property and equipment, net of accumulated depreciation 237,755
-------
Other assets:
License, net of accumulated amortization 1,226,599
Prepaid rent and other assets 19,585
------
Total other assets 1,246,184
---------
$ 1,518,785
=========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,582
Current portion of notes payable and long-term debt 178,000
Accrued interest 75,020
------
Total current liabilities 260,602
-------
Long-term liabilities:
Notes payable, net of current maturities 42,000
Stock payable 125,127
-------
Total long-term liabilities 167,127
-------
Stockholders' equity:
Common stock; $.0001 par value; 100,000,000 shares
authorized; 81,453,394 shares issued and outstanding 8,145
Additional paid-in capital 5,728,352
Deficit accumulated during the development stage (4,645,441)
---------
Total stockholders' equity 1,091,056
----------
$ 1,518,785
---------
Read independent auditors' report. The accompanying notes
are an integral part of the consolidated financial statements. F3
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Statements of Operations
February 18, 1988
Year Ended September 30, (Inception) to
1997 1996 September 30, 1997
-------------------- ------------------
(Unaudited)
Revenue from demonstration fees $5,000 $95,000 $ 280,000
----- ------ -------
Development stage expenses:
Research and development 112,512 169,020
General and administrative 511,870 262,694 2,506,017
Depreciation and amortization 201,721 187,572 1,600,464
------- ------- ---------
Total development stage expenses 713,591 562,778 4,275,501
------- ------- ---------
Net development stage expenses 708,591 467,778 3,995,501
------- ------- ---------
Other income (expenses):
Interest expense (122,341) (22,455) (144,796)
Interest income 733 2,162
Miscellaneous income 2,500
Loss on impairment of assets (793,770) (798,658)
------- ------- ---------
Total other income (expenses) (915,378) (22,455) (938,792)
------- ------- ---------
Net loss before income taxes and
extraordinary gain (1,623,969) (490,233) (4,934,293)
Income tax benefit 98,600 112,700
------- ------- ---------
Net loss before
extraordinary gain (1,525,369) (490,233) (4,821,593)
Extraordinary gain on
forgiveness of debt
(net of income tax of $98,600) 154,181 176,152
------- ------- ---------
Net loss $(1,371,188) $(490,233) $(4,645,441)
Loss per common share:
Loss before extraordinary gain $(.027) $(.014) $(.180)
Extraordinary gain on
forgiveness of debt .003 .007
------- ------- ---------
Net loss per common share $ (.024) $ (.014) $ (.173)
Weighted average common shares
outstanding 57,952,303 36,193,892 26,791,901
========== ========== ==========
Read independent auditors' report. The accompanying notes
are an integral part of the consolidated financial statements. F4
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Equity
For the Period February 18, 1988 (Inception) to September 30, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated
Shares $.0001 Additional During the
Issued and Par Paid-In Development Treasury Subscriptions Total
Outstanding Value Capital Stage Stock Receivable
Initial Issuance of ----------- ----- ----------- ----------- -------- ------------ ------
common stock,
2/18/88 (inception)
through 7/31/88* 2,025,000 $203 $5,097 $5,300
----------- ----- ----------- ----------- -------- ------------ ------
Balance, 9/30/88* 2,025,000 203 5,097 5,300
Sale of common stock
with redeemable
warrants in 8/89* 1,000,000 100 40,100 40,200
Shares issued by USE
in connection with
pooling of interest* 20,000,000 2,000 359,608 $(25,000) 336,608
Net loss, year ended
9/30/89* (195,462) (195,462)
----------- ----- ----------- ----------- -------- ------------ -------
Balance, 9/30/89* 23,025,000 2,303 404,805 (195,462) (25,000) 186,646
Shares donated (1,000,000) (100) 100
Share issued in
exchange for warrants* 1,000,000 100 (100)
Issuance of stock to
be held as treasury
stock* 3,000,000 300 $(300)
Shares issued in
exchange for securities
(subject to mandatory
redemption)* 500,000
Shares issued for
patent rights* 300,000 30
1,124,970 1,125,000
Shares issued for
plant & equipment* 200,000 20 999,980 1,000,000
Shares issued for
license agreement* 400,000 40
1,999,960 2,000,000
Shares issued for
services* 58,700 6 994 1,000
Shares issued for cash* 1,000 500 500
Collection for
subscriptions receivable* 1,500 25,000 26,500
Net loss, year ended
9/30/90* (481,972) (481,972)
----------- ----- ----------- ----------- -------- ------------ -------
Balance, 9/30/90* 27,484,700 2,699 4,532,709 (677,434) (300) 3,857,674
</TABLE>
*Unaudited
F5
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Equity
For the Period February 18, 1988 (Inception) to September 30, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated
Shares $.0001 Additional During the
Issued and Par Paid-In Development Treasury Subscriptions Total
Outstanding Value Capital Stage Stock Receivable
----------- ----- ----------- ----------- -------- ------------ ---------
Balance, 9/30/90* 27,484,700 2,699 4,532,709 (677,434) (300) 3,857,674
Issuance of stock to
be held as treasury
stock* 13,000,000 1,300 (1,300)
Shares issued for
services* 2,775,000 277 82,913 83,190
Shares issued for
license agreement* 1,500,000 150 299,850 300,000
Conversion of note
payable* 35,166 4 4,996 5,000
Shares issued for cash* 20,000 2 4,998 5,000
Cancellation of
treasury stock* (10,000,000)(1,000) (1,000)
Acquisition of
treasury stock in
exchange for plant
and equipment (200,000
shares)* (866,667) (866,667)
Other* 300
Net loss, year ended
9/30/91* (624,085) (624,085)
----------- ----- ----------- ----------- -------- ------------ ---------
Balance, 9/30/91* 34,815,166 3,432 4,925,466 (1,301,519) (867,267) 2,760,112
Cancellation of
treasury stock* (6,000,000) (600) 600
Return of shares issued
for executive signing
bonus* (250,000) (25) (25)
Shares issued for cash* 1,700,000 170 269,830 270,000
Conversion of notes
payable* 273,997 27 44,973 45,000
Costs incurred in
connection with issuance
of common stock* (50,000) (50,000)
Shares issued for
services* 250,000 25 25
Retirement of
treasury stock* (200,000) (20) (866,647) 866,667
Cancellation of
redeemable shares issued
for securities* (500,000)
Shares issued for
termination of
intermediary agreement* 3,000,000 300 239,700 240,000
Net loss, year ended
9/30/92* (508,589) (508,589)
----------- ----- ----------- ----------- -------- ------------ -------
Balance, 9/30/92* 33,089,163 3,309 4,563,322 (1,810,108) 2,756,523
</TABLE>
*Unaudited
F6
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Equity
For the Period February 18, 1988 (Inception) to September 30, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated
Shares $.0001 Additional During the
Issued and Par Paid-In Development Treasury Subscriptions Total
Outstanding Value Capital Stage Stock Receivable
----------- ----- ----------- ----------- -------- ------------ ---------
Balance, 9/30/92* 33,089,163 3,309 4,563,322 (1,810,108) 2,756,523
Shares issued for cash* 200,000 20 19,980 20,000
Conversion of note
payable* 25,000 2 4,998 5,000
Costs incurred in
connection with issuance
of common stock* (17,022) (17,022)
Shares issued for
management services* 550,000 55 55
Shares issued for
services* 100,000 10 9,990 10,000
Net loss, year ended
9/30/93* (682,402) (682,402)
----------- ----- ----------- ----------- -------- ------------ ---------
Balance, 9/30/93* 33,964,163 3,396 4,581,268 (2,492,510) 2,092,154
Shares issued for cash* 300,000 30 49,470 49,500
Net loss, year ended
9/30/94* (222,968) (222,968)
----------- ----- ----------- ----------- -------- ------------ ---------
Balance, 9/30/94* 34,264,163 3,426 4,630,738 (2,715,478) 1,918,686
Shares issued for
services* 1,026,000 103 103
Net loss, year ended
9/30/95* (68,542) (68,542)
----------- ----- ----------- ----------- -------- ------------ ---------
Balance, 9/30/95* 35,290,163 3,529 4,630,738 (2,784,020) 1,850,247
Shares issued for
services* 1,468,000 147 117,293 117,440
Conversion of notes
payable* 500,000 50 42,450 42,500
Shares issued for cash* 6,333,746 633 499,367 500,000
Costs incurred in
connection with issuance
of common stock* 300,000 30 (64,280) (64,250)
Net loss, year ended
9/30/96* (490,233) (490,233)
----------- ----- ----------- ----------- -------- ------------ -------
Balance, 9/30/96* 43,891,909 4,389 5,225,568 (3,274,253) 1,955,704
</TABLE>
*Unaudited
F7
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Statements of Changes in Stockholders' Equity
For the Period February 18, 1988 (Inception) to September 30, 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Deficit
Common Stock Accumulated
Shares $.0001 Additional During the
Issued and Par Paid-In Development Treasury Subscriptions Total
Outstanding Value Capital Stage Stock Receivable
----------- ----- ----------- ----------- -------- ------------ ---------
Balance, 9/30/96 43,891,909 4,389 5,225,568 (3,274,253) 1,955,704
Shares issued for cash 37,207,485 3,721 472,279 476,000
Shares issued for
services 354,000 35 30,505 30,540
Net loss, year ended
9/30/97 (1,371,188) (1,371,188)
----------- ----- ----------- ----------- -------- ------------ -------
Balance, 9/30/97 81,453,394 $8,145 $5,728,352 $(4,645,441) $0 $0 $1,091,056
</TABLE>
F8
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Statements of Cash Flows
February 18, 1988
Year Ended September 30, (Inception) to
1997 1996 September 30, 1997
-------------------- ------------------
(Unaudited)
Operating Activities
Net loss $ (1,371,188) $ (490,233) $ (4,645,441)
---------- ------- ---------
Adjustments to reconcile
net loss to net cash used
by operating activities:
Depreciation & amortization 201,721 187,572 1,600,464
Extraordinary gain on
forgiveness of debt (154,181) (176,152)
Income tax benefit (98,600) (112,700)
Loss on impairment of assets 793,770 798,658
Issuance of common stock
for services 30,540 117,440 348,358
Issuance of common stock for
termination of intermediary
agreement 240,000
(Increase) decrease in prepaid
expenses (29,223) 5,000 (32,581)
Increase in accounts payable
and accrued expenses 79,926 48,765 484,570
---------- ------- ---------
Total adjustments 823,953 358,777 3,150,617
---------- ------- ---------
Net cash used by operating
activities (547,235) (131,456) (1,494,824)
---------- ------- ---------
Investing Activities
Acquisition of property
and equipment (251,841) (260,786)
Acquisition of license agreement (44,327)
Acquisition of
marketable securities (1,530)
---------- ------- ---------
Net cash used by investing
activities (251,841) (306,643)
Financing Activities
Proceeds from loans 4,000 118,600
Repayment on loans (10,458) (32,225)
Issuance of common stock,
net of offering costs 476,000 478,250 1,534,271
Proceeds from issuance of
convertible notes 199,000
---------- ------- ---------
Net cash provided by
financing activities 465,542 482,250 1,819,646
---------- ------- ---------
F9
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Statements of Cash Flows
February 18, 1988
Year Ended September 30, (Inception) to
1997 1996 September 30, 1997
-------------------- ------------------
(Unaudited)
Net (decrease) increase in cash (333,534) 350,794 18,179
Cash, beginning of year 351,713 919
---------- ------- ---------
Cash, end of year $ 18,179 $ 351,713 $ 18,179
---------- ------- ---------
Supplemental disclosure of cash flow information
and noncash investing and financing activities
The following amounts of common stock were issued for noncash consideration:
February 18, 1988
Year Ended September 30, (Inception) to
1997 1996 September 30, 1997
-------------------- ------------------
Compensation and consulting
services $ 23,040 $117,440 $ 177,385
Professional fees 158,473
Termination of intermediary
agreement 240,000
Rent 5,000
Promotion expense 7,500 7,500
---------- ------- ---------
$ 30,540 $117,440 $ 588,358
There were no income taxes paid for any of the periods presented in the
statements of operations.
There was no interest paid for 1997. Interest paid for 1996 was $6,616.
On September 29, 1997, the Company entered into an agreement to issue 100,000
shares of common stock as payment in full on a stockholder note and interest
payable totaling approximately $33,000. Additionally, the Company agreed to
issue 1,000,000 shares of stock to another stockholder as payment of accrued
interest totaling approximately $92,000. The Company has recorded a stock
payable of approximately $125,000 as a result of these transactions. The
shares have not been issued as of the date of the audit report.
See Footnote 7 - Stockholders' Equity, which discloses all significant noncash
transactions associated with stockholders' equity for the period February 18,
1988 (date of inception) to September 30, 1996.
Read independent auditors' report. The accompanying notes
are an integral part of the consolidated financial statements. F10
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
1. Background Information
The Company (formerly Windfall Capital Corp.) was incorporated in the state of
Delaware on February 18, 1988. Its principal activity has been to negotiate,
obtain, and market a solid and hazardous waste treatment technology. No
income has been earned from this activity to date. Consequently, the
consolidated financial statements have been presented as those of a
development stage enterprise.
The accompanying consolidated financial statements include the accounts of
(DEL) U.S. Environmental, Inc. (formerly Windfall Capital Corp.) and its
wholly owned subsidiary, U.S. Waste Conversion International, Inc. (formerly
U.S. Environmental, Inc.) All intercompany transactions and accounts have
been eliminated in consolidation.
2. Significant Accounting Policies
The significant accounting policies followed are:
The preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Property and equipment are stated at cost. Additions and improvements to
property and equipment are capitalized. Maintenance and repairs are expensed
as incurred. When property is retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in operations. Depreciation is computed
on the straight-line method over the estimated useful lives of the assets
ranging from 7 to 15 years.
The cost of the license agreements are being amortized utilizing a
straight-line method over a period of 20 years. Amortization expense charged
to operations was $187,529 and $117,216 for the years ended September 30, 1997
and 1996, respectively, and $817,728 for the period February 18, 1988 (date of
inception) to September 30, 1997.
Read independent auditors' report. F11
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
2. Significant Accounting Policies (continued)
The Company utilizes Statement No. 109 of the Financial Accounting
Standards Board, "Accounting for Income Taxes." This pronouncement requires
that deferred tax assets and liabilities be recognized for the estimated
future tax consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and their
respective income tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under Statement No. 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized as income in the period that included the
enactment date.
The Company will recognize revenue upon the sale of its technology to end
users as well as through sub-license agreements.
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be disposed of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of these assets may not be recoverable. In
performing the review for recoverability, the Company estimates the future
cash flows expected to result from the use of the assets and their eventual
disposition.
Primary and net loss per share of common stock through the periods
presented is based on the weighted average number of common shares
outstanding. Common stock equivalents have not been included in the
computation for these periods because their inclusion would be anti-dilutive
due to the losses incurred.
Read independent auditors' report. F12
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
2. Significant Accounting Policies (continued)
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
per Share," which supersedes APB Opinion No. 15, "Earnings per Share," was
issued in February 1997. This statement requires dual presentation of basic
and diluted earnings per share (EPS) for complex capital structures on the
face of the income statement. Basic EPS is computed by dividing income by the
weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution from the exercise or conversion of
securities into common stock, such as stock options. This statement is
required to be adopted for year-end 1998; earlier application is not
permitted. However, had this statement been applied, basic and diluted EPS
would have been the same as primary EPS as measured under APB No. 15.
Certain minor reclassifications have been made in the 1996 and inception
to date financial statements to conform to the classifications used in 1997.
3. Going Concern and Realization of Assets
The Company is in the development stage with its principal activity being the
negotiation, obtaining, and marketing of a solid and hazardous waste treatment
technology for the purpose of future commercial application. The Company has
had losses since inception of approximately $4,600,000.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. The Company has sustained
substantial losses since inception. Its current liabilities exceed current
assets by approximately $226,000 at September 30, 1997. Presently, the
Company's ability to complete the research and development activities and its
transition to attaining profitable operations is dependent upon obtaining
adequate financing and achieving a level of sales adequate to support the
Company's cost structure. These factors raise substantial doubt about the
Company's ability to continue as a going concern. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue
in existence.
Read independent auditors' report. F13
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
3. Going Concern and Realization of Assets (continued)
The Company's continued existence is dependent upon its ability to resolve its
liquidity problems, principally by obtaining additional debt financing and
equity capital. While pursuing additional debt and equity funding, the
Company must continue to operate on limited cash flow generated internally.
The Company will have to minimize its requirements for working capital by
implementing cost reduction efforts. Working capital limitations continue to
impinge upon day-to-day operations, thus, contributing to continued operating
losses.
4. Property and Equipment
Property and equipment consist of the following:
Plant $ 250,000
Furniture and equipment 2,319
-------
252,319
Less accumulated depreciation 14,564
-------
$ 237,755
The Company was a defendant in a lawsuit filed in the United States Bankruptcy
Court for the Western District of New York. On November 22, 1996, the lawsuit
was settled with the Company paying $250,000 to purchase an interest in a
melt-all process pilot plant located in Niagara Falls. As described in Note
10, the Company is the plaintiff in a lawsuit to determine whether the Company
has a 100 percent or a 50 percent ownership in the plant.
5. License Agreements and Patent
The Company entered into a 20-year license agreement that was subsequently
amended with Geotech Development Corporation (Geotech) on October 13, 1989 for
the sole use of their technology regarding a solid waste melt-all fusion
process. The agreement is renewable at the end of the initial period in
perpetuity for successive 20-year periods at the option of the licensee. As
consideration for the licenses, Geotech was paid $14,000 and an additional
$30,327 was paid to consultants, on Geotech's behalf, to transfer the
technology.
Read independent auditors' report. F14
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
5. License Agreements and Patent (continued)
On May 31, 1990, the Company amended its license agreement with Geotech
whereby the Company issued to Geotech 400,000 shares of common stock valued at
$5 per share as consideration for the reduction of royalty fees from 20
percent to 5 percent. Under the terms of the agreement, royalty fees due the
licensor will be five percent of total receipts, as defined in the agreement.
On October 18, 1991, the Company amended its 1989 license agreement with
Geotech. This amendment to the license agreement allows Geotech on a
restricted basis to build plants utilizing the Company/Geotech Technology for
their own account. Under the terms of this amendment, Geotech would be
obligated to pay the Company a license fee as well as five percent of all
royalties collected.
On September 22, 1992, Geotech acquired an additional 750,000 shares through a
cash purchase of $125,000. As an incentive for capital investment,
responsibilities of the Company were transferred to the Geotech management
team.
At September 30, 1997, the license agreement consisted of the following:
License agreement $ 2,044,327
Less accumulated amortization 817,728
---------
$ 1,226,599
On December 17, 1990, the Company entered into a license agreement with a
joint venture whose partners include Asbestoguard Australia PTY Limited and
Asbestoguard Limited. Under this license agreement, the Company acquired an
exclusive license for the marketing, distribution, and sale in the United
States of the Asbestoguard process, package, and related property developed by
the joint venture. The proprietary system, which consisted of proprietary
equipment and liquid sealant products, was developed for non-hazardous
treatment and rehabilitation of asbestos, asbestos cement, concrete, or cement
products. The Company obtained a 20-year license, with a 20-year renewal
option, by the issuance of 1.5 million of its unregistered common shares
valued by management at $300,000. In addition, the Company is obligated to
pay, in the form of a royalty, for the cost of any Asbestoguard liquid sealant
product provided (10 percent premium above cost up to a maximum of
$1,500,000).
Read independent auditors' report. F15
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
5. License Agreements and Patent (continued)
The Company has rights to a patent for the alignment of magnets in a process
through which metals are extracted from ash. The Company issued 300,000
shares of stock for the rights to the patent.
As of September 30, 1997, management believes that they do not have the
resources to generate any further cash flows from the Asbestoguard license
agreement and the patent for alignment of magnets and, therefore, pursuant to
FASB 121, "Accounting for the Impairment of Long-Lived Assets and for Assets
to be Disposed Of," have recorded an impairment loss of $793,770 to write the
license and the patent down to zero.
6. Notes Payable
Notes payable consist of:
Various notes payable; interest at 11.0%;
principal plus interest is past due; unsecured $ 144,000
Various notes payable, stockholders; non-interest
bearing; due on demand; unsecured 10,000
Note payable, stockholder; non-interest bearing;
33 monthly principal payments of $2,000;
unsecured 66,000
-------
220,000
Less amounts due currently 178,000
-------
$ 42,000
The following is a schedule of the principal payments required on these notes:
1998 $178,000
1999 $24,000
2000 $18,000
During 1991, the Company issued $199,000 of 11 percent convertible notes payable
, due two years from the date of issuance (December 31, 1992). At any time
prior to the due date, the investors may convert their note for unregistered
shares of common stock of the Company at the conversion price of 25 percent
below the bid price of the Company's common stock at that date.
Read independent auditors' report. F16
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
6. Notes Payable (continued)
Notes totaling $55,000 were converted by the due date. Due to the Company's
financial position, the remaining notes have not been repaid and are now in
default.
Interest associated with these notes is included on the balance sheet as
accrued interest in the amount of approximately $75,000 as of September 30,
1997.
Notes payable, stockholders include two notes which totaled approximately
$83,000 and were due on May 13, 1992. These notes were unsecured and accrued
interest at 18 percent. The former management disputed these loans and did
not record any interest on the Company's books. During the year ended
September 30, 1997, the Company's new management recorded an adjustment to
accrue interest on these notes. On September 29, 1997, the Company agreed to
issue 100,000 shares of common stock as payment in full on one of these
stockholder's notes payable. The principal and interest on this note was
approximately $33,000. Additionally, the Company agreed to issue 1,000,000
shares of stock to the second stockholder as payment of accrued interest
totaling approximately $92,000. The shares of stock were not issued prior to
year-end and, therefore, the Company has recorded the stock payable as a
long-term liability.
The Company has two credit cards in its name with a total balance of
approximately $26,000. This balance was accumulated by prior management and is
personally guaranteed by prior management. Current management has determined
that the balance relates to personal expenditures and has not included this
balance on the financial statements.
7. Stockholders' Equity
On August 17, 1989, the Company sold, in a public offering (Form S-18),
1,000,000 units at $.05 per unit. Each unit consists of one share of common
stock and five redeemable warrants. Each warrant entitles the stockholder to
purchase one share of common stock at the price of $.10 per share. The
warrants expired on February 9, 1991. The costs incurred in connection with
the offering were $9,800. The net proceeds amounted to $40,200.
On August 28, 1989, the Company acquired all of the outstanding common stock
of the Subsidiary (formerly U.S. Environmental, Inc.), which totaled
13,500,000 shares, in exchange for 20,000,000 shares of the Company. Under
the terms of the acquisition agreement, Windfall Capital Corp. changed its
name to U.S. Environmental, Inc. and, the wholly owned subsidiary changed its
name to U.S. Waste Conversion International, Inc. The Parent also changed its
fiscal year-end to September 30th to conform to that of the subsidiary.
Read independent auditors' report. F17
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
7 . Stockholders' Equity (continued)
This transaction was accounted for as a pooling of interests, whereby the
transaction was a recapitalization of the subsidiary. In effect, the
transaction was the acquisition of the Parent by the Subsidiary since the
stockholders of the subsidiary held 20,000,0000 (86.86 percent) of the
23,025,000 shares outstanding of the Parent after acquisition. The operations
of the Parent prior to the merger was significant to the combined operations.
Goodwill was not recognized in the transaction and the consolidated financial
statements reflect the assets at their historical cost basis.
During May 1990, various officers, directors, and stockholders of the Company
contributed 1,000,000 shares of stock to the Company. The Company then
redeemed the outstanding 5,000,000 warrants by offering one share for every
five warrants to each warrant holder. The actual shares are included with the
issued and outstanding shares at September 30, 1990.
On September 27, 1990, the Company issued 3,000,000 shares of common stock to
the Company to be held as treasury stock.
The Company exchanged 500,000 shares of its common stock for 500,000 shares of
Waste Technology Corp.'s common stock on March 16, 1990. The shares were
valued by the Company at $.50 per share. The shares are subject to SEC Rule
144 and, accordingly, bear such restrictive legends. The shares revert to
Waste Technology Corp. if a plant is not built by Waste Technology Corp. or
affiliate by March 16, 1992. As of March 16, 1992, no plant was built and,
consequently, the shares were redeemed and cancelled.
On February 27, 1990, the Company acquired the rights to a patent for a metal
separation system for incinerators in exchange for 300,000 shares of the
Company's common stock. The transaction has been valued by management at
$1,125,000. The patent, which was valued at $1,125,000, is included in other
assets and is being amortized over its remaining life on a straight-line
basis. The Company intends to use the patent in conjunction with its mineral
electric fusion process.
Read independent auditors' report. F18
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
7 . Stockholders' Equity (continued)
On May 31, 1990, the Company acquired a 50 percent interest in the plant and
equipment of Geotech comprising of an electric fusion metal-all demonstration
pilot plant for 200,000 shares of common stock of U.S. Environmental, Inc.
valued at $5 per share, or $1,000,000. The Company was depreciating this
plant and equipment over ten years on a straight-line basis through September
30, 1991. At September 30, 1991, the Company retroactively reflected the
reversion of this transaction which was executed on October 18, 1991. The
Company accounted for the reversion as an acquisition of its own restricted
common shares valued at the net book value of $866,667 of the plant and
equipment exchanged.
On March 31, 1990, the Company amended its license agreement with Geotech,
whereby the Company issued to Geotech 400,000 shares of common stock valued at
$5 per share as consideration for the reduction of royalty fees from 20
percent to 5 percent. The transaction has been valued at $2,000,000.
On May 8, 1990, the Company issued 58,700 shares of common stock for
consulting services valued at $1,000 ($.017 per share).
On May 3, 1990, the Company issued 1,000 shares of common stock for $500 ($.50
per share).
On December 17, 1990, the Company obtained a 20-year license for Asbestoguard
products. The Company issued 1,500,000 shares of its unregistered common
stock valued by management at $300,000.
During the year ended September 30, 1991, the Company issued 2,775,000 shares
of common stock for services. Those services were valued at $83,190. The
Company also issued 20,000 shares of common stock for cash of $5,000.
On September 15, 1990, the Company issued a private placement memorandum on a
best efforts basis in order to raise the necessary funds to continue its
development stage operations. The securities consist of 150 convertible notes
at a price of $5,000 per note. The convertible notes bear interest at 11
percent per annum paid semiannually and are convertible into common stock of
the Company at 25 percent below the public trading market value. The maximum
gross proceeds to the Company would have been $750,000. The Company completed
this offering on March 31, 1991, after having raised $199,000.
Read independent auditors' report. F19
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
7 . Stockholders' Equity (continued)
As of September 30, 1991, a note holder converted his note in the amount of
$5,000 for 35,166 shares of restricted common stock.
During the quarter ended December 31, 1991, the Company cancelled 6,000,000
shares of stock held as treasury stock.
On October 25, 1991, the Company accepted the resignation of Carl Massara as
President, Chairman of the Board, and a Director of the Company. Mr. Massara
agreed to return 250,000 shares to the Company that he received as a signing
bonus.
In October 1991, the Company sold 200,000 shares of its restricted common
stock for $20,000. It used the money to hold a demonstration of its melt-all
process in a pilot plant located in Niagara Falls, New York.
On December 18, 1991, the Company received $125,000 for 750,000 shares, or a
per share price of $0.1667. As part of this transaction, the Company's
management resigned in favor of a management team assembled by Noel Drago
Associates, whereby Noel Drago was appointed President.
During the quarter ended December 31, 1991, four note holders converted an
aggregate of $20,000 of convertible notes for a total of 140,664 restrictive
shares.
In February 1992, a note holder with a value of $25,000 exchanged his
convertible note for 133,333 restrictive shares.
During the year ended September 30, 1992, the Company issued 250,000 shares of
common stock for services. Management placed no value on those services.
On September 22, 1992, the Company issued 3,000,000 restrictive shares to
Frank Franza, John Drago, and Alfred Franza to terminate their rights to
compensation if they served as intermediaries in connection with the sale of
stock or assets of the Company (intermediary agreement).
Read independent auditors' report. F20
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
7 . Stockholders' Equity (continued)
Also on September 22, 1992, the Company received $125,000 for 750,000
restrictive shares from Geotech Development Corp. As part of this
transaction, the Company's management resigned in favor of a management team
assembled by Geotech, whereby Thomas R. Tate was appointed president.
In October 1992, the Company received $20,000 for 200,000 restrictive shares
of stock from an outside investor.
Also in October 1992, a note holder with a value of $5,000 exchanged his
convertible note for 25,000 restrictive shares.
In April 1993, the Company issued 550,000 restrictive shares to the then
current management team. The Company valued the stock at $.0001 per share.
The stock must be returned if the individual resigns prior to September 22,
1994.
In September 1993, the Company approved the issuance of 100,000 restrictive
shares in lieu of payment of legal fees. The actual shares were not issued by
the transfer agent until October 1993, however, the shares are included with
issued and outstanding shares at September 30, 1993.
In February 1994, the Company received $49,500 for 300,000 shares of stock
from an outside investor, with an additional option to purchase 700,000 shares
at $.165 per share until April 4, 1994. At the expiration of this option, the
investor still had an option to purchase 700,000 shares at 80 percent of bid
price, but not less than $.165 per share. This option expired August 10, 1994
with no additional shares being purchased.
In August 1995, the Company issued 322,000 shares to various outside
consultants and 704,000 shares to management and the current Board of
Directors. The Company valued all of the shares at $.0001 per share.
In March and August 1996, the Company issued 1,468,000 shares to management
and the then current Board of Directors. The Company valued all of the shares
at $.08 per share.
A holder of a convertible note in the amount of $42,500 exercised an option
and converted the note to 500,000 shares in August 1996. The actual shares
have not been issued, however, the shares are included with the issued and
outstanding shares at September 30, 1996.
Read independent auditors' report. F21
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
7 . Stockholders' Equity (continued)
In September 1996, the Company entered into a three-phase stock purchase
agreement with an outside investor. The initial purchase was 6,333,746 shares
for $500,000. The actual shares were not issued by the transfer agent until
October 1996, however, the shares were included with the issued and
outstanding shares at September 30, 1996. The Company paid $60,000 in costs
and issued 300,000 shares of common stock in connection with this purchase.
The Company amended this agreement prior to the completion of the second and
third phase. Therefore, no additional stock was issued under the original
stock purchase agreement dated September 1996. A new stock purchase agreement
dated April 1997 increased the ownership of the outside investor to 51
percent. The Company issued 30,447,394 shares to the investor for $326,000 on
May 9, 1997. The agreement also has an anti-dilution clause that requires the
Company to issue new shares to the outside investor any time its ownership
falls below 51 percent. In September 1997, an additional 4,760,091 shares
were issued pursuant to this clause.
The Company issued 2,000,000 shares of common stock in November 1997 for
$150,000 in cash.
During 1997, the Company issued 254,000 shares to the Board of Directors. The
Company recorded $23,040 as compensation expense as a result of these
services. Additionally, the Company issued 100,000 shares of stock to a
related company for consulting services. These services were valued at
$7,500.
8. Income Taxes
The Company has a tax loss carryforward of approximately $4,637,900 that may
be applied against future taxable income through the year 2012. During 1997,
a substantial change of ownership of the Company occurred. Under federal tax
law, this change in ownership of the Company will significantly restrict
future utilization of the net operating loss carryforwards. Other than the
net operating losses which have been limited because of the change in
ownership
Read independent auditors' report. F22
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
8. Income Taxes (continued)
as described above, any other net operating losses will expire if not utilized
within 15 years of the year they were incurred. This loss gives rise to
deferred tax asset tax loss carryforwards at September 30, 1997 and are as
follows:
$ 4,637,900
Effective tax rate 39%
Deferred tax asset 1,808,700
Less valuation allowance 1,808,700
Net deferred tax assets $ 0
The loss carryforwards expire as follows:
Year of
Expiration
2004 $ 195,500
2005 482,000
2006 624,600
2007 508,100
2008 675,300
2009 223,000
2010 68,500
2011 489,700
2012 1,371,200
$ 4,637,900
Read independent auditors' report. F23
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
8. Income Taxes (continued)
The reasons for the differences between the effective tax rate and the U.S.
statutory rate on continuing operations are as follows:
February 18,
1996
Year Ended (Inception) to
September 30, September 30,
1997 1996 1997
Tax benefit at U.S. statutory rate $ 633,400 $ 191,000
$ 1,924,400
Valuation allowance for deferred
tax asset 534,800 191,000 1,808,700
Other 3,000
Income tax benefit $ 98,600 $ 0 $ 112,700
9. Related Party Transactions / Commitments
On March 1, 1993, the Company entered into an agreement with Geotech, a
related entity, for utilization of its personnel, management, office
facilities, and other related expenses at a monthly fee of $55,000. This
agreement can be cancelled with 90 days notice. The contract was cancelled
effective October 1, 1993.
A new contract effective October 1, 1995 was agreed upon whereby a monthly fee
of $10,000 will be charged. The Company also agrees to pay Geotech 10 percent
of the gross funds received including but not limited to sales and services,
loans, investor funds, private placement stock sales, and the issuance of
convertible debentures. At September 30, 1996, the Company owed Geotech
$257,548 for consulting fees, other expenses, and monthly management fees.
Placement fees of $4,250 were paid to Geotech relating to the exercise of the
conversion in the convertible note during August 1996. An additional $50,000
was paid to Geotech relating to the 6,333,746 shares sold in September 1996.
Read independent auditors' report. F24
<PAGE>
(DEL) U.S. Environmental, Inc. and Subsidiary
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years Ended September 30, 1997 and 1996
9. Related Party Transactions / Commitments
During the year ended September 30, 1997, Geotech agreed to terminate the
consulting agreement. All past management fees and other fees were forgiven.
This resulted in an extraordinary gain of $252,781 for the year ended
September 30, 1997.
The Company signed a new management fee agreement with Swiss American Capital
Management on April 18, 1997. Swiss American Capital Management provides
support for general management, regulatory compliance, and sales and marketing.
They also provide office space to the Company as part of the management fee.
The Company paid $352,172 in management fees to this related company for 1997.
The Company issued 100,0000 shares and 300,000 shares of common stock to Basle
Holding Corporation, a related company for the years ended September 30, 1997
and 1996, respectively. The related company provided services as a financial
consultant and assisted the Company in obtaining funding for the Company's
vitrification projects. These services were valued at $7,500 and $23,700 for
the years ended September 30, 1997 and 1996, respectively.
10. Subsequent Event
(DEL) U.S. Environmental, Inc. is the plaintiff in pending litigation
identified as (DEL) U.S. Environmental, Inc. v. Geotech Development
Corporation and four former directors of the Company, Civil Action 97-6339, in
the United States District Court for the Eastern District of Pennsylvania.
(DEL) U.S. Environmental, Inc. seeks adjudication with respect to whether
Geotech Development Corporation has a partial ownership interest in the
Niagara Falls plant and real estate, and the validity of certain cash and
stock payments to certain former controlling persons of (DEL) U.S.
Environmental, Inc. between 1990 and 1997.
Read independent auditors' report. F25
<PAGE>
Exhibit 10.14
ADDENDUM to the Amended and Restated License Agreement made among
U.S. Environmental, Inc. and Geotech Development Corporation
dated October 13, 1989.
Effective September 30, 1995, this Addendum is an addition to and considered a
part of the license agreement among U.S. Environmental, Inc. and Geotech
Development Corporation. Geotech Development Corporation hereby affirms that
any order or contract it receives to furnish equipment for an environmental
related mineral fusion and conversion plant installation will be turned over
to or offered to U.S. Environmental, Inc. on a right of first refusal basis.
The primary territory of this agreement is for installation for processing
mineral contaminated soils, asbestos containing materials and MSW incinerator
ash residues. All technology and processing equipment for these plants will
be purchased from Geotech Development Corporation at historically proven "best
customer" prices or less, and will be protected with all normal guarantees and
warranties relating to equipment service life, production capacities and
operating costs.
U.S. Environmental, Inc. will have a period of twenty (20) working days under
their right of first refusal to accept or reject a contract after being
furnished a written proposal from Geotech Development Corporation regarding
any specific contract or plant installation. In the event U.S. Environmental,
Inc. does not formally accept any such contract proposal, Geotech Development
Corporation will have the right to proceed on any project with any and all
rights, the same as they had prior to this addendum.
For U.S. ENVIRONMENTAL, INC. For GEOTECH DEVELOPMENT CORP.
/s/ Thomas R. Tate /s/ Thomas B. West
- ------------------------------- ------------------------------
Thomas R. Tate, President Thomas B. West, President
/s/ Philomena A. Dietrich /s/ Philomena A. Dietrich
- ------------------------------- ------------------------------
Witness Witness
Date: 9/26/95 Date: 9/26/95
<PAGE>
Exhibit 10.15
January 15, 1996
Geotech/USE Management & Services Fee Agreement
-----------------------------------------------
This agreement between Geotech Development Corporation and U.S. Environmental,
Inc. establishes the formula for payment of management and services performed
for USE by Geotech. This agreement supersedes and replaces all other
agreements related to this subject.
I. Management fees at the rate of $10,000 per month are to be paid to Geotech
by USE starting at the date October 1, 1995.
A. For the prepaid monthly fee, Geotech will furnish to USE:
1. Personnel, management and office
2. Office area sufficient to conduct all normal business functions
3. Office furniture
4. Office equipment and business machines
5. Personnel travel expenses within a radius of 150 miles of King of
Prussia, Pennsylvania
B. USE expenses not furnished and excluded from the monthly fee agreement,
but which may be paid by Geotech and billed separately to USE include, but are
not limited to, the following:
1. USE tax obligations
2. SEC reporting costs
3. USE shareholder and meeting costs
4. USE Board of Director compensation and meeting costs
5. USE agents and sales commissions
6. USE liability insurance
7. Professional services retained by USE
8. Consultants retained by USE
9. Airline travel
10. USE customer entertainment, travel, and living expenses on trips
in excess of 150 miles from King of Prussia, Pennsylvania
11. Cost and use of the Pilot Plant facility
II. Research Technology Transfer Fees will be paid in the following manner
upon receipt of funds by USE:
A. 10% of the gross funds received by USE in any manner such as, but not
limited to, the examples listed below:
<PAGE>
1. Contracts for equipment, plant installations and services
2. Loan funds received
3. Investor funds received
4. Private placement stock sale funds received
5. Convertible debentures funds received
This agreement will be reviewed every three (3) months with regard to cost
effectiveness of both parties. Any revisions either party feels is required
will be negotiated between the parties until a solution agreeable to both
parties is found before it can be accomplished or incorporated as a part of
this agreement.
This agreement may be canceled, all or in part, by either party upon giving
ninety (90) days written notice of cancellation to the other party.
Date: 1/18/96 Date: 1/18/96
/s/ Thomas B. West /s/ Thomas R. Tate
- -------------------------- ----------------------------
Thomas B. West, President Thomas R. Tate, President
Geotech Development Corporation U.S. Environmental, Inc.
2
<PAGE>
Exhibit 10.16
Joint Venture Agreement
by and between
Tully Construction Co., Inc.
&
U.S. Environmental, Inc.
This AGREEMENT made June 4, 1996 between Tully Construction Co., Inc. (a New
York Corporation) of 127-50 Northern Blvd. Flushing, NY 11368 (hereinafter
sometimes referred to as "Tully") and U.S. Environmental, Inc. (hereinafter
sometimes referred to as "USE") of 630 Parkview Tower 1150 First Avenue, King
of Prussia, PA 19046 as follows:
Whereas, USE possesses a proprietary technology and process for the
vitrification of MSW ash residue, known as Melt All Electric fusion (the
Technology) and
Whereas such technology and process is capable of rendering MSW ash residue
into a molten form capable of being poured into a beneficially useable
product; i.e. aggregate, curbstone, mineral wool and,
Whereas Tully is engaged, among other enterprises, in the business of heavy
construction and asphalt production and,
Whereas Tully is also engaged in the hauling of solid waste, inclusive of MSW
ash residue and,
Whereas the Town of Hempstead (the Town) and the Town of Hempstead Refuse
Disposal District, located in Nassau County, Long Island in the State of New
York has a Request For Proposal currently offered for the "Final Request for
Proposals for Beneficial Use Ash Management Services" (RFP) and,
Whereas the Parties desire to jointly use their respective resources and
expertise to submit a response to the Town of Hempstead RFP and form a Joint
Venture (JV) for the purpose,
Now therefore, in exchange for their mutual promises and covenants, the
parties agree as follows;
Purpose
- -------
The JV is expressly formed to provide a vehicle for the Parties to jointly
submit a proposal to the Town of Hempstead for the RFP currently offered.
This agreement does not constitute any arrangement between the parties for
business pursuits beyond the realm of the existing RFP. Upon mutual consent,
the parties may elect to extend the terms and conditions of this agreement to
include future projects.
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Term
- ----
The term of this agreement shall correspond to the RFP contract language and
the actual contract language should be JV be the successful proposer. The
initial term of the contract shall be for seven (7) years from the date of
commencement; the date of commencement has been tentatively set by the Town as
December 22, 1996. The anticipated termination of the initial contract is
October 2002.
Thereafter, the initial contract may be extended up to six (6) additional
years through August 31, 2009.
It is a condition precedent of the JV parties to submit a proposal stating
that the term of their offer shall be for seven years with an automatic
extension of six years subject only to a material breach of the proposers in
the execution of their contract with the Town to nullify the automatic
extension.
The rights and privileges of the parties, expressed or implied by the terms of
this agreement, shall remain in force throughout the term of the Joint Venture
contract with the Town of Hempstead.
This JV may be dissolved upon withdrawal of the RFP, Award of the RFP to any
entity other than the JV, indication that the JV will not be considered for
final negotiations by the Town or its agents or any other written
communication from the Town or its agent indicating the JV will not be
considered for award of the final project. Award of the RFP is anticipated on
or about September, 1996. This date may be extended by Township Amendment to
the Final RFP.
Mutual Representations of the Parties
- -------------------------------------
The parties represent the following to be true and accurate representations:
* each maintains a status as a corporation in good standing
* each will execute their duties and responsibilities in a good workman
like manner and in accordance with all federal, state and local laws
and regulations
* each will provide the necessary documentation for obtaining and
maintaining all required permits for the successful operation of the
anticipated facility
* each is authorized to enjoin its respective corporation in this Joint
Venture Agreement
Facility Management
- -------------------
The parties agree to the following corporate structure:
Tully Construction Co., Inc. will own 50% of the Joint Venture
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<PAGE>
U.S. Environmental, Inc. will own 50% of the Joint Venture.
Both entities shall have the right to appoint up to four (4) board members to
a board of directors.
The President of the Joint Venture will be from the Tully group as approved by
the Board of Directors.
All decisions of the Board of Directors will be decided on the basis of a
majority of votes.
The charter of the JV will be submitted by the President on acceptance of the
JV proposal by the Town.
Proposed Facility
- -----------------
The parties anticipate submitting proposals for two levels of ash residue
receiving; 300 tons per day and 600 tons per day, subject to approval by the
Town. The facility is anticipated to be located within the tri-state area.
Basic design of the facility shall be a receiving area for incoming ash.
Processing shall consist of a crushing, drying, magnetic separation and
furnace unit, including all requisite controls, pouring apparatus and APC
equipment as required by permits.
The selected site for construction shall be sufficient in size to store
inventory levels as decided by the board and in conjunction with anticipated
markets.
Ash received at the facility shall be generated from the American ReFuel-plant
located in Hempstead, NY and specifically outlined in the RFP. Any additional
material proposed to be received outside of scope of the RFP shall be approved
by the Board of Directors.
Financial Contributions
- -----------------------
The RFP requires a proposal bond of $5,000,000. This bond is to be provided
by Tully subject to surety approval. IN addition, Tully agrees to provide the
performance bond as required by the RFP. The cost of the performance bond
will be billed to the Joint Venture should it be the successful proposer.
The parties agree to use best efforts in securing necessary financing for the
proposed project. The anticipated financing required is as follows:
1. 600 TPD $20,700,000
2. 300 TPD $11,000,000
3. 10% Contingency 2,070,000 1,100,000
4. Working Capital 2,230,000 1,300,000
----------- -----------
Totals $25,000,000 $13,400,000
Page 3
<PAGE>
It is anticipated that the JV will submit with its proposal a letter of
commitment from a recognized bank or financial institution for the above
capital sums that is conditional upon the successful award of the proposal.
Consideration and Payment
- -------------------------
The JV will be funded through the revenue stream generated from tipping fees
and end product sales. Tipping fees are to be paid by the Town to the JV on a
per ton basis and outlined in the anticipated proposal.
End product sales pricing will be set by the board of directors upon
recommendation of the President. It is anticipated that Tully will make best
efforts to incorporate aggregate and other finished goods into its existing
operations and be a customer of the Facility.
The Board of Directors will establish an annual operating budget with input
from the President. This budget will provide the basis of financial decisions
made by the President during the operational year. A copy of an anticipated
operating budget will be formulated and made a part of this agreement at
"Attachment A".
The parties agree that all operating goods and services provided to the
facility by the parties will be provided at cost.
Stock Option
- ------------
Tully shall have the option to purchase up to 10,000,000 shares, in parcels of
2,000,000 shares each, of USE stock. The option price for these shares will
be twelve and one half cents each ($0.125). The exercise date for each option
package will be the following:
August 1, 1996
September 1, 1996
October 1, 1996
November 1, 1996
December 1, 1996
Tully has the option to purchase all 10,000,000 shares in one parcel or part
thereof in excess of 2,000,000 shares at any time.
Insurance
- ---------
The parties hereto represent (a) that they shall maintain appropriate
insurance policies and/or self-insurance with applicable workers' compensation
insurance requirements, providing for statutory benefits, and (b) that they
have general liability insurance and/or self-insurance, including motor
vehicle coverage, with coverage of not less than
Page 4
<PAGE>
1,000,000.00 each occurrence for bodily injury, and 1,000,000.00 each
occurrence for property damage liability.
Force Majeure
- -------------
In the event that nay party is unable to perform as stated in this contract
due to, or as a result of, one or more of the following causes: odor
generation beyond public acceptance, Governmental actions, laws, orders or
regulations beyond the reasonable control of the party and not as a result of
an act or the failure to act by a party tot his agreement, this contract shall
be suspended for the duration of such disability. Any party claiming Force
Majeure shall promptly notify, in writing, the other parties of the
commencement and also of the termination of such disability.
Non-Waiver
- ----------
The failure to enforce any term of this contract or waiver of any default of
any party hereunder shall not be construed as a waiver of the term or of a
subsequent or continuing default.
Notice
- ------
Any and all notices under this contract shall be in writing and shall be
delivered to the party entitled to receive the same by hand or U.S. certified
mail, return-receipt requested, addresses as follows or as they may be amended
in the future:
If to Tully Construction Co., Inc.:
Mr. Peter K. Tully, President
Tully Construction Co., Inc.
127-50 Northern Blvd.
Flushing, NY 11368
with a copy to:
Mr. Mac Gutman
Gutman & Gutman
108-18 Queens Blvd.
7th Floor
Forest Hills, NY 11375
If to U.S. Environmental, Inc.:
Mr. Thomas Tate, President
Page 5
<PAGE>
U.S. Environmental, Inc.
Suite 630
1150 First Avenue
King of Prussia, PA 19406
Any notice given under this contract shall be effective, if sent by mail on
the date of placing the same in the U.S. mails, and if by personal delivery,
on the date of such delivery.
Assignment
- ----------
No party may assign or transfer this contract, in whole or in part, or any
interest arising hereunder, without the other party's prior notice written
consent.
Non-Disclosure
- --------------
A. None of the parties hereto shall gratuitously disclose any information
regarding any part of this contract, except such as may be specifically
required by law or upon written approval of all parties of this contract.
B. The parties recognize and acknowledge that exclusively as a result of this
contract, they may have access to confidential information in the form of
trade secrets of each other, or of their customers, of a special and unique
value, which may include, without limitation, formulas, patents, devices or
compilation of information, such as the books, records relating to operation,
finance, accounting, sales, personnel and management, policies and matter
relating particularly to operations such as customer names, addresses and
price lists, customer service records, cost of providing service and
equipment, operating and maintenance costs and pricing materials. The
protection of this confidential information against unauthorized disclosure
and use is of critical importance to the parties, and each therefore agrees
that it will not, at any time, either while contracting with each other or
thereafter, make any independent use of, or disclose to any person, other than
an employee of each other in the ordinary curse of their mutual businesses, or
organization except as authorizes by each other or as required by law, any
such confidential information.
Restrictive Covenant and Covenant Not To Compete
- ------------------------------------------------
During the term of this Agreement and extensions thereof the parties, and
their principals shall not, directly or indirectly (whether as an individual
for his own account, or as a partner, employee, agent, salesman, officer,
director or stockholder, of any business or business entity which may directly
or indirectly do so, or as a corporation with regard to the parties and any
subsidiaries which they may own, develop or purchase) enter into an agreement
with any other entity for this RFP.
Page 6
<PAGE>
Default
- -------
If any party to this contract fails to correct a default hereunder within
sixty (60) days after written notice to do so, the party serving such notice
may unilaterally terminate this on ten (10) days written notice. Waiver of
any default will not be construed as waiver of either a subsequent or
continuing default, unless the issue has been submitted to arbitration as
outlined in Paragraph 17.
Arbitration
- -----------
Any dispute, except as to indemnification, arising under this Agreement will
be resolved by following arbitration proceedings of the American Arbitration
Association, and each party agrees to be bound by the award. The arbitration
shall take place in the State of New York.
Entire Understanding And Modifications
- --------------------------------------
This contract shall be binding upon the parties, their successors and assigns
and constitutes the entire understanding of the parties and may not be
modified except by the written agreement of the parties.
Void
- ----
If any one or more of the provisions of this Agreement should be held contrary
to law or public policy, or should, for any reason whatsoever, be held
invalid, then such provision or provisions shall be null and void and shall be
deemed separate from the remaining provisions of this Agreement which
remaining provisions shall continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this contract to be
executed by their authorized officials on the date herein first written.
For U.S. Environmental, Inc. For Tully Construction Co., Inc.
/s/ Thomas R. Tate June 10, 1996 Peter K. Tully
- -------------------------------- ---------------------------------
Thomas R. Tate, President Peter K. Tully, President
Page 7
<PAGE>
Exhibit 10.17
(DE) U.S. ENVIRONMENTAL, INC.
SUBSCRIPTION AGREEMENT
1. General:
This Subscription Agreement sets forth the terms under which the
undersigned investor, KILGARVAN INVESTMENT & HOLDING COMPANY, LIMITED (the
"Investor"), will acquire 30,447,394 shares of the Common Stock, $.001 par
value per share (the "Shares"), subject to adjustment as provided for herein,
for an aggregate purchase price of $326,000 (U.S.) of (DE) U.S. ENVIRONMENTAL,
INC., a Delaware corporation (the "Company").
The Shares are being sold by the officers and directors of the
Company. There will be no sales commissions paid, and the Company will
receive the entire offering proceeds.
The Shares are being offered by the Company to a suitable Investor
pursuant to Rules 504 or 506 of Regulation D and Section 4(2) of the
Securities Act of 1933, as amended. Execution of this Subscription Agreement
by the Investor shall constitute an offer by the Investor to subscribe for the
Shares on the terms and conditions specified herein. The Company reserves the
right to reject such subscription offer, or, by executing a copy of this
Subscription Agreement, to accept such offer. If the Investor's offer is
accepted, the Company will execute this Subscription Agreement and issue the
Shares. If the Investor's offer is rejected, the payment accompanying this
Subscription Agreement will be returned to the Investor, with no interest
thereon, with the notice of rejection.
2. Acceptance of Subscription Agreement:
It is understood and agreed by the undersigned that the Company will
have the unconditional right to reject this subscription, in whole or in part,
if it believes that the undersigned is not a qualified purchaser under
Regulation D promulgated under the Securities Act of 1933, as amended, or for
any other reason.
3. Investor's Representations, Warranties and Covenants:
The Investor represents, warrants and covenants to the Company as
follows:
a. He acknowledges that he has been furnished with and has been
given access to all underlying documents in connection with this transaction
as well as such other information as he deems necessary or appropriate as a
prudent and knowledgeable investor in evaluating his investment in the
Shares. He further acknowledges that the Company has given him the
opportunity to obtain additional information and to evaluate the merits and
risks of his investment. He acknowledges that he has had the opportunity to
ask questions of, and receive satisfactory answers from, the officers and
directors of the Company concerning the terms and conditions of the offering.
b. He acknowledges that this transaction has not been scrutinized
by the United States Securities and Exchange Commission or by any state
securities commissions.
c. He has adequate means of providing for his current and future
needs and possible personal contingencies, and has no need for liquidity of
his investment in the Shares.
d. He can bear the economic risk of losing his entire investment in
the Shares.
e. He is acquiring the Shares for his own account, for investment
only and not with a view toward the resale, fractionalization, division or
distribution thereof and he has no present plans to enter into any contract,
undertaking, agreement or arrangement for any such resale, distribution,
division or fractionalization thereof.
f. He does not have an overall commitment to investments which are
not readily marketable, including the Shares and other similar investments,
disproportionate to his net worth or gross income.
g. He understands that the offer and sale of the Shares is being
made by means of a private placement of Shares and that he has read or
reviewed and is familiar with this Subscription Agreement.
h. He and his agents or advisers have had an opportunity to ask
questions of and receive answers from the Company, or a person or persons
acting on its behalf, concerning the terms and conditions of this Subscription
Agreement and the transactions contemplated hereby and thereby, as well as the
affairs of the Company and related matters.
i. He has had an opportunity to obtain additional information
necessary to verify the accuracy of the information referred to in
subparagraph (i) hereof.
j. HE UNDERSTANDS THAT THE COMPANY HAS A LIMITED FINANCIAL AND
OPERATING HISTORY.
k. HE UNDERSTANDS THAT THE SHARES ARE A SPECULATIVE INVESTMENT WHICH
INVOLVES A HIGH DEGREE OF RISK OF LOSS BY HIM OF HIS ENTIRE INVESTMENT.
CERTAIN OF THE RISKS CONCERNING AN INVESTMENT IN THE SHARES ARE SET FORTH
BELOW.
(i) Limited Operating History. To date, the Company has not
generated profitable operations. There can be no assurance the Company will
be profitable or that it will be able to expand its operations. The Company's
success is dependent upon its ability to develop new sources of revenue and to
obtain adequate financing for the expansion of its business. There is no
assurance that the Company will be able to develop such revenue or obtain such
financing. The growth of the Company's operations are subject to all of the
risks inherent in development of any new business enterprise, including the
lack of an operating history. The likelihood or success of the Company should
be considered in light of the problems, expenses and delays which are
frequently encountered in the formation of a new business and the competitive
environment in which the Company will operate. See the attached Business Plan
for further information.
(ii) Commercial Acceptance. While the Company believes that a
commercial market exists for its products, there can be no guaranty that such
a market will develop or develop to the extent that the Company anticipates.
(iii) Technological Change. The Company's products are in
an area which may experience significant technological change. The Company
expects that its technology will continue to develop rapidly, and the
Company's future success will depend, in large part, on its ability to
maintain a competitive position with respect to its technology. Rapid
technological change could result in the Company's products becoming obsolete,
which could adversely effect the Company's operations in the future.
(iv) Dilution. The net tangible book value per share of the
Shares after the offering will be substantially less than the price of the
Shares offered hereby. Thus, Investor acquiring Shares in this offering will
be subject to immediate substantial dilution.
(v) Requirement for Additional Funds. It is anticipated that
all of the proceeds from the Shares will be utilized to fund the Company's
projected operating needs for the next 6 months. There is no assurance that
the Company will not require additional capitalization after expending all the
proceeds of this offering. In such event, the failure of the Company to
secure additional funds necessary to finance continued operations will have an
adverse impact on the financial position and growth of the Company, and could
result in the loss by Investor of the entire investment in the Company. The
Company currently has no alternative sources of financing available to it, and
there can be no assurance that alternative financing will be available or
available on acceptable terms when and if the Company requires such financing.
(vi) No Market. THERE IS CURRENTLY A LIMITED MARKET FOR THE
SHARES AND THERE CAN BE NO ASSURANCE THAT ONE MAY DEVELOP IN THE FUTURE.
BECAUSE THE SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER UNDER
CERTAIN LAWS AND REGULATIONS, AND BECAUSE THERE IS NO MARKET FOR THE SHARES,
INVESTORS SHOULD PURCHASE THE SHARES ONLY AS A LONG-TERM INVESTMENT, AS THEY
MAY NOT BE ABLE TO LIQUIDATE THEIR INVESTMENT IN THE SHARES IN EVENT OF AN
EMERGENCY OR FOR ANY OTHER REASON.
(vii) Determination of Offering Price of Shares. The
offering price for the Shares has been determined arbitrarily and is not an
indication of the value of the Shares or the assets or earnings of the
Company.
(viii) No Assurance of Dividends on the Shares; No
Likelihood of Future Dividends on Common Stock. The Company has never paid
and does not expect to pay in the foreseeable future any cash dividends on its
Common Stock. It is anticipated that any earnings which may be generated from
operations of the Company will be used to finance the growth of the Company.
(ix) Limitation on Officer and Director Liability;
Indemnification. In accordance with Delaware law, the Company's Articles of
Incorporation and Bylaws contain provisions providing for the maximum
indemnification provided under Delaware law for officers, directors, employees
and agents.
As a result of the inclusion of such provisions, neither
the Company nor its stockholders may be able to recover monetary damages
against officers, directors, employees and agents of the Company for actions
taken by them, and, with respect to directors, which actions are ultimately
found not to have violated the specific provisions enumerated above, although
it may be possible to obtain injunctive or other equitable relief with respect
to certain actions. If equitable remedies are found not to be available to
stockholders in any particular case, stockholders may not have an effective
remedy against the challenged conduct.
m. He understands all aspects of and risks associated with this
investment or has consulted with his own financial adviser who has advised him
thereof and he has no further questions with respect thereto.
n. HE UNDERSTANDS THAT THERE WILL BE NO MARKET FOR THE SHARES AND
THAT NONE IS LIKELY TO DEVELOP AND THAT THERE ARE SUBSTANTIAL RESTRICTIONS ON
THE SALE OR OTHER TRANSFERABILITY OF THE SHARES; the Shares will not be, and
the Investor has no right to require, that the Shares be registered under the
Securities Act of 1933 or under any state securities laws; there will be no
public market for the Shares and the undersigned may not be able to avail
himself of the provisions of Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act with respect to the resale of the Shares
and, accordingly, THE INVESTOR MAY HAVE TO HOLD THE SHARES INDEFINITELY AND
POSSIBLY MAY NOT BE ABLE TO LIQUIDATE HIS INVESTMENT OR TRANSFER ANY SHARE
WITHOUT POTENTIAL ADVERSE FINANCIAL CONSEQUENCES; THEREFORE, THE SHARES SHOULD
NOT BE PURCHASED UNLESS THE INVESTOR HAS LIQUID ASSETS SUFFICIENT TO ASSURE
THAT SUCH PURCHASE WILL CAUSE NO UNDUE FINANCIAL DIFFICULTIES AND UNLESS THE
INVESTOR CAN OTHERWISE PROVIDE FOR HIS CURRENT NEEDS AND POSSIBLE PERSONAL
CONTINGENCIES.
o. He will not transfer or assign this subscription, the Shares or
any interest therein without the prior written consent of the Company. If
this subscription is accepted, he agrees that the assignment and
transferability of the Shares subscribed for and acquired by him will be
governed by all applicable laws.
p. He understands that the Shares have not been registered under
the Securities Act of 1933 or under any state securities laws on the grounds
that the issuance and sale of the Shares to the Investor is exempt as not
involving a public offering. He further acknowledges his understanding that
the Company's reliance on such exemption is, in part, based upon the
representations, warranties and covenants of the Investor set forth herein.
q. He is knowledgeable and experienced in financial and business
matters. He and/or his financial or business advisers, if any, are capable of
evaluating the merits and risks of an investment in the Shares.
r. All information which he has provided to the Company concerning
his financial position and knowledge of financial and business matters is
correct and complete as of the date set forth at the end of this Subscription
Agreement, and if there should be any material change in such information
prior to acceptance of this Subscription Agreement by the Company, he will
immediately provide the Company with such information.
s. If he is executing this Subscription Agreement on behalf of a
corporation, partnership, trust or other entity, he has been duly authorized
by such entity to execute this Subscription Agreement and all other
instruments in connection with the purchase of the Shares, his signature is
binding upon such corporation, partnership, trust or other entity and he
represents and warrants that such corporation, partnership, trust or other
entity was not organized for the purpose of acquiring the Shares subscribed
for pursuant to this Subscription Agreement and that the acquisition of the
Shares is an authorized investment of the corporation, partnership, trust or
other entity.
4. Anti-Dilution Rights:
The funding obligation of Investor under the Stock Purchase
Agreement entered into between the Investor and the Company dated September
___, 1996 is hereby terminated. The number of shares of the Company's Common
Stock issued to the Investor hereunder is based upon the Investor's current
understanding of the capitalization of the Company. Notwithstanding anything
to the contrary, it is the understanding of the Investor and the Company that
upon the issuance of the 30,447,394 shares to the Investor pursuant to this
Subscription Agreement that the Investor shall own 51% of the outstanding
fully diluted equity securities of the Company. Notwithstanding anything to
the contrary, if the capitalization of the Company is such that the Investor
does not own at least 51% of the fully diluted equity securities of the
Company up to a total authorized capital of 100,000,000 shares, then the
number of shares issued to the Investor shall be adjusted so that the Investor
shall own at least 51% of the outstanding fully diluted equity securities of
the Company through the issuance of 100,000,000 shares.
5. Responsibility and Indemnification:
The Company will exercise its best judgment in the conduct of all
matters arising under this Subscription Agreement. The undersigned
acknowledges that he understands the meaning and legal consequences of the
representations and warranties contained herein, and he hereby agrees to
indemnify and hold harmless the Company, its officers, directors, shareholders
and employees, and any of their affiliates and their officers, directors,
shareholders and employees, or any professional advisor or entity thereto,
from and against any and all loss, damage, liability or expense, including
costs and reasonable attorney's fees, to which said entities and persons may
be put or which they may incur by reason of, or in connection with, any
misrepresentation made by the Investor, any breach of any of his warranties,
or his failure to fulfill any of his covenants or agreements under this
Subscription Agreement.
6. Company Solely Responsible for Disclosure; No Independent Review or
Opinions.
The Company has assumed sole responsibility for compliance with the
disclosure requirements of federal and state securities laws in connection
with the offer and sale of the Shares. No law firm, accounting firm,
securities broker/ dealer or other third party has conducted any due diligence
review of the Company and its business and affairs or any disclosures with
respect thereto, written or oral, made by the Company or others. The Company
has agreed to indemnify and hold harmless its law firm for any claim, loss,
damage or liability incurred as a result of violation of federal or state
securities laws in connection with the disclosure obligations thereof.
Notwithstanding the preparation of any documents or agreements related to the
Company or this investment, the Company's law firm has not rendered any legal
opinions concerning any aspect of the Company's business and affairs,
including but not limited to, the validity or enforceability of any contracts,
agreements, obligations or security interests related to an investment in the
Company. By execution of this Subscription Agreement, the undersigned
acknowledges that the Company is solely responsible for all disclosures to
potential Investors concerning the Company and its business and affairs and
that no legal opinions have been rendered by the Company's law firm as
described above. For value received, the undersigned does hereby release the
Company's law firm and its officers, directors, shareholders and employees
from any claim, loss, liability or damage with respect to the foregoing.
7. Survival of Representations, Warranties, Covenants and Agreements:
The representations, warranties, covenants and agreements contained
herein shall survive the delivery of, and the payment for, the Shares.
8. Notices:
Any and all notices, designations, consents, offers, acceptances or
any other communication provided for herein shall be given in writing by
registered or certified mail which shall be addressed to, in the case of the
Company, [Swiss American Capital Management, Inc.]; and in the case of the
Investor, to the address set forth in this Subscription Agreement or otherwise
appearing on the books of the Company or his residence or to such other
address as may be designated by him in writing.
9. Miscellaneous:
This Subscription Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware, both
substantive and remedial. The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Subscription Agreement. This Subscription Agreement
shall be enforceable in accordance with its terms and be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors, assigns, executors and administrators, but this Subscription
Agreement and the respective rights and obligations of the parties hereunder
shall not be assignable by any party hereto without the prior written consent
of the other. This Subscription Agreement represents the entire understanding
and agreement between the parties hereto with respect to the subject matter
hereof; supersedes all prior negotiations, letters and understandings relating
to the subject matter hereof; and cannot be amended, supplemented or modified
except by an instrument in writing signed by the party against whom
enforcement of any such amendment, supplement or modification is sought. In
the event of any litigation between the parties to this Subscription Agreement
relating to, or arising out of, this Subscription Agreement, the prevailing
party shall be entitled to an award of reasonable attorney's fees and costs,
whether incurred before, during or after trial or at the appellate level. The
failure or finding of invalidity of any provision of this Subscription
Agreement shall in no manner affect the right to enforce the other provisions
of same, and the waiver by any party of any breach of any provision of this
Subscription Agreement shall not be construed to be a waiver by such party of
any subsequent breach of any other provision.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this 29th day of April, 1997.
KILGARVAN INVESTMENT &
HOLDING COMPANY, LIMITED
/s/ Dr. F. Kunzli
Print Name: Dr. F. Kunzli
Title: Director
/s/ P. Seeholzer
Print Name: P. Seeholzer
Title: Director
SUBSCRIPTION ACCEPTED:
(DE) U.S. ENVIRONMENTAL, INC.,
a Delaware corporation
By: /s/ Max Schmid
Print Name: Max Schmid, President
MTC/ej/127254
4/28/97
<PAGE>
Exhibit 10.18
REGULATION S INVESTOR REPRESENTATION
AND SUBSCRIPTION AGREEMENT
U.S. Environmental, Inc.
630 Parkview Tower
First Avenue
King of Prussia, PA 19406
Gentlemen:
1. Subscription. The undersigned subscriber (the "Purchaser") hereby
irrevocably subscribes for and agrees to purchase 2,000,000 shares of U.S.
Environmental, Inc., a Delaware corporation (the "Company"), Common Stock, par
value $.0001 in accordance with the terms hereof in consideration of $150,000.
2. Representation and Warranties. The Purchaser hereby acknowledges,
represents and warrants to and agrees with the Company as follows:
(a) The Purchaser represents and warrants that it is not (1) a U.S.
person (as defined in Rule 902(o) of Regulation S) or as set forth in Schedule
"A" attached hereto).
(b) The Purchaser acknowledges that the offer and sale of the
Shares is not taking place within the United States, but rather in an offshore
transaction. "United States" means the United States of America, its
territories and possessions, and any state of the United States, and the
District of Columbia. At the time the buy order for the Shares was
originated, the Purchaser was outside the United States and is outside the
United States as of the date of the execution and delivery of this agreement.
(c) The Purchaser acknowledges its understanding that the offer and
sale of the Shares intended to be exempt from registration under the
Securities Act of 1933, as amended (the "Act"), by virtue of Regulation "S"
promulgated thereunder.
(d) The Purchaser acknowledges that the Shares have not been
registered under the Act and, therefore, cannot be offered or sold in the
United States or to U.S. persons for a period of a minimum of 40 days from the
sale of securities, unless the Shares are registered under the Act, or an
exemption from the registration requirements of the Act is available.
(e) The Purchaser represents and warrants that if the
certificate(s) is requested by the Purchaser to be issued in the name of a
nominee, each and every beneficiary for which said certificate(s) is held by
the nominee will be non-U.S. persons, as defined in Rule 902(o) of Regulation
S. The Purchaser acknowledges that this Agreement and any certificate
representing the Shares issued under this Agreement shall bear the restrictive
legend set forth in Paragraph 2(j) of this Subscription Agreement. The
Purchaser further acknowledges that the Company will effect a conveyance only
in accordance with the regulations of Regulation S; the Company further
agrees, subject to Regulation S, that upon lapse of the date inserted in the
legends as described in Paragraph 2(j), the Company will, upon request of the
Purchaser, reissue the certificate(s) within forty eight (48) hours, deleting
said restrictive legend and any other encumbrances.
(f) The Purchaser is not purchasing the Shares with the present
intention of "distributing" the Shares on behalf of the Company or a
"distributor" as defined in Regulation S, or any of the affiliates in the
United States or to a U.S. person.
(g) The Purchaser represents and warrants and hereby agrees that all
offers and sales of the Shares by the Purchaser in the United States or to a
U.S. person or otherwise shall be made only pursuant to our registration of
the Shares, under the Act or an exemption from registration.
(h) The Purchaser acknowledges that the Shares cannot be sold by it in
the United States as part of a "distribution" plan as such term is defined in
the Federal Securities Laws of the United States.
(i) The Purchaser is not a "distributor" as defined in Regulation S.
No "distributor" has been relied upon by the Purchaser to facilitate its
purchaser of the Shares.
(j) The Purchase acknowledges that this Subscription Agreement and any
certificate representing the Shares issued pursuant to this Subscription
Agreement shall bear the following restrictive legend and stop-transfer
instructions will be issued to any transfer agent of such Shares to insure
compliance with the provisions of Regulation S and the Securities Act:
"These Shares have been issued subject to Regulation "S" as an
exemption to the registration provisions under the Securities Act of 1933, as
amended. These Shares cannot be transferred, offered or sold in the United
States or to U.S. Persons (as defined in Regulation "S") until after
______________, 199__ (40 days from the Closing Date)."
(k) The Purchaser has executed this Subscription Agreement outside
of the United States.
(l) The Purchaser's name and place of business is as follows:
Commodity Trade, Ltd.
c/o Turicum Private Bank
Turicum House
315 Main Street
P.O. Box 619
Gibraltar
IN WITNESS WHEREOF, the Purchaser has executed this Subscription
Agreement on this _______ day of ______________________ 199__.
Commodity Trade, Ltd.
c/o Turicum Private Bank
Turicum House
315 Main Street
P.O. Box 619
Gibraltar
/s/ P. Seeholzer /s/
--------------------------------
(Signature and Title)
ACCEPTED BY:
U.S. ENVIRONMENTAL, INC.
By: /s/ Thomas R. Tate
Title: President
Dated: November 20, 1996
MTC/ej/109970
<PAGE>
Exhibit 10.19
FINANCING REPRESENTATION AGREEMENT
This Financing Representation Agreement ("Agreement") is entered into as
of February ___, 1997 between Swiss American Capital Management, Inc., a
Florida corporation ("Representative") and (DE) U.S. Environmental, Inc., a
Delaware corporation and any of its assigns or joint venture partners
("Company").
WHEREAS, the Company has certain rights to the technology for the
development and construction of recycling virtrification plants and desires to
retain the Representative to assist it in securing the financing necessary for
the development and construction of virtrification plants using the Company's
technology; and
WHEREAS, the Representative has facilitated equity financings of the
Company and this Financing Representation Agreement is a material and
fundamental condition of such equity financings of the Company; and
WHEREAS, the Representative is agreeable to and financially capable of
providing financial services on the terms and conditions set forth below; and
WHEREAS, the parties desire to set forth their understandings in writing.
NOW, THEREFORE, consideration of the mutual agreements and covenants set
forth in this Agreement, the sum of Ten Dollars ($10.00) and other good and
valuable consideration, the parties agree as follows:
1. Engagement of Representative. The Company engages the
Representative as its non- exclusive representative worldwide, with the rights
described in Section 2 below, to arrange for and provide financing for
virtrification plants including but not limited to equipment cost, site
preparation, construction costs, permitting, utility hook-up, legal costs,
land acquisition or site lease and other project related costs. These costs
shall constitute the project development contract amount as referred to
hereinafter. The Company understands the Representative intends to utilize
Special Purpose Vehicles ("SPV") to facilitate the financing for such
projects. The Company is agreeable to assigning its rights to its interests
in the assets, service and other contracts relating to such virtrification
plant development, operation and construction to the SPV so that the SPV may
collateralize and secure its fund raising efforts with the property, plant,
equipment, service contracts and other assets relating to specific
virtrification plant projects financed through the SPV.
2. Right of First Refusal. The Company hereby grants the
Representative the primary and initial notification for a right of first
refusal for any vitrification plant projects requiring financing. Prior to
the Company submitting a bid, Request for Proposal (RFP) response or other
offer for development of a vitrification plant and the relating service
agreement, the Company will provide the Representative with the relevant
documentation setting forth the pricing structure for the bid. The
Representative shall have, whenever possible, a 90-day period to evaluate the
schedules of construction costs, operating expenses and their respective
budgets to determine whether, at that pricing, it is willing to undertake the
related project financing. If the Representative accepts the pricing
structure set forth in the RFP bid or tender and so notifies the Company in
writing within said (whenever possible) 90-day right of first refusal period,
then the Representative shall have the right and obligation to facilitate the
financing for the respective project. In turn, the Company agrees to assign
the assets relating to that project and the related service and other
contracts to the Representative or its SPV in order to facilitate the
financing.
During the 90-day evaluation period (whenever possible) by the
Representative, the Company shall have the right to explore alternative
financing options, should the Representative not accept the bid.
3. Role of the SPV. The Representative through its SPV's (operating
under a trust indenture), will be responsible for the necessary funding for
the entire project including: the disbursement of all funds relating to the
construction (payment schedules to be agreed between the Company and the
Representative for each individual project, which include and incorporate the
interests of the Company described in Paragraph 4 below), which include but
are not limited to operating expenses, maintenance expenses, plant management,
transportation (where applicable) and other related expenses. The SPV will
have ninety (90) days from the date of executing a final project award
contract to secure a funding commitment for the project. Any extension shall
require the mutual consent of all parties to this agreement.
4. Interest of Company. The parties understand that the SPV will only
have rights to the project and related service and other contracts to the
extent the SPV is able to facilitate funding as outlined herein for a specific
project. The SPV will use its best efforts and endeavor, subject to economic
feasibility and the consent of the other parties necessary to consummate the
funding structured by the SPV, including but not limited to the trustee,
letter of credit or other credit enhancement provider, bonding company or
rating agency to provide the Company with the following rights as it relates
to a specific project funding:
The Company will receive 40% of the project development contract
amount upon closing of the funding arranged by the SPV for that project.
Thereafter, 10% of the project contract amount shall be paid to the Company
every 60 days.
The Company will receive a management fee. This fee will be solely
for the purpose of reimbursing the Company for its expertise in the overall
management of the facility. It will not include operation, maintenance or any
other expenses associated with the facility. During the first year of
operation, the Company will receive a management fee as follows. The fee paid
shall not exceed $100,000 per month for a standard 600TPD plant as
contemplated in the Town of Hempstead RFP. The monthly fee will be a minimum
of $80,000 per month for a standard 600 TPD plant as contemplated in the
Hempstead RFP. After the first year of operation, the Company will receive a
management fee based on a percentage of actual operating costs and include an
incentive for meeting or coming in under budget projections. The specific
project management fee will be outlined and attached hereto as an addenda.
The specific project management fee addenda will be negotiated prior to final
commitment of the parties to the project.
5. Term. This Agreement is non-cancelable unless mutually agreed upon
in writing by both parties. The proposed Town of Hempstead project is part of
this Agreement.
6. Confidentiality. The parties will hold, and will cause their
respective officers, directors, employees, agents, consultants, to hold, in
strict confidence, unless compelled to disclose by judicial or administrative
process, other requirements of law, all confidential documents and
confidential information concerning the other party furnished to it by the
other party or such parties, officers, directors, employees, agents,
consultants, or representatives in connection with this agreement or the
transactions contemplated herein. To the extent a party marks any
information, documents, or schedules as "Confidential" it will be treated as
confidential for purposes of this Agreement. It is understood and should be
noted that a portion of this information has been drawn from research sources
clearly in the public domain. A portion of other information remain "common
reasoning". Such previous public knowledge on the part of the parties shall
not be allowed as a reason to excuse the parties from honoring this agreement.
7. Amendment. No amendment to this Agreement shall be valid unless
such amendment is in writing and is signed by authorized representatives of
all parties to this Agreement.
8. Waiver. Any of the terms and conditions of this Agreement may be
waived at any time and from time to time in writing by the party entitled to
the benefit thereof, but a waiver in one instance shall not be deemed to
constitute a waiver in any other instance. A failure to enforce any provision
of this Agreement shall not operate as a waiver of the provision or of any
other provision hereof.
9. Severability. In the event that any provision of this Agreement
shall be held to be invalid, illegal or unenforceable in any circumstances,
the remaining provisions shall nevertheless remain in full force and effect
and shall be construed as if the unenforceable portion or portions were
deleted.
10. Governing Law/Dispute Resolution. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware. Disputes shall be resolved through AAA arbitration proceedings.
Venue for any arbitration shall be Bermuda.
11. Notices. All notices, requests, payments, instructions, claims or
other communications hereunder shall be in writing and shall be deemed to be
given or made when delivered by first-class, registered or certified mail to
the following address or addresses or such other address or addresses as the
parties may designate in writing in accordance with this Section:
If to Company: U.S. Environmental, Inc.
630 Parkview Tower
First Avenue
King of Prussia, PA 19406
If to Representative: Swiss American Capital Management, Inc.
201 E. Kennedy Boulevard, Suite 1900
Tampa, FL 33602
12. Publicity. All press release or public announcements regarding this
Agreement or future project financings shall be in a form that is mutually
agreeable
13. Assignment. Except for the Representatives rights to assign rights
to the SPV's this agreement is not assignable by either party without the
prior written consent of the other party which shall not be unreasonably
withheld.
14. Execution in Counterparts. This Agreement may be executed by the
parties in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which when taken together shall
constitute one and the same agreement. This Financing Representation
Agreement supersedes and restates the previous agreement entered into between
the parties on or about November 20, 1996.
DATED as of February 28, 1997
(DE) U.S. ENVIRONMENTAL, INC.
/s/ Maurice Spatt
By: Maurice Spatt
Its: President
SWISS AMERICAN CAPITAL MANAGEMENT, INC.
/s/ Thomas P. Dolan
By: Thomas P. Dolan
Its: President
MTC/ej/110142
2/24/97
JOINDER OF JOINT VENTURE PARTNER
Tully Construction Co., as a joint venture partner for the Town of
Hempstead RFP, has no objection to the Financing Representation Agreement
between Swiss American Capital Management, Inc. and U.S. Environmental, Inc.
This representation is limited in scope specifically to the Town of Hempstead
RFP and the Joint Venture agreement between Tully and U.S. Environmental. Inc.
TULLY CONSTRUCTION CO., INC.
/s/ Peter K,. Tully
By: Peter K. Tully
Its: President
MTC/ej/110142
2/24/97
<PAGE>
Exhibit 10.20
MANAGEMENT AGREEMENT
THIS AGREEMENT made as of this 18th day of April, 1997, between (DEL) U.S.
Environmental, Inc., a Delaware corporation, hereinafter called "Company",
and Swiss American Capital Management, Inc., a Florida corporation qualified
to do business in Florida ("Manager").
WHEREAS, Manager shall operate the business and affairs of the Company
for the benefit of the Shareholders; and
WHEREAS, Manager has the expertise to provide the services offered by the
Company on behalf of the Shareholders;
WHEREAS, Company desires to engage Manager to manage the operation of the
business and Manager desires to accept such engagement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, Company and Manager agree as follows:
1. Employment of Manager. Owner hereby appoints Manager and Manager
hereby accepts the appointment as manager to provide the Services.
2. Term. The services of Manager shall commence upon the date of this
Agreement, and shall continue until terminated as provided under Paragraph
7. The terms of this Agreement are contemplated to and shall survive the
date of termination of Manager's services hereunder.
3. Manager's Duties - General. From the effective date of this
Agreement until the date of its termination, Manager shall be responsible for
all operations, regulatory compliance, sales and marketing provided by the
Company. The determination of Manager as to amounts to be expended for such
purposes shall be final and Company will make available to Manager all monies
deemed necessary by Company for Manager to fulfill its responsibilities under
this Agreement.
4. Specific Duties of Manager. During the period of this Agreement,
Manager shall use its best efforts in the management and operation of the
business of the Company so that the Company will be operated and maintained in
a first quality manner.
a. Submit before the beginning of each operating year and before
the same date of each year thereafter an estimated profit and loss statement
for the ensuing operating year, including a schedule of revenues and budget
estimates in detail for repairs, maintenance, replacements, promotional and
marketing efforts, and capital expenditures for each ensuing year. (All
budget estimates are hereinafter referred to collectively as the "Annual
Plan.")
b. Establish and supervise accounting functions, with appropriate
accounting and cost control systems. Manager shall cause to be prepared and
filed all necessary reports with respect to withholding taxes, social security
taxes, unemployment insurance, disability insurance, the Fair Labor Standards
Act, and all other statements and reports pertaining to labor employed on
Company's payroll in or about the Properties, if any.
c. Make available to Company, the services of Manager's
specialized expertise through duly licensed and competent personnel which
would be useful in the performance of Manager's specific responsibilities
hereunder, including its operation of the Company in conformity with all SEC
rules and regulations for the operation of a publicly held corporation.
d. Arrange for compliance with all statutes, ordinances, laws,
rules, regulations, orders, and determinations affecting or issued in
connection with the business of Company.
5. Manager's Compensation During Operating Period. As compensation
for the services to be rendered by Manager, Company will pay to Manager on
each monthly anniversary date of this Agreement a sum to be mutually agreed
upon by Company and Manager. Company shall be responsible for all expenses
which Manager incurs in performing its duties hereunder and will make monies
available to Manager on a timely basis. Notwithstanding any other provision
hereof, Manager shall be entitled to additional reasonable compensation for
services rendered to Company at Company's request and not specified as
Manager's responsibility under this Agreement, including without limitation
and by way of example the supervising of attorneys and other professionals
hired to represent Company's interests.
6. Insurance.
a. Manager shall maintain insurance of such kinds and amounts as
Company shall be required to carry pursuant, as well as any other insurance
that Company or any governmental entity shall require.
b. Periodically, Manager shall furnish Company with a schedule
setting forth the kinds and amounts of insurance then in force and the names
of the insurers, and also setting forth such additional kinds and amounts of
insurance as Manager then intends to procure. Promptly following the
submission of each such schedule, Company shall notify Manager of any change
in the kinds and amounts of insurance then in force or intended to be procured
by Manager which Company shall elect to make and Manager shall forthwith apply
for and obtain, if obtainable, endorsements to reflect any such change in the
insurance then in force and such additional kinds and amounts of insurance as
Company designates. All such additional insurance shall be obtained from such
companies and through such brokers as Company shall direct.
c. All policies of insurance shall name as the insureds thereunder
Company, Manager and such other parties as may be required by the provisions
of any mortgage, as their respective interests may appear. All policies of
hazard insurance shall include loss payment clauses in the form required by
any mortgage or lease. All insurance shall be obtained at Company's expense.
The originals of all policies of insurance and duplicates thereof shall be
delivered to Owner and to the holder of any mortgage as Company shall direct.
d. Provided Manager shall procure and keep in force all of the
procurable insurance required to be obtained by Manager pursuant to the
foregoing provisions of this Paragraph 6, neither Company nor Manager shall
assert against the other any claims for losses, damages, liability, or
expenses (including attorneys' fees) incurred or sustained by either of them,
to the extent that the same are covered by such insurance, on account of
damage or injury to person or property arising out of the ownership,
operation, or maintenance of the Properties. To the extent that the same
exceed the amount covered by such insurance, such excess shall be paid by
Company.
e. Company and Manager shall each give prompt notice to the other
of any claims made against either of them in connection with the Company and
shall cooperate fully with each other and with any insurance carrier to the
end that all such claims will be properly investigated and defended. Manager
shall not hire any attorneys to defend any such claim against Company without
Company's consent.
7. Termination of Agreement. This Agreement and the employment of
Manager shall be terminated and, except as to liabilities or claims which
shall have accrued or arisen prior to such termination, all obligations
hereunder shall cease upon the happening of any of the following events:
a. If there shall be filed by Manager or Company in any court
pursuant to any statute either of the United States or of any state a petition
in bankruptcy or insolvency, or for a reorganization, or for the appointment
of a receiver or trustee of all or a substantial portion of its property, or
if Manager or Company makes an assignment for or petitions for or enters into
an arrangement for the benefit of creditors, or if a petition in bankruptcy is
filed against Manager which is not discharged within ninety (90) days
thereafter.
b. The giving of notice by Manager that it has elected, for any
reason whatsoever, not to provide the services of Manager for the operations
of the Company.
c. Upon the giving of written notice by either party to the other
of its election to terminate this Agreement, which termination shall be
effective upon appointment by Company of a successor manager for the Company,
but in any event no later than thirty (30) days after the giving of such
notice.
d. The occurrence of a default hereunder on the part of any party,
if written notice of such default is given to the defaulting party and such
default is not cured within a reasonable time thereafter, not to exceed thirty
(30) days.
8. Prohibition of Assignment. Manager shall not assign this
Agreement or any of its rights hereunder; nor shall this Agreement or any of
Manager's rights or obligations hereunder be transferable on Manager's part by
operation of law or otherwise, except by merger or consolidation with another
entity if the operating personnel of the surviving entity at the time of such
merger or consolidation shall be substantially the same as the operating
personnel of Manager.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed on the day and year first above written.
WITNESSES: COMPANY:
(DEL) U.S. ENVIRONMENTAL, INC., a
Delaware corporation
/s/ Deborah Pease By: /s/ Max P. Schmid
Print Name: Deborah Pease Its: President
MANAGER:
SWISS AMERICAN CAPITAL
MANAGEMENT, INC., a Florida Corp.
/s/ Deborah Pease By: /s/ Thomas P. Dolan
Print Name: Deborah Pease Its: President
<PAGE>
Exhibit 10.21
AGREEMENT
This Agreement is made and entered into on the 29th day of September, 1997,
by and between (DEL) U.S. ENVIRONMENTAL, INC. ("Company"), and ERNIE MICCICHE
("Micciche").
WITNESSETH:
WHEREAS, Micciche loaned the Company the principal amount of $16,646.00
as evidenced by a promissory note (the "Note").
WHEREAS, the Note which was due on June 17, 1992 with interest accruing
at the rate of 18% from the date of issuance, is currently in default and has
accrued interest in the amount of $15,981.46.
WHEREAS, Micciche is able to provide the original Note.
WHEREAS, the Company wishes to cancel the original Note and as payment in
full issue to Micciche 100,000 restricted shares of Company stock according to
the terms set forth below.
WHEREAS, Micciche desires for the Company to cancel the original Note and
as payment in full issue to Micciche 100,000 shares of Company stock according
to the terms set forth below.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and
for other good and valuable consideration, the receipt and sufficiency of
which
are hereby acknowledged, the parties, intending to be legally bound, hereby
agree
as follows:
1. Cancellation of Note. Upon execution of this Agreement, the
Company
will cancel the Note.
2. Release. Except for the obligations as set forth in Sections 1
through 3 of this Agreement, Micciche does hereby and by these presents, for
itself, its successors and assigns, fully remise, release, acquit and forever
discharge the Company its successors and assigns, of any and all rights,
claims,
demands, actions and causes of action of any nature whatsoever, whether
arising
at law or in equity, by reason of any matter, cause, happening or thing from
the
beginning of time occurring prior to and including the date of this Agreement.
3. Governing Law. This Agreement has been executed and delivered and
its terms and provisions are to be governed and construed by the laws of the
State of Florida.
4. Binding Effect. This Agreement shall be binding upon and shall
insure to the benefit of the respective parties hereto and their respective
heirs, personal representatives, successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
the day and year first above written.
WITNESSES: COMPANY:
(DEL) U.S. ENVIRONMENTAL, INC.
/s/ Thomas P. Dolan By: /s/ M. Schmid M. Schmid
Print Name: Thomas P. Dolan Title: President
_____________________________
Print Name: ___________________
WITNESSES: MICCICHE:
/s/ Jennifer McCormick /s/ Ernie Micciche
Print Name: Jennifer McCormick ERNIE MICCICHE
_____________________________
Print Name: ___________________
MTC/ej/139068
9/30/97
<PAGE>
AGREEMENT
This Agreement is made and entered into on the 29th day of September,
1997, by and between (DEL) U.S. ENVIRONMENTAL, INC. ("Company"), and LOUIS
SEPE, and MARIA SEPE, his wife (jointly "Sepe").
WITNESSETH:
WHEREAS, Sepe loaned the Company the principal amount of $66,187.00 as
evidenced by two promissory notes, one in the amount of $12,500.00 and one in
the amount of $53,687.00 (the "Notes").
WHEREAS, the Notes which were due on June 17, 1992 with interest accruing
at the rate of 18% from the date of issuance, are currently in default and
have accrued interest in the amount of $92,313.00.
WHEREAS, Sepe may not be able to locate the original Notes.
WHEREAS, the Company wishes to cancel the original Notes and issue a new
note to Maria Sepe for the amount of $66,000.00 to be paid over a period of 33
months at $2,000.00 a month, beginning October 15, 1997 and to issue to Louis
Sepe 1,000,000 restricted shares of Company's stock dated September 29, 1997
according to the terms set forth below.
WHEREAS, Sepe desires for the Company to cancel the original Notes and
issue a new note to Maria Sepe for the amount of $66,000.00 to be paid over a
period of 33 months at $2,000.00 a month and to issue to Sepe 1,000,000
restricted shares of Company stock according to the terms set forth below.
NOW, THEREFORE, in consideration of the mutual promises herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties, intending to be legally bound,
hereby agree as follows:
1. Cancellation of Notes. Upon execution of this Agreement, the
Company will cancel the Notes.
2. Issuance of New Notes. Upon execution of this Agreement, the Company
will issue a new note to Maria Sepe for the amount of $66,000.00 at no
interest to be paid over a period of 36 months at the rate of $2,000.00 per
month.
3. Restricted Shares. Upon execution of this agreement the Company
will issue 1,000,000 restricted shares to Louis Sepe for satisfaction of
interest due on the Notes and services rendered by Louis Sepe to the Company
(the "Shares"). The Shares will be restricted for two (2) years from the date
of issuance. All voting rights for the Shares will be transferred to the
Board of Directors of the Company by proxy for the two (2) year restricted
period. The 1,000,000 shares of the Company stock will be held in escrow
according to the terms set forth below.
4. Escrow of Shares. The 1,000,000 shares shall be held in escrow in a
trust account at the law firm of Johnson, Blakely, et al. The shares are to
be released at the end of the 2 year period. The Shares shall be issued on
September 29, 1997 and remain Company restricted, throughout the full two year
period as set forth in Section 3 above.
5. Release. Except for the obligations as set forth in Sections 1
through 4 of this Agreement, Sepe does hereby and by these presents, for
itself, its successors and assigns, fully remise, release, acquit and forever
discharge the Company its successors and assigns, of any and all rights,
claims, demands, actions and causes of action of any nature whatsoever,
whether arising at law or in equity, by reason of any matter, cause, happening
or thing from the beginning of time occurring prior to and including the date
of this Agreement.
6. Governing Law. This Agreement has been executed and delivered and
its terms and provisions are to be governed and construed by the laws of the
State of Florida.
7. Binding Effect. This Agreement shall be binding upon and shall
insure to the benefit of the respective parties hereto and their respective
heirs, personal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
the day and year first above written.
WITNESSES: COMPANY:
(DEL) U.S. ENVIRONMENTAL, INC.
/s/ Thomas P. Dolan By: /s/ M. Schmid M. Schmid
Print Name: Thomas P. Dolan Title: President
_____________________________
Print Name: ___________________
WITNESSES: SEPE:
/s/ Herbert I. Hollander /s/ Louis Sepe
Print Name: Herbert I. Hollander Louis Sepe
_____________________________
Print Name: ___________________
/s/ Herbert I. Hollander /s/ Maria Sepe
Print Name: Herbert I. Hollander Maria Sepe
_____________________________
Print Name: ___________________
MTC/ej/139065
9/30/97
<PAGE>
TERM NOTE PROMOSSORY NOTE
September 29, 1997
$66,000 July 15, 2000
FOR VALUE RECEIVED, the undersigned, (DEL) U.S. Environmental, Inc. , a
Delaware corporation (the "Borrower"), HEREBY UNCONDITIONALLY PROMISES TO PAY
to the order of Maria Sepe (the "Lender), the principal sum of sixty six
thousand DOLLARS ($66,000.00), in thirty three (33) equal consecutive
installments of two thousand DOLLARS ($2,000.00), commencing on October 15,
1995, with subsequent installments payable on the fifteenth day of every
month thereafter, and with last such installment to be due and payable on the
Final Maturity Date of July 15, 2000. This note may be prepaid, at any time
in whole or in part, without penalty.
This note shall at the option of the holder hereof be immediately due and
payable upon the failure to make any payment due hereunder within 90 days of
its due date.
The undersigned and all other parties to this note, whether as endorsers,
guarantors or sureties, agree to remain fully bound hereunder until this note
shall be fully paid and waive demand, presentment and protest and all notices
thereto and further agree to remain bound, notwithstanding any extension,
renewal, modification, waiver, or other indulgence by any holder or upon the
discharge or release of any obligor hereunder or to this note, or upon the
exchange, substitution, or release of any collateral granted as security for
this note. Any holder hereundersigned shall have no recourse upon the assets
of the borrower or obligor beyond those assets assigned to the holder
hereundersigned. No modification or indulgence by any holder hereof shall be
binding unless in writing; and any indulgence on any one occasion shall not
be an indulgence for any other or future occasion. Any modification or change
of terms, hereunder granted by any holder hereundersigned, and each of the
undersigned, notwithstanding the acknowledgment of any of the undersigned,
and each of the undersigned does hereby irrevocably grant to each of the
others a power of attorney to enter into any such modification on their
behalf. The rights of any holder hereof shall be cumulative and not
necessarily successive.
This note shall take effect as a sealed instrument and shall be construed,
governed and enforced in accordance with the laws of the State first
appearing at the head of this note. The undersigned hereby execute this note
as principals and not as sureties
- ------------------------------------------------------------------------------
TERM PRMISSORY NOTE 1 September 29, 1997
Maria Sepe
<PAGE>
signed in the presence of:
/s/ Deborah Pease September 29, 1997
- -------------------------------------
Witness Date
/s/ Max Schmid September 29, 1997
--------------------------------------
Borrower: Date
(DEL) U.S. Environmental, Inc.
President
--------------------------------------
Title
/s/ Deborah Pease September 29, 1997
Witness Date
/s/ Maria Sepe September 29, 1997
--------------------------------------
Lender: Date
Maria Sepe
- ------------------------------------------------------------------------------
TERM PRMISSORY NOTE 2 September 29, 1997
Maria Sepe
<PAGE>
Exhibit 24.1
IRREVOCABLE PROXY
I, Louis J. Sepe, shareholder of (DEL) U.S. Environmental, Inc., a
Delaware corporation ("Corporation"), do hereby irrevocably appoint the
Chairman of the Board of Directors of the Corporation to be my proxy agent
(with full power of substitution) and to vote one million of my shares in the
corporation (issued in payment of interest accrued, in the amount of
$92,313.00 on two promissory notes) with respect to all matters submitted to
the shareholders at all meetings of the shareholders, or any adjournment
thereof, and in all consents to any actions taken without a meeting. This
appointment shall continue for two years from this date, and during said
period, my proxy shall have all the power that we would posses with respect to
the voting of my shares and granting consent. I hereby ratify and confirm all
acts that my proxy shall do or cause to be done by virtue of and within the
limitations set forth in this proxy.
I hereby revoke all proxies previously given by me with respect to all my
shares in the Corporation other than the above one million shares.
I hereby waive my right to cancel this Irrevocable Proxy at any time
during the time period described herein. I hereby acknowledge that this
irrevocable proxy is coupled with an interest as described as follows:
The granting of this proxy is a condition of the issuance to me of the
shares for which this proxy is being granted.
IN WITNESS WHEREOF, I have executed this proxy on this 25th day of October,
1997.
/s/ Louis J. Sepe
__________________
Louis J. Sepe
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000844010
<NAME> (DEL) U.S. ENVIRONMENTAL, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 18,179
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 34,846
<PP&E> 237,755
<DEPRECIATION> 201,721
<TOTAL-ASSETS> 1,518,785
<CURRENT-LIABILITIES> 260,602
<BONDS> 0
0
0
<COMMON> 8,145
<OTHER-SE> 1,082,911
<TOTAL-LIABILITY-AND-EQUITY> 1,518,786
<SALES> 0
<TOTAL-REVENUES> 5,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 708,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,341
<INCOME-PRETAX> (1,623,969)
<INCOME-TAX> (98,600)
<INCOME-CONTINUING> 5,000
<DISCONTINUED> 0
<EXTRAORDINARY> 154,181
<CHANGES> 0
<NET-INCOME> (1,371,188)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> 0
</TABLE>
