UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K/A
Amendment No. 2
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-25998
WASTE SYSTEMS INTERNATIONAL, INC.
(formerly BioSafe International, Inc.)
(Exact name of registrant as specified in its charter)
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Delaware 95-4203626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Fawcett Street
Cambridge, Massachusetts 02138
(Address of principal executive offices) (Zip Code)
(617) 497-4500
Fax (617) 497-6355
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value per share
Series A Warrants
Series C Warrants
Series D Warrants
Series E Warrants
Placement Agent Warrants
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 X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K/A or any
amendment to this Form 10-K/A. ___
As of March 26, 1997, the market value of the voting stock of the
Registrant held by non-affiliates of the Registrant was $ 5,519,553.
The number of shares of the Registrant's common stock, par value $.001
per share, outstanding as of March 26, 1997 was 17,662,569.
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TABLE OF CONTENTS
Explanatory Note: This is amendment No. 2 to Form 10-K Filed with the
Securities and Exchange Commission for the year ended
December 31, 1996.
PAGE
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PART I 1
Item 1. Business 1
Item 2. Is unchanged
Item 3. Is unchanged
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II 12
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 22
Item 9. Is unchanged
PART III
Item 10. Directors and Executive Officers 22
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and
Management 28
Item 13. Is unchanged
PART IV 31
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 31
Signatures
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This Annual Report on Form 10-K/A contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Certain Factors Affecting Future Operating Results of
this Form 10-K/A.
PART I
Item 1. Business
Waste Systems International, Inc. (formerly known as "BioSafe
International, Inc." and referred to herein as the "Company" or "WSI") is a
nonhazardous solid waste management services company currently engaged in the
business of rehabilitating landfills to permit their continued operation with
increased capacity in an environmentally sound manner, referred to by WSI as
"landfill remodeling", and landfill operation. WSI has developed technologies
for handling of waste materials for use in landfill remodeling.
The Company, in January 1997, through an 80% owned subsidiary, entered
the waste collection business in the State of Vermont as its initial step and
new focus to develop fully integrated solid waste management operations in
markets where it believes it can maximize utilization of Company owned or
operated landfills through such integration. An integrated solid waste
management services company offers disposal, collection, transfer and recycling
services. Accordingly, the Company is in the initial stages of investigating
potential acquisitions of waste collection and transfer operations which would
be integrated with current or future landfill remodeling or operation projects.
No binding agreements or understanding for any such acquisitions exist at this
time and no assurance can be given that the Company will be able to complete any
such acquisitions.
As discussed above, WSI is focusing its resources and activities on the
development of an integrated solid waste management business. With the
implementation of Subtitle D Regulations (as defined herein) and a growing
scarcity of urban-center disposal sites, solid waste disposal continues to move
further out from these urban centers. The Company believes that through
utilization of its landfill remodeling process, it will be able to acquire and
develop landfill capacity in or near urban metropolitan areas. On an integrated
basis, the Company believes that this may provide a geographical and logistical
competitive advantage to the extent that the Company's operations are more
centrally located as compared to its competitors with operations extending out
greater distances from disposal sites.
Prior to March 27, 1996, WSI had been actively developing other
technologies with potential application in a number of business areas, including
the manufacture of useful materials from tires and other recycled materials,
contaminated soil cleanup and recycling, industrial sludge disposal, size
reduction equipment design and manufacture (collectively, the "Ancillary
Technologies"), and Major Sports Fantasies, Inc.("MSF"), a business unrelated to
the environmental industry. Since March 27, 1996, the Company has not allocated
its resources or activities to the development or commercial exploitation of the
Ancillary Technologies or MSF. See "Business - Discontinued Operations,
Restructuring and Management Change." The Company believes that the
restructuring, which is now substantially complete, will allow the Company to
improve significantly its operating profitability in the future and has
positioned the Company to pursue successfully additional expansion
opportunities. See "Business - Recapitalization".
The Company, however, is currently maintaining ownership of its
infectious medical waste disposal technology, which is fully developed and
requires no further development costs, which is outside the Company's core
landfill remodeling and operations business. See "Business - Medical Waste
Technology License"
The Company has acquired, through a joint venture in which the Company
has an 80% interest, a landfill located in Moretown, Vermont. The current
estimated available new capacity at this landfill, excluding remodeling, is in
excess of 1 million tons. On September 30, 1996, the Company received its final
permit from the Vermont Department of Natural Resources to commence operations
at the landfill at an average of 350 tons per day("TPD"). On October 7, 1996,
the Company began operations at the landfill which is currently operating at
approximately 150 - 200 TPD. The Company anticipates the operating level of the
landfill to increase to approximately 200 - 250 TPD by the end of the second
quarter of 1997. The Company intends to operate the landfill at that level until
the Company permits and constructs its next cell, at which time the Company
expects to increase the operating level to full capacity.
On July 24, 1994, WSI entered into a contract with the Town of
Fairhaven, Massachusetts to remodel the Town's existing 26 acre landfill. On
June 22, 1995, the Company commenced operations and began accepting waste at the
landfill utilizing existing capacity. On October 11, 1995, a Major Modification
Permit was issued by the Massachusetts Department of Environmental
Protection("DEP") including an Authorization to Construct and remodel the
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initial cell at the landfill. Since then, the Company has completed remodeling
and constructed an initial cell at the landfill, and on August 12, 1996, the
Company received final authorization from the DEP to operate the cell under the
Town's existing permit at 150 TPD. On November 8, 1995, an action was brought
against various parties including the Company relating to the remodeling permits
at the Fairhaven landfill seeking among other things to appeal the permit that
had been issued for remodeling the landfill. See "Legal Proceedings". On
September 9, 1996, pursuant to the Massachusetts Administrative Procedures Act,
the action was heard by a Bristol County Superior Court Judge. As of March
26,1997, a ruling has not been issued. The Company, until the outcome of this
litigation is determined, has ceased making additional capital investments in
this project and has operated the landfill at a reduced capacity. Based on the
extensive delays and additional operating costs to the project because of this
litigation and engineering impacts of delays associated with the litigation,
resulting in the current uncertainty of the long-term economic viability of the
project, the Company has decided to write-off its capital investment in the
project through December 31, 1996 of $6,342,196. Included in the $6,342,196 is a
reserve of $500,000 for additional litigation and ongoing site construction
costs. When the litigation is resolved, the Company at that time will reassess
the continued feasibility of the project.
WSI is actively pursuing additional opportunities in landfill
remodeling and operations and is involved in various stages of project
evaluation or acquisition. At the present time, in addition to the projects in
Moretown, Vermont and Fairhaven, Massachusetts, WSI is developing the following
potential projects:
The Company and the Town of South Hadley, Massachusetts have
entered into a contract that provides for WSI to operate and remodel an existing
26-acre landfill in South Hadley. The Company is currently in the initial stages
of permitting this project and anticipates beginning operations and generating
revenues at this site by the end of 1998 or early 1999.
The Company and the Town of Buckland, Massachusetts have entered into a
contract that provides for WSI to operate and remodel an existing 10-acre
landfill in Buckland. The Company and the Town of Buckland are currently
reviewing available options for proceeding with this project.
Each of these projects is subject to various financing and operational
uncertainties, which are more fully discussed under "Business--Landfill
Remodeling" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Certain Factors Affecting Future Operating Results."
WSI is a Delaware corporation with its principal executive offices at
10 Fawcett Street, Cambridge, Massachusetts 02138. Its telephone number is (617)
497-4500.
Company Background and Reorganizations
The Company was incorporated in Nevada in 1989 as Zoe Capital Corp. and
had no operations until March 29, 1995. On that date, the Company acquired
BioSafe, Inc., (BioSafe), a Delaware corporation, through a merger with a
subsidiary of the Company (the "Acquisition"), and changed its name to "BioSafe
International, Inc." BioSafe, Inc. was incorporated in Delaware in April 1990.
Pursuant to an Agreement and Plan of Merger dated March 17, 1995, among the
Company and BioSafe, Inc., a subsidiary of the Company and certain shareholders
of the Company, all persons serving as directors and officers of the Company
resigned upon the consummation of the Acquisition. The persons serving as
directors and officers of BioSafe immediately prior to the consummation of the
Acquisition were elected to the same offices with the Company and retained their
positions as directors and officers of BioSafe, Inc.. Prior to the Acquisition,
neither BioSafe nor any affiliate of BioSafe had an interest in Zoe Capital
Corp. On October 27, 1997, the Company changed its name to Waste Systems
International, Inc. from BioSafe International, Inc. and changed its state of
incorporation to Delaware from Nevada.
Discontinued Operations, Restructuring and Management Change
On March 27, 1996, the Company announced its intention to take
meaningful actions to conserve cash and working capital, including the
restructuring of the Company's operations to focus its resources and activities
on its core business of landfill remodeling and operation. On that date, the
Company ceased operations at its technology center in Woburn, Massachusetts and
discharged all employees and consultants previously engaged in developing the
Ancillary Technologies, and MSF. In addition, the Company discharged certain
employees involved in the Company's core landfill remodeling and operation
business, including administrative, marketing and sales, and operations
employees. No substantial revenues were received from the technology center
operations and MSF activities.
The Company, however, is currently maintaining ownership of its
infectious medical waste disposal technology, which is fully developed and
requires no further development costs, which is outside the Company's core
landfill remodeling and operations business. See "Business - Medical Waste
Technology License"
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On March 27, 1996, Dr. Richard H. Rosen resigned from the offices of
Chairman of the Board, President, Chief Executive Officer, and Treasurer of the
Company and all of its subsidiaries and affiliates. See Item 3 "Legal
Proceedings". The Board of Directors named Philip Strauss, Chief Operating
Officer, to the additional positions of Chief Executive Officer and President of
the Company. On June 24, 1996 Philip Strauss was also elected Chairman of the
Board of the Company.
Recapitalization
The Company believes that the restructuring, which is now substantially
complete, will allow the Company to improve significantly its operating
profitability in the future and has positioned the Company to pursue
successfully additional expansion opportunities. The ultimate successful
completion of the Company's restructuring is dependent upon the Company's
ability to raise substantial additional capital and to achieve a level of
revenues adequate to support the Company's cost structure. Accordingly, the
Company is in the process of preparing a recapitalization plan and intends to
seek to finalize and implement` this plan by June 30, 1997. In view of the
current financial condition of the Company, the recapitalization plan , if
successful, is likely to result in substantial dilution to existing shareholders
through the issuance of convertible or other equity securities at a depressed
market price.
Industry Background
The Company's strategy responds to the highly fragmented and rapidly
consolidating nature of the solid waste industry. More stringent environmental
regulations and increased demand for additional services such as recycling are
dramatically increasing the capital and management expertise needed to compete
and survive in the industry. It has become prohibitively expensive for many
private companies and especially municipal waste management organizations, to
bring their operations into compliance with today's standards. As a result, many
of these operators are considering alternatives such as privatization and or the
sale or merger of their operations. According to financial analyst reports on
the solid waste industry, only about one-third of the industry is currently
managed by publicly-traded companies. The remaining two-thirds provide numerous
privatization, partnership or acquisition opportunities for public companies
with easier access to capital.
Achieving safer and more efficient disposal and management of solid
waste is an increasingly pressing problem for the solid waste industry. Of
particular importance to WSI's landfill remodeling business are policies being
implemented by the U.S. Environmental Protection Agency ("U.S. EPA") and State
environmental regulatory authorities that are compelling the closure of most
existing unlined landfills throughout the country. Today there are slightly more
than 3,000 operating landfills across the United States. In 1988, there were
more than 8,000. At the same time, the Clean Air Act Amendments of 1990 require
the imposition of stringent limitations on the emission of toxic substances into
the atmosphere from incinerators, further limiting the available options for
disposal of solid waste.
Several categories of materials handling and size reduction technology
are of particular importance in solid waste disposal and management. Materials
handling technology is critical because of the large volume of the materials
involved in most waste streams and the need to achieve separation into usable
and/or recyclable components. Size reduction technology is useful in order to
convert all material to be processed to a uniform size so that it can be
efficiently handled and effectively processed.
The solid waste disposal industry offers opportunities for a company
with engineering technology, know-how, and experience to apply technologies to
particular disposal problems. Substantial effort is required to understand the
materials that are involved in the waste stream and its economic context, and to
develop an effective strategy for dealing with those materials. If this can be
accomplished successfully, WSI believes that it will generally be possible to
structure profitable projects where the Company can play an ongoing role in the
implementation and management of the solution on a revenue-producing basis.
WSI Technology and Strategy
Prior to March 27, 1996, WSI had focused on the development and
implementation of proprietary processes which offered practical benefits to
entities faced with meeting regulatory restrictions on the handling and disposal
of waste, including reductions in capital and operating costs, recycling of
recyclable materials, and reductions of environmental risk. WSI has developed
technology in two important areas of waste processing, materials handling and
size reduction. These technologies are central to WSI's landfill remodeling
process, which enables existing landfill materials to be handled efficiently in
a continuous process.
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As previously discussed, WSI is currently focusing its resources and
activities on the development of an integrated solid waste management business.
The Company believes that through utilization of its landfill remodeling
process, it will be able to acquire and develop landfill capacity in or near
urban metropolitan areas. On an integrated basis, the Company believes that this
may provide a geographical and logistical competitive advantage to the extent
that the Company's operations are more centrally located as compared to its
competitors with operations extending out greater distances from disposal sites.
The key elements of the Company's strategy are to:
1) identify landfills in or near an urban metropolitan
centers that meet the Company's criteria for landfill remodeling or
acquisition;
2) in the region around each of its landfills, develop an
integrated solid waste management operation, including collection
operations and transfer stations, through strategically sound and
financially accretive acquisitions and internal growth, to secure
long-term stable waste and cash flows; and
3) consolidate and optimize the integrated operations
This strategy is intended to enable the Company to continue to grow through new
projects, acquisitions and internal growth.
Landfill Remodeling
Municipal waste at landfills, even if it has been in place for many
years, typically contains a large amount of low density, bulky material. By
processing and recycling this material through WSI's soil separation and size
reduction equipment, it is possible to recapture approximately 40-80% of the
landfills original capacity, based on the Company's feasibility studies and its
initial remodeling work at the Fairhaven landfill to date. First, an area of a
landfill is excavated and processed, then the landfill can be lined in
accordance with current environmental standards. At that time, the site can
receive municipal solid waste and the reprocessed remaining landfill waste.
As this procedure continues through the entire site, it is expected
that (a) the entire landfill can be brought into compliance with current
applicable environmental regulations; (b) the useful life of the landfill can be
extended as a result of the volume reduction of the waste and in effect the
creation of substantial new capacity, which represents an opportunity to
generate revenues from tipping fees for many additional years; and (c) the high
cost of closing down a landfill in compliance with current environmental
regulations can be deferred for years into the future and can be financed
through a sinking fund funded by a share of the tipping fees for the use of
landfill capacity that is charged for new waste which is accepted at the
landfill (referred to as "tipping fees"). The economic life of a landfill
depends upon the amount of waste per day that the landfill is permitted to
accept, the site conditions and relevant regulations governing the geometric
configuration of the landfill, and the amount of additional space that can be
created through remodeling considering the nature of the material found in that
particular landfill.
The Company's approach to landfill remodeling is based on extensive
professional experience of its engineering personnel in connection with
materials handling and size reduction technologies, including field testing of
the technologies used by the Company. In connection with any particular landfill
remodeling project, the Company conducts extensive feasibility studies,
including core samples of existing landfill content, to serve as the basis for
projected volume reduction and new landfill capacity. At this time, the Company
has developed significant experience through initial remodeling activities at
the Fairhaven landfill. In developing its landfill remodeling strategy, the
Company has consulted extensively with State regulatory authorities in various
states having permitting and regulatory authority over landfills which the
Company is evaluating for possible remodeling.
The economics of this proposed solution to the above described landfill
problems will vary from location to location based upon the particular
circumstances of a project, and no assurance can be given that the utilization
of WSI's landfill remodeling technology can achieve cost effective results at
any particular landfill.
Moretown, Vermont Landfill Project
Although the Company's landfill remodeling plans generally focus
primarily on the performance of landfill remodeling and operation under contract
to the landfill owners, in the case of the Moretown project the Company has
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decided to acquire an interest in a landfill. On July 5, 1995, Waste
Professionals of Vermont, Inc. ("WPV"), a corporation 80% owned by the Company,
acquired the property of the Moretown, Vermont landfill, together with certain
related assets. The Moretown landfill was acquired from an entity in bankruptcy
which had owned the real estate on which the landfill had been operating
pursuant to a lease. The Company has permitted the first cell and is in the
process of permitting the second cell of the landfill in Moretown. The current
estimated available space at the landfill is approximately 1 million tons. The
Company intends to complete and operate the landfill. In the future, at such
time as additional capacity can be utilized, the Company may seek to expand the
landfill's capacity by remodeling.
On or about March 31,1997 the Company expects to close a project
financing of $1 million for additional development costs and working capital
requirements of the Moretown landfill project from a local bank. No assurance
can be given that such financing can be obtained on terms satisfactory to the
Company. The Company's indirect ownership of the Moretown landfill involves a
greater degree of exposure to potential environmental liabilities than is
involved with the Fairhaven landfill project and other planned landfill
remodeling projects, although the Company believes that the actual risk is
manageable on the basis of its engineering and economic feasibility studies and
its operating plans for the Moretown landfill.
Fairhaven Landfill Project
On July 24, 1994 WSI entered into a contract with the Town of
Fairhaven, Massachusetts to remodel the Town's existing 26 acre landfill. On
June 22, 1995, the Company commenced operations and began accepting waste at the
landfill utilizing existing capacity. On October 11, 1995, a Major Modification
Permit was issued by the Massachusetts Department of Environmental
Protection("DEP") including an Authorization to Construct and remodel the
initial cell at the landfill. Since then, the Company has completed remodeling
and constructed an initial cell at the landfill, and on August 12, 1996 the
Company received final authorization from the DEP to operate the cell under the
Town's existing permit at 150 TPD. On November 8, 1995 an action was brought
against various parties including the Company relating to the remodeling permits
at the Fairhaven landfill seeking among other things to appeal the permit that
had been issued for remodeling the landfill. See "Legal Proceedings". On
September 9, 1996, pursuant to the Massachusetts Administrative Procedures Act,
the action was heard by a Bristol County Superior Court Judge. As of March
26,1997, a ruling has not been issued. The Company, until the outcome of this
litigation is determined, has ceased making additional capital investments in
this project and has operated the landfill at a reduced capacity. Based on the
extensive delays and additional operating costs to the project because of this
litigation and engineering impacts of delays associated with the litigation,
resulting in the current uncertainty of the long-term economic viability of the
project, the Company has decided to write-off its capital investment in the
project through December 31, 1996 of $6,342,196. Included in the $6,342,196 is a
reserve of $500,000 for additional litigation and ongoing site construction
costs. When the litigation is resolved, the Company at that time will reassess
the continued feasibility of the project.
Other Landfill Remodeling Projects
At the present time, in addition to operations in Fairhaven,
Massachusetts and Moretown, Vermont, WSI is developing the following projects:
South Hadley, Massachusetts. One of the Company's landfill projects
involves a landfill located on a 26-acre parcel in the Town of South Hadley, for
which WSI and the Town entered into an operation and remodeling contract on
August 22, 1995. The Town of South Hadley will retain full ownership of the
landfill. The Company is currently in the initial stages of permitting this
project and anticipates beginning operations and generating revenues at this
site by the end of 1998 or early 1999.
Buckland, Massachusetts. The Company entered into a contract with the
Town of Buckland, Massachusetts in November 1995, under which WSI will operate
and remodel the Buckland community landfill. The Town of Buckland will retain
full ownership of the landfill. The Company and the Town of Buckland are
currently reviewing available options for proceeding with this project.
Medical Waste Technology License
On February 9, 1996, the Company entered into a licensing and royalty
agreement with ScotSafe Limited (ScotSafe), a Glasgow, Scotland based company,
for the exclusive rights to use WSI's continuous flow auger ("CFA") medical
waste processing technology in the British Isles and Ireland. On November 6,
1996 the Company and ScotSafe expanded their licensing agreement throughout
Europe. The initial licensing agreement contemplated that ScotSafe would
establish as many as nine CFA plants, each of which would result in additional
licensing fees to BioSafe. In accordance with the agreement, WSI will provide
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technical assistance in connection with these facilities including facility
design, installation, testing and training. In addition to royalty payments for
each plant, ScotSafe has agreed to pay WSI for consulting and other services,
and will reimburse the Company for its out-of-pocket expenses and disbursements
in connection with these services. As of December 1996, the Company has
completed two plants for ScotSafe under this agreement and has generated
approximately $1,000,000 in gross revenues. The royalty per plant is payable on
a monthly basis over a two year period.
Markets and Competition
The solid waste management industry presents a broad variety of
opportunities, and it is difficult to characterize the market in general terms.
Likewise, the competitive environment is evolving rapidly, as new problems are
identified and new technologies and approaches are developed for dealing with
them. WSI faces competition or potential competition from a large number of
companies, many of which have substantially greater resources than the Company.
The Company believes that its engineering technology, know-how, and experience
represent potential competitive advantages. In certain circumstances, the
Company's marketing approach may require it to expend significant resources in
preliminary phases of a project before there is any assurance that a project is
feasible or that the Company's proposal will be accepted, which necessarily
entails certain financial risks.
At the present time the Fairhaven landfill remodeling project is
believed to be the largest project of its kind in the United States. The Company
has developed significant experience through the operation of this project to
date. There have been some small landfill mining demonstration projects in
Massachusetts, Florida, New York, and Pennsylvania. Landfill mining differs from
landfill remodeling in that landfill mining's principal purposes are to reclaim
recyclables and to reduce the footprint of the landfill to reduce and/or delay
closure and post closure costs. WSI is not aware of any major company involved
in either landfill mining or remodeling at this time. WSI expects that
significant competition is likely to develop as the benefits of the remodeling
approach become more widely known, and that some potential competitors may have
significantly greater resources than BioSafe. WSI has obtained patent protection
for aspects of its remodeling technology. No assurance can be given, however,
that competitors may not be able to successfully challenge WSI's patents, or
develop landfill remodeling technologies which avoid these patents.
Environmental Regulation
The Company and its customers are subject to extensive and evolving
environmental laws and regulations that have been enacted in response to
technological advances and increased concern over environmental issues. These
regulations are administered by the U.S. EPA and various other federal, state
and local environmental, transportation and health and safety agencies. The
Company believes that to a significant extent such laws and regulations have the
effect of enhancing the potential market in which the Company operates, because
the Company seeks to attract customers by offering them economical solutions to
regulatory problems. On the other hand, such laws and regulations represent a
potential constraint on the Company's operation of projects for its customers or
for its own account.
In order to develop and operate a landfill or a landfill remodeling
project, the Company must go through several governmental review processes and
obtain one or more permits and often zoning or other land use approvals. These
permits and zoning or land use approvals are difficult and time consuming to
obtain and may be opposed by various local elected officials and citizens'
groups. Once obtained, operating permits generally must be periodically renewed
and are subject to modification and revocation by the issuing agency.
The Company's remodeling and operation of landfills subject it to
certain operational, monitoring, site maintenance, closure and post-closure, and
financial assurance obligations which change from time to time and which could
give rise to increased capital expenditures and operating costs, although in
landfill projects undertaken for municipalities or other customers the Company
will seek to establish contractual arrangements under which the customer will
assume the risk of any additional capital expenditure requirements arising from
regulatory requirements. In connection with the Company's preliminary
development of landfill remodeling projects, the Company will expend
considerable time, effort and money in complying with the governmental review
and permitting process necessary to remodel and increase the capacity of these
landfills. Governmental authorities have the power to enforce compliance with
these laws and regulations and to obtain injunctions or impose civil or criminal
penalties in the case of violations. Failure to correct the problems to the
satisfaction of the authorities could lead to curtailed operations or even
closure of a landfill.
The principal federal, state, and local statutes and regulations
applicable to the Company's operations are as follows:
The Resource Conservation and Recovery Act of 1976. RCRA regulates the
generation, treatment, storage, handling, transportation and disposal of solid
waste and requires states to develop programs to ensure the safe disposal of
solid waste. RCRA divides solid waste into two groups, hazardous and
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nonhazardous. Wastes are generally classified as hazardous wastes if they (i)
either (a) are specifically included on a list of hazardous wastes or (b)
exhibit certain hazardous characteristics and (ii) are not specifically
designated as nonhazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as nonhazardous.
Among the wastes that are specifically designated as nonhazardous waste are
household waste and special waste. These wastes, which will be accepted at the
Company's landfills, may contain substances that may be as toxic or prove to
cause contamination as some wastes classified and regulated as hazardous.
In October 1991, the U.S. EPA adopted new regulations pursuant to
Subtitle D of RCRA (the "Subtitle D Regulations"). These new regulations became
generally effective in October 1993 (except for certain MSW landfills accepting
less than 100 TPD, as to which the effective date was April 9, 1994, and new
financial assurance requirements, which become effective April 9, 1997) and
include location restrictions, facility design standards, operating criteria,
closure and post-closure requirements, financial assurance requirements,
groundwater monitoring requirements, groundwater remediation standards and
corrective action requirements. In addition, these regulations require that new
landfill units meet more stringent liner design criteria (typically, composite
soil and synthetic liners or two or more synthetic liners) designed to keep
leachate out of groundwater and have extensive collection systems to carry away
leachate for treatment prior to disposal. Groundwater wells must also be
installed at virtually all landfills to monitor groundwater quality. The
regulations also require, where threshold test levels are present, that methane
gas generated at landfills be controlled in a manner that protect human health
and the environment. Each state is required to revise its landfill regulations
to meet these requirements or such requirements, will be automatically imposed
upon it by the U.S. EPA. Each state is also required to adopt and implement a
permit program or other appropriate system to ensure that landfills within the
state comply with the Subtitle D criteria. Many states have already adopted
regulations or programs as stringent as or more stringent than the Subtitle D
Regulations, which were first proposed in August 1988.
The Federal Water Pollution Control Act (the "Clean Water Act"). The
Clean Water Act establishes rules regulating the discharge of pollutants from a
variety of sources, including solid waste disposal sites, into waters of the
United States. If runoff or collected leachate from the Company's landfills is
discharged into a water of the United States, the Clean Water Act would require
the Company to apply for and obtain a discharge permit, conduct sampling and
monitoring and, under certain circumstances, reduce the quantity of pollutants
in such discharge. Also, virtually all landfills are required to comply with the
new federal storm water regulations, which are designed to prevent possibly
contaminated storm water from flowing into surface waters. The Company is
working with the appropriate regulatory agencies to ensure that its facilities
are in compliance with Clean Water Act requirements, particularly as they apply
to treatment and discharge of leachate and storm water. The Company has secured
or has applied for the required discharge permits under the Clean Water Act or
comparable state-delegated programs. To ensure compliance with the Clean Water
Act pretreatment and discharge requirements, the Company has either installed
wastewater treatment systems at its facilities to treat its effluent to
acceptable levels before discharge or has arranged (or is arranging) to
discharge its effluent to municipal wastewater treatment facilities.
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 ("Superfund" or "CERCLA"). CERCLA established a regulatory and
remedial program intended to provide for the investigation and cleanup of
facilities from which there has been, or is threatened, a release of any
hazardous substance into the environment. CERCLA's primary mechanism for
remedying such problems is to impose strict joint and several liability for
cleanup of facilities on current owners and operators of the site, former owners
and operators of the site at the time of the disposal of the hazardous
substances, as well as the generators of the hazardous substances and the
transporters who arranged for disposal or transportation of the hazardous
substances. The costs of CERCLA investigation and cleanup can be very
substantial. Liability under CERCLA does not depend upon the existence or
disposal of "hazardous waste" but can also be founded upon the existence of even
very small amounts of the numerous "hazardous substances" listed by the EPA,
many of which can be found in household waste. If the Company were to be found
to be a responsible party for a CERCLA cleanup, either at one of the Company's
owned or operated facilities has been stored or disposed of, the enforcing
agency could hold the Company completely responsible for all investigative and
remedial costs even if others may also be liable. CERCLA also authorized the
imposition of a lien in favor of the United States upon all real property
subject to or affected by a remedial action for all costs for which a party is
liable. The Company's ability to obtain reimbursement from others for their
allocable share of such costs would be limited by the Company's ability to find
other responsible parties and prove the extent of their responsibility and by
the financial resources of such other parties. In the past, legislation has been
introduced in Congress to limit the liability of municipalities and others under
CERCLA as generators and transporters of municipal solid waste. Although such
legislation has not been enacted, if it were to pass it would limit the
Company's ability to seek full contribution from municipalities for CERCLA
cleanup costs even if the hazardous substances that were released and caused the
need for cleanup at one of the Company's facilities were generated by or
transported to the facility by a municipality.
7
<PAGE>
The Clean Air Act. The Clean Air Act provides for regulation, through
state implementation of federal requirements, of the emission of air pollutants
from certain landfills based upon the date of the landfill construction and
volume per year of emissions of regulated pollutants. The EPA has recently
promulgated new source performance standards regulating air emissions of certain
regulated pollutants (methane and non-methane organic compounds) from municipal
solid waste landfills. The EPA may also issue regulations controlling the
emissions of particular regulated air pollutants from municipal solid waste
landfills. Landfills located in areas with air pollution problems may be subject
to even more extensive air pollution controls and emission limitations. In
addition, the EPA has issued standards regulating the removal, handling and
disposal of asbestos-containing materials.
Each of the federal statutes described above contains provisions
authorizing, under certain circumstances, the bringing of lawsuits by private
citizens to enforce the provisions of the statutes.
The Hazardous Materials Transportation Act. The transportation of
hazardous waste is regulated both by the EPA pursuant to RCRA and by the federal
Department of Transportation ("DOT") pursuant to the Hazardous Materials
Transportation Act ("HMTA"). Pursuant to the HMTA, DOT has enacted regulations
governing the transport of hazardous waste. These regulations govern, among
other things, packaging of the hazardous waste during transport, labeling and
marking requirements, and reporting of and response to spills of hazardous waste
during transport. In addition, under both the HMTA and RCRA, transporters of
hazardous waste must comply with manifest and record keeping requirements, which
are designed to ensure that a shipment of hazardous waste is properly identified
and can be tracked from its point of generation to point of disposal at a
permitted hazardous waste treatment, storage or disposal facility.
The Occupational Safety and Health Act of 1970 ("OSHA"). OSHA
authorizes the Occupational Safety and Health Administration to promulgate
occupational safety and health standards. Various of those promulgated
standards, including standards for notices of hazards, safety in excavation, and
the handling of asbestos, may apply to certain of the Company's operations. OSHA
regulations set forth requirements for the training of employees handling, or
who may be exposed in the workplace to, concentrations of asbestos-containing
materials that exceed specified action levels. The OSHA regulations also set
standards for employee protection, including medical surveillance, the use of
respirators, protective clothing and decontamination units, during asbestos
demolition, removal or encapsulation as well as its storage, transportation and
disposal. In addition, OSHA specifies a maximum permissible exposure level for
airborne asbestos in the workplace. The company has no direct involvement in
asbestos removal or abatement projects.
State and Local Regulation. Each state in which the Company now
operates or may operate in the future has laws and regulations governing the
generation, storage, treatment, handling, transportation and disposal of solid
and hazardous waste, water and air pollution and, in most cases, the citing,
design, operation, maintenance, closure and post-closure maintenance of
landfills and transfer stations. In addition, many states have adopted
"Superfund" statutes comparable to, and in some cases more stringent than,
CERCLA. These statutes impose requirements for investigation and cleanup of
contaminated sites and liability for costs and damages associated with such
sites, and some provide for the imposition of liens on property owned by
responsible parties. Furthermore, many municipalities also have ordinances,
local laws and regulations affecting Company operations. These include zoning
and health measures that limit solid waste management activities to specified
sites or activities, flow control provisions that direct the delivery of solid
wastes to specific facilities, laws that grant the right to establish franchises
for collection services and then put out for bid for the right to provide
collection services, and bans or other restrictions on the movement of solid
wastes into a municipality.
Certain permits and approvals may limit the types of waste that may be
accepted at a landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain permits and approvals,
as well as certain state and local regulations, may limit a landfill to
accepting waste that originates from specified geographic areas or seek to
restrict the importation of out-of-state waste or otherwise discriminate against
out-of-state waste. Generally, restrictions on the importation of out-of-state
waste have not withstood judicial challenge. However, proposed federal
legislation would allow individual states to prohibit the disposal of
out-of-state waste or to limit the amount of out-of-state waste that could be
imported for disposal and would require states, under certain circumstances, to
reduce the amounts of waste exported to other states. If this or similar
legislation is enacted, states in which the Company operates landfills could act
to limit or prohibit the importation of out-of-state waste. Such state actions
could adversely affect landfills within those states that receive a significant
portion of waste originating from out-of-state. The Company has not accepted any
out-of-state waste at its Moretown landfill.
In addition, certain states and localities may for economic or other
reasons restrict the exportation of waste from their jurisdiction or require
that a specified amount of waste be disposed of at facilities within their
jurisdiction. Recently, the United States Supreme Court held unconstitutional,
and therefore invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, certain state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, the Company
8
<PAGE>
may elect not to challenge such restrictions based upon various considerations.
In addition, the aforementioned proposed federal legislation would allow states
and localities to impose certain flow control restrictions. These restrictions
could result in the volume of waste going to landfills being reduced in certain
areas, which may adversely affect the Company's ability to operate its landfills
at their full capacity and/or affect the prices that can be charged for landfill
disposal services.
There has been an increasing trend at the state and local level to
mandate and encourage waste reduction at the source and waste recycling and to
prohibit the disposal of certain types of solid wastes, such as yard wastes, in
landfills. The enactment of regulations reducing the volume and types of wastes
available for transport to and disposal in landfills could affect the Company's
ability to operate its facilities at their full capacity.
The Company believes that it is in compliance with federal, state and
local regulations based on the following; the Company's internal review process
has not identified any non compliance and the Company has not received any
verbal or written notification from any governmental agency to the contrary.
Limits on Insurance
The Company has obtained environmental impairment liability insurance
covering claims for sudden or gradual onset of environmental damage. If the
Company were to incur liability for environmental damage in excess of its
insurance limits, its financial condition could be adversely affected. The
Company carries a comprehensive general liability insurance policy which
management considers adequate at this time to protect its assets and operations
from other risks.
Employees
As of March 26, 1997, WSI had approximately 27 full time employees.
WSIbelieves its future success will depend in part on its continued ability to
recruit and retain highly qualified technical and managerial personnel.
WSI's employees are not subject to any collective bargaining agreement.
WSI considers its relations with its employees to be good.
Item 4. Submission of Matters to a Vote of Security Holders
On February 14, 1997, the Company held a special meeting of
stockholders to approve the change of the Company's state of incorporation from
Nevada to Delaware, including changing its name to "Waste Systems International,
Inc." through a merger of the Company into a wholly-owned subsidiary. As of that
date a quorum was not present and the meeting has been adjourned until April 18,
1997. On October 24, 1997, the Company held its annual meeting of stockholders
and voted to change its name to Waste Systems International, Inc. from BioSafe
International, Inc. and changed its state of incorporation to Delaware from
Nevada effective October 27, 1997. There were 31,237,007 votes cast for, 195,855
votes cast against, 215,510 abstaining and 7,229,615 not voted.
9
<PAGE>
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
The Common Stock has been quoted on the NASDAQ Small-Cap Market under
the symbol "WSII" since November 14, 1995 and previously had been quoted in the
NASD Over-the-Counter market since March 29, 1995. Prior to that date, 49,496
shares of Common Stock had been issued and registered pursuant to a registration
statement under the Securities Act of 1933 as amended, and were eligible for
resale without restriction, although no active trading market existed for the
Company's Common Stock. On March 26, 1997, the reported last sale price of the
Common Stock on the NASDAQ Small-Cap Market was $.3125 per share, and there were
307 holders of record of Common Stock. The Company has not paid dividends and
has no present intention to pay dividends. The following table sets forth the
high and low bid information of the Common Stock for the periods indicated.
High Low
Quarter Ended Closing Bid Closing Ask
1995
------------- ------------ ------------
March 31(1) $3.65
June 30 $8.50 $7.50
September 30 $8.00 $4.87
December 31 $7.63 $4.06
1996
----
March 31 $3.12 $2.62
June 30 $2.25 $3.18
September 30 $1.50 $1.31
December 31 $0.75 $0.56
(1) As adjusted to reflect a 1 for 73.083 reverse stock split effected
on March 29, 1995
In March and April of 1995, the Company issued in a private placement
Units consisting of (a) an aggregate of 4,510,000 shares of Common
Stock and (b) Series D Warrants to purchase an aggregate of 2,255,000
shares of Common Stock at $4.75 per share, for total proceeds of
$9,022,510. Simultaneously, the Company issued 558,578 shares of Common
Stock upon conversion of the convertible notes issued in November 1994.
These issuances were made to unaffiliated investors and was exempt from
registration under Regulation D.
Also in March 1995, the Company issued to U.S. Sachem Financial
Consultants L.P. and Liviakis Financial Communications, Inc. an
aggregate of 1,090,000 shares of Common Stock and warrants to
purchase 720,000 shares of Common Stock at $2.30 per share in
consideration of investment banking and financial public
relations services. These issuances were exempt from registration
under Setion 4(2) of the Securities Act.
Also in March 1995, the Company issued an aggregate of 237,500 shares
of Common Stock upon conversion of outstanding shares of its Preferred
Stock. This issuance was made to existing security holders of the
Company under Section 3(a)(9) of the Securities Act.
During the balance of 1995, the Company sold an aggregate of 133,705
shares of Common Stock upon exercise of outstanding Warrants for
aggregate proceeds of $325,896. These issuances were exempt from
registration under Regulation D and under Section 4(2) of the
Securities Act.
Also during the balance of 1995, the Company issued 20,000 additional
shares of Common Stock to Liviakis Financial Communications, Inc. for
consulting services. This issuance was exempt from registration under
Section 4(2) of the Securities Act.
In June 1996, the Company issued an aggregate of 3,304,744 shares of
Common Stock in a private placement for aggregate proceeds of
$6,411,200. This issuance was made to unaffiliated investors and was
exempt from registration under Regulation D.
In July 1996, the Company issued an aggregate of 1,569,960 shares of
Common Stock to holders of outstanding Convertible Subordinated Notes
of the Company which had previously been issued in an overseas
offering, pursuant to conversion of such Notes. This issuance was
exempt from registration under Section 3(a)(9) of the Securities Act.
10
<PAGE>
Also in 1996, the Company issued an aggregate of 51,635 shares of
Common Stock to holders of outstanding warrants for aggregate proceeds
of $118,075 upon exercise of such warrants. These issuances were exempt
from registration under Regulation D and Section 4(2) of the Securities
Act.
In November 1996, the Company issued an aggregate of 145,455 shares of
Common Stock to LandTech, Inc. in settlement of an outstanding account
payable of the Company. This issuance was exempt from registration
under Section 4(2) of the Securities Act.
In June of 1996, the Company closed an offering to overseas investors
under Regulation S of the Securities Act of 3,304,744 shares of its
common stock for $1.94 per share with gross proceeds of $6,411,200. The
purchasers were non U.S. persons and were primarily existing
institutional WSI shareholders and internationally recognized
environmental mutual funds. The funds were used to fund operations.
In 1996, the Company issued 7,875 shares of its common stock for $1.50
per share less a 50% discount, due to restrictions on the sale. The
shares were issued as director fees compensation.
Also in 1996, the Company issued 10,000 shares of Common Stock for
$2.25 per share less a 50% discount, due to restrictions on the sale.
The shares were issued as director fees compensation.
Also in 1996, 6,562 options were exercised at $2.00 per share.
11
<PAGE>
Item 6. Selected Financial Data
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARY
( A DEVELOPMENT STAGE COMPANY )
<CAPTION>
SELECTED FINANCIAL DATA ( 1 )
(in thousands except for outstanding shares and earnings per share data)
Fiscal Year Ended
----------------------------------------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues
Landfill revenues $ 1,496 1,344 -- -- --
Cost of landfill operations
Operating expenses 921 766 -- -- --
Write off of landfill costs 6,652
Depreciation 370 72 -- -- --
------------ ------------ ------------ ------------ ------------
Total cost of landfill operations 7,943 838 -- -- --
------------ ------------ ------------ ------------ ------------
Gross profit (loss) (6,447) 506 -- -- --
Selling, general and administrative expenses 2,443 3,286 1,485 936 561
Amortization of prepaid consulting fees 834 500 -- -- --
Restructuring 1,741 -- -- -- --
------------ ------------ ------------ ------------ ------------
Income (loss) from operations (11,465) (3,280) (1,485) (936) (561)
------------ ------------ ------------ ------------ ------------
Other income (expense)
Royalty and other income 923 865 1,850 1,300 835
Interest income 178 289 14 27 54
Interest and financing expense (1,182) (471) (166) (125) (116)
Equity in loss of affiliate (96)
Gain on sale of assets -- -- 223 -- --
Write-off of accounts and notes receivable 0 (2,975) -- -- --
Loss on investment in marketable securities 0 (91) (9) -- --
Write-off of assets (22) -- -- -- (211)
------------ ------------ ------------ ------------ ------------
Total other income (expense) (199) (2,383) 1,912 1,202 562
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes, minority
interest and discontinued operatio (11,664) (5,663) 427 266 1
Federal and state income taxes (23) (109) 185 103 --
------------ ------------ ------------ ------------ ------------
Net income (loss) before minority interest
and discontinued operations (11,641) (5,554) 242 163 1
Minority interest (12) 13 -- -- --
------------ ------------ ------------ ------------ ------------
Net Income (loss) from continuing operations (11,629) (5,567) 242 163 1
Discontinued operations (2,261) (2,304) -- -- --
------------ ------------ ------------ ------------ ------------
Net Income (loss) (13,890) (7,871) 242 163 1
Preferred stock dividend 0 10 108 --
------------ ------------ ------------ ------------ ------------
Net income (loss) available for
common shareholders $ (13,890) (7,881) 134 163 1
============ ============ ============ ============ ============
Earnings (loss) per share:
Income (loss) from continu$ng operations $ (0.82) (0.58) 0.03 0.04 0.00
Discontinued operations (0.16) (0.24) 0.00 0.00 0.00
------------ ------------ ------------ ------------ ------------
Earnings (loss) per share $ $ (0.98) (0.82) 0.03 0.04 0.00
============ ============ ============ ============ ============
Weighted average number of shares used in
computation of earnings (loss) per share 14,174,207 9,664,046 4,498,635 3,645,903 3,522,094
Balance Sheet Data (at period end):
Working capital $ (4,508) 2,393 659 (88) (1,778)
Total assets $ 16,858 23,508 4,369 1,289 979
Long-term debt, less current maturties $ 9,450 12,266 1,263 505 --
Total stockholder's equity (deficit) $ (1,849) 3,292 597 (403) (1,730)
</TABLE>
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed herein. See
"Certain Factors Affecting Future Operating Results".
The Company was incorporated in 1989 as Zoe Capital Corp. and had no
operations until March 29, 1995. On that date, the Company acquired BioSafe,
Inc., a Delaware corporation, through a merger with a subsidiary of the Company,
and the Company changed its name to "BioSafe International, Inc." On October 27,
1997, the Company changed its name to Waste Systems International, Inc. from
BioSafe International, Inc. and changed its state of incorporation to Delaware
from Nevada.
WSI is a nonhazardous solid waste management services company currently
engaged in the business of rehabilitating landfills to permit their continued
operation with increased capacity in an environmentally sound manner, referred
to by WSI as "landfill remodeling", and landfill operation. WSI has developed
technologies for the handling of waste materials for use in landfill remodeling.
The Company, in January 1997, through an 80% owned subsidiary, entered
the waste collection business in the State of Vermont as its initial step and
new focus to develop fully integrated solid waste management operations in
markets where it believes it can maximize utilization of Company owned or
operated landfills through such integration. An integrated solid waste
management services company offers disposal, collection, transfer and recycling
services. Accordingly, the Company is in the initial stages of investigating
potential acquisitions of waste collection and transfer operations which would
be integrated with current or future landfill remodeling or operation projects.
No binding agreements or understanding for any such acquisitions exist at this
time and no assurance can be given that the Company will be able to complete any
such acquisitions.
As discussed above, WSI is focusing its resources and activities on the
development of an integrated solid waste management business. With the
implementation of Subtitle D Regulations(as defined herein) and a growing
scarcity of urban-center disposal sites, solid waste disposal continues to move
further out from these urban centers. The Company believes that through
utilization of its landfill remodeling process, it will be able to acquire and
develop landfill capacity in or near urban metropolitan areas. On an integrated
basis, the Company believes that this may provide a geographical and logistical
competitive advantage to the extent that Company's operations are more centrally
located as compared to its competitors with operations extending out longer
distances from disposal sites.
Prior to March 27, 1996, WSI had been actively developing other
technologies with potential application in a number of business areas, including
the manufacture of useful materials from tires and other recycled materials,
contaminated soil cleanup and recycling, industrial sludge disposal, size
reduction equipment design and manufacture (collectively, the "Ancillary
Technologies"), and Major Sports Fantasies, Inc.("MSF"), a business unrelated to
the environmental industry. Since March 27, 1996, the Company has not allocated
its resources or activities to the development or commercial exploitation of the
Ancillary Technologies or MSF. See "Business - Discontinued Operations,
Restructuring and Management Change." The Company believes that the
restructuring, which is now substantially complete, will allow the Company to
improve significantly its operating profitability in the future and has
positioned the Company to pursue successfully additional expansion
opportunities. See "Business - Recapitalization".
The Company, however, is currently maintaining ownership of its
infectious medical waste disposal technology, which is fully developed and
requires no further development costs, which is outside the Company's core
landfill remodeling and operations business. See "Business - Medical Waste
Technology License"
13
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Financial Position
WSI had $265,000 in cash as of December 31, 1996. This represented a
decrease of $4,972,000 over December 31, 1995. Working capital as of December
31, 1996, was ($4,508,000), a decrease of $6,901,000 over December 31, 1995.
This decrease was primarily due to the use of cash to fund the net loss for the
year ended December 31, 1996, capital costs associated with landfill development
projects, and the restructuring and discontinued operations costs the Company
incurred, partially offset by the net $5.8 million in equity that the Company
raised on June 28, 1996. See Notes 3, 4, 7, 9, 10, 14, 15 and 18 to the
Consolidated Financial Statements presented in Item 8.
During the year ended December 31, 1996, the Company devoted
substantial resources to various project development and related activities. See
"Business - Landfill Remodeling" in Item 1 and Note 7 to the Consolidated
Financial Statements presented in Item 8. Additions to property and equipment,
primarily related to landfill remodeling and operation activities, of $7,228,000
were made during the year ended December 31, 1996 including equipment purchase
costs of $1,157,000.
Results of Operations
Landfill revenues for the year ended December 31, 1996 consisted of
$1,496,000 received from operation of the Fairhaven landfill, and from the
Moretown landfill which commenced operations on October 7, 1996.
Through the first quarter of 1995, substantially all of WSI's revenue
had been attributable to the sale and licensing of WSI's medical waste treatment
technologies to BioMedical Waste Systems, Inc. ("Biomed"). On August 31, 1995,
the Company terminated its agreement with Biomed in most territories as a result
of Biomed's failure to make required payments. See Note 3 to the Consolidated
Financial Statements presented in Item 8.
In February 1996, the Company entered into a licensing and services
agreement with ScotSafe Limited ("ScotSafe"), a Glasgow, Scotland company for
the exclusive rights to use the Company's continuous feed auger medical waste
processing technology in the British Isles and Ireland. The Company earned
royalties and consulting fees of approximately $1,000,000 during the year ended
December 31, 1996 from the completion of two medical waste treatment facilities
by ScotSafe during this period. See Note 3 to the Consolidated Financial
Statements presented in Item 8.
On March 27, 1996, the Company announced its intention to take
meaningful action to conserve cash and working capital, including the
restructuring of the Company's operations to focus its resources and activities
on its core business of landfill remodeling and operation. See "Business,
Discontinued Operations, Restructuring and Management Change" and Note 4 to the
Consolidated Financial Statements presented in Item 8. The Company expects the
restructuring and related discontinued operations to result in annual savings in
excess of $3.0 million.
For the year ended December 31, 1996, the net loss was ($13,890,000) as
compared to a net loss of ($7,871,000) during the year ended December 31, 1995.
The net loss for the year ended December 31, 1996 primarily consisted of
$1,742,000 in restructuring, $2,261,000 related to discontinued operations, the
write off of $6,652,000 in landfill development costs, primarily consisting of
the Fairhaven landfill(See Note 7 to the Consolidated Financial Statements
included in Item 8), an increase of $710,000 in interest expense and financing
costs, partially offset by operating income from the Fairhaven and Moretown
landfill projects, and revenues from the ScotSafe agreement.
Selling, general and administrative expenses consist of project
development activities, marketing and sales costs, salaries and benefits, and
legal, accounting and other professional fees, and other administrative costs.
These costs totaled $2,443,000 for the year ended December 31, 1996, as compared
to $3,287,000 for the year ended December 31, 1995. This represented a decrease
of $844,000 which was primarily the result of the restructuring undertaken on
March 27, 1996. See Note 4 to the Consolidated Financial Statements included in
Item 8.
In addition, on March 29, 1995, the Company entered into a two-year
agreement with Liviakis Financial Communications, Inc. ("Liviakis"), whereby
Liviakis would provide ongoing assistance and consultation to the Company on
matters concerning mergers and acquisitions, corporate finance, investor
relations and financial public relations. As compensation for services to be
rendered by Liviakis, the Company issued 890,000 unregistered, restricted shares
of Common Stock. As a result, on March 29, 1995, the Company recorded a prepaid
asset of $1,335,000. The Company was amortizing this expense over the two years
of the Agreement, at a rate of $167,000 per quarter, or a total of $501,000 for
the years ended December 31, 1996 and 1995. See Note 8 to the Consolidated
Financial Statements presented in Item 8. On December 18, 1996 the Company
terminated its consulting agreement with Liviakis, As a result, the Company
expensed the remaining prepaid consulting fees in the amount of $333,750.
14
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Financial Position
WSI had $5,237,000 in cash as of December 31, 1995. This represented an
increase of $5,066,000 over December 31, 1994. Working capital as of December
31, 1995 was $2.393,000, an increase of $1,734,000 over December 31, 1994. This
increase was largely due to the raising of net proceeds of $19,038,000 in equity
and long-term debt during the year ended December 31, 1995. See Notes 3, 7, 9,
10, 14, 15 and 18 to the Consolidated Financial Statements presented in Item 8.
During the year ended December 31, 1995, the Company devoted
substantial resources to various project development and related activities. See
"Business - Landfill Remodeling" in Item 1 and Note 7 to the Consolidated
Financial Statements presented in Item 8. Additions to project development
costs, primarily related to landfill remodeling, of $11,843,000 were made during
the year ended December 31, 1995, including equipment purchase costs of
$2,246,000.
On August 1, 1995, WSI terminated the BioMedical Waste Systems, Inc.
("BioMed") technology license for WSI's patented continuous flow auger
"CFA") medical waste processing technology in most territories as a
result of BioMed's failure to make required payments. Accordingly, the
Company wrote off as uncollectible the outstandingaccounts and notes
receivable balances of $2,975,000 from BioMed. See Note 3 to the
Consolidated Financial Statements included in Item 8.
.
Results of Operations
Through the first quarter of 1995, substantially all of WSI's revenue
had been attributable to the sale and licensing of WSI's medical waste treatment
technologies to BioMed. Revenues recorded during the year ended December 31,
1995, consisted of $1,344,000 received from operation of the Fairhaven landfill
project which commenced on June 22, 1995, as well as revenues from BioMed. For
the year ended December 31, 1995, the net loss was ($7,871,000), as compared to
net income of $241,000 during the year ended December 31, 1994. This decrease
was primarily due to the write-off of the accounts and notes receivable from
BioMed of $2,975,001, the increased level of the Company's selling, general and
administrative expenses, the nonrecurring charges of $2,304,000 related to the
discontinuance of certain operations (see Note 4 to the Consolidated Financial
Statements presented in Item 8), and an increase of $306,000 in interest expense
and financing costs, primarily related to the Fairhaven landfill and the
convertible debenture issued in the fourth quarter of 1995 (see Notes 7 and 9 to
the Consolidated Financial Statements presented in Item 8), partially offset by
net operating income from the Fairhaven landfill project
Selling, general and administrative expenses consist of project
development activities, marketing and sales costs, salaries and benefits, and
legal, accounting and other professional fees, and other administrative costs.
These costs totaled $3,287,000 for the year ended December 31, 1995. This
represented an increase of 121% compared to the $1,485,000 incurred during the
year ended December 31, 1994. The increase was primarily associated with the
development, marketing and sales of WSI's landfill remodeling technology, the
Ancillary Technologies, MSF, and financing activities.
Environmental and Regulatory Matters
The Company and its customers operate in a highly regulated
environment, and in general the Company's landfill remodeling projects, such as
the Fairhaven landfill, will be required to have federal, state and/or local
government permits and approvals. See "Business--Environmental Regulation." Any
of these permits or approvals may be subject to denial, revocation or
modification under various circumstances. In addition, if new environmental
legislation or regulations are enacted or existing legislation or regulations
are amended or are interpreted or enforced differently, WSI or its customers may
be required to obtain additional operating permits or approvals. There can be no
assurance that WSI will meet all of the applicable regulatory requirements. Any
delay in obtaining required permits or approvals will tend to cause delays in
the Company's ability to obtain bond or other project financings, resulting in
increases in the Company's needs to invest capital in projects prior to
obtaining financing, and will also tend to reduce project returns by deferring
the receipt of project revenues. In the event that the Company is required to
cancel any planned project as a result of the inability to obtain required
permits or other regulatory impediments, the Company may lose any investment it
has made in the project up to that point, and in the case of the Fairhaven and
Moretown landfill projects, have a material adverse effect on the Company's
financial condition and results of operations.
15
<PAGE>
To the extent possible, the Company intends to conduct its operations
in such a manner as to minimize the impact of environmental issues on operating
results. As a general matter, the Company will seek to avoid projects in which
it would be required to handle or dispose of hazardous waste, although it is
prepared to consider projects that may involve some cleanup of previously
existing hazardous waste, subject to controls designed to minimize exposure to
risk of liability and to assure an economic return from the activity. The
Company's landfill projects will involve the installation and operation of
extensive environmental monitoring systems to enable the Company to identify and
deal with any potential environmental problems, which systems have already been
implemented at the Fairhaven and Moretown landfill projects. The cost of
installing these systems will be included in the Company's total investment in
the project. The Company's contract for the Fairhaven landfill project requires
the Town, as owner of the landfill, to pay for the ultimate cost of closing the
landfill, and provides for a set-aside of a part of the Town's share of project
revenues to establish a sinking fund for payment of closure costs, so that the
Company will not be required to establish any reserves for this purpose. The
Company intends to implement similar arrangements for closure costs in its
agreements for other landfill projects which it may enter into in the future.
The Company's ownership of the Moretown landfill through its subsidiary, Waste
Professionals of Vermont, Inc., involves a greater degree of exposure to
potential environmental liabilities than is involved with landfills operated
under a management contract. In conjunction with the acquisition of the Moretown
project, the Company recorded $1.5 million in estimated closure and post-closure
costs based on engineering estimates of the current condition of the landfill.
See Note 12 to the Consolidated Financial Statements presented in Item 8.
Certain Factors Affecting Future Operating Results
Initial Commercialization Stage; Limited Operating History. To date,
although WSI has conducted significant testing of methods and processes based on
its size reduction and materials handling technology, and has gained substantial
experience in connection with the development and operation of the Fairhaven
landfill project to date, WSI has not yet carried through a landfill remodeling
project to completion. Final development and operation may be subject to
engineering and construction problems such as cost overruns and start up delays
resulting from technical or mechanical problems, unfavorable conditions in the
equipment or labor market, or environmental permitting and other regulatory
problems, as well as other possible adverse factors. There can be no assurance
that WSI will be successful in developing and implementing commercial landfill
remodeling projects, or that any such development can be accomplished without
excessive cost or delay.
Operating Losses and Accumulated Deficit; Uncertainty of Future
Profitability. WSI had an accumulated operating deficit at December 31, 1996, of
$23,217,000 on revenues of $2,840,000. In fiscal years 1995 and 1996, the
Company suffered net losses of $7,870,000 and $13,889,000, respectively, on
revenues of $1,344,000 and $1,495,000, respectively. Prospects for future
profitability are heavily dependent on the success of WSI's landfill remodeling
and operation projects, and its ability to build an integrated solid waste
management company. There can be no assurance that WSI will generate sufficient
revenue to be profitable or, if profitable, to maintain profitability in future
years. The Independent Auditors' Report of KPMG Peat Marwick LLP from the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, states that "the Company must raise substantial additional capital and
must achieve a level of revenues adequate to support the Company's cost
structure, which raises substantial doubt about the Company's ability to
continue as a going concern." The insolvency of the Company could adversely
affect certain of its contracts. For instance, Section 6.2 of the Company's
contract with ScotSsafe Limited ("ScotSafe"), dated as of February 6, 1996,
allows ScotSafe to terminate the contract at its option upon the Company's
insolvency.
Risks of Limited Liquidity. The Company has limited liquidity in
relation to its short-term capital commitments and operating cash requirements.
The Company's ability to satisfy its commitments and operating requirements is
dependent on a number of pending financing activities which are not assured of
successful completion. Any failure of the Company to obtain sufficient financing
in the short run would have a materially adverse effect on the Company's
financial condition and operations.
Future Capital will be Required. WSI will require substantial funds to
complete and bring to commercial viability all of its currently planned
projects.
Potential Environmental Liability and Adverse Effect of Environmental
Regulation. WSI's business exposes it to the risk that it will be held liable if
harmful substances escape into the environment as a result of its operations and
cause damages or injuries. Moreover, federal, state and local environmental
legislation and regulations require substantial expenditures and impose
significant liabilities for noncompliance. See "Business--Environmental
Regulation" in Item 1.
16
<PAGE>
Potential Adverse Community Relations. The potential exists for
unexpected delays, costs and litigation resulting from community resistance and
concerns relating to specific projects in various communities.
Unpredictability of Patent Protection and Proprietary Technology. WSI's
success depends, in part, on its ability to obtain and enforce patents, maintain
trade secret protection and operate without infringing on the proprietary rights
of third parties. While WSI has been issued a U.S. patent and certain related
foreign patents on certain of its size reduction and materials handling
technology with particular reference to landfill remodeling and on its CFA
medical waste treatment system, there can be no assurance that others will not
independently develop similar or superior technologies, duplicate any of WSI's
processes or design around any processes on which WSI has or may obtain patents.
In addition, it is possible that third parties may have or acquire licenses for
other technology that WSI may use or desire to use, so that WSI may need to
acquire licenses to, or to contest the validity of, such patents of third
parties relating to WSI's technology. There can be no assurance that any license
required under such patents would be made available to WSI on acceptable terms,
if at all, or that WSI would prevail in any such context. Moreover, WSI could
incur substantial costs in defending itself in suits brought against WSI or in
bringing suits against other parties related to patent matters.
In addition to patent protection, WSI also relies on trade secrets,
proprietary know~how and technology which it seeks to protect, and
confidentiality agreements with its collaborators, employees and consultants.
There can be no assurance that these agreements and other steps taken by WSI
will be effective to protect WSI's technology against unauthorized use by
others.
Liquidity and Capital Resources
To date, WSI has financed its activities primarily through the issuance
of equity securities and debt, including convertible notes and common stock
warrants. As previously mentioned, from inception through December 31, 1996, the
Company has raised cumulative net proceeds of approximately $26,000,000 through
private placements of equity securities and the issuance of long-term debt. As
of December 31, 1996, as further indicated on the report of the Company's
Independent Accountants, the Company needed to raise additional funds in order
to sustain operations. The Company is in the process of seeking additional
capital through debt and equity placements. If the Company is successful in
raising additional capital to meet existing commitments and and to support
additional capital investments, the Company intends to pursue and develop an
integrated solid waste management company and increase its landfill remodeling
business. There can be no assurances that additional debt or equity financing
will be available or available on terms acceptable to the Company. Failure of
the Company to obtain required financing in the short term could have a material
adverse effect on the Company's financial condition and operation.
The Company has acquired, through a joint venture in which the Company
has an 80% interest, a landfill located in Moretown, Vermont. The current
estimated available new capacity at this landfill, excluding remodeling, is in
excess of 1 million tons. On September 30, 1996 the Company received its final
permit from the Vermont Department of Natural Resources to commence operations
at the landfill at an average of 350 tons per day("TPD"). On October 7, 1996 the
Company began operations at the landfill and is currently operating at
approximately 150 - 200 TPD. The Company anticipates the operating level of the
landfill to increase to approximately 200 - 250 TPD by the end of the second
quarter of 1997. The Company intends to operate the landfill at that level until
the Company permits and constructs its next cell, at which time the Company
expects to increase the operating level to full capacity.
The Company's total investment in the Moretown landfill project was
approximately $6.7 million at December 31, 1996. The Company estimates that the
total cost to WPV of completing the Moretown landfill project as planned,
including the cost of completing the landfill and its remodeling, including
amounts invested to date, will be approximately $20.0 million. On or about March
31,1997, the Company expects to close a project financing of $1 million for
additional development costs and working capital requirements of the Moretown
landfill project from a local bank, See Note 18 to the Consolidated Financial
Statements presented in Item 8. No assurance can be given that such financing
can be obtained on terms satisfactory to the Company.
On July 24, 1994 WSI entered into a contract with the Town of
Fairhaven, Massachusetts to remodel the Town's existing 26 acre landfill. On
June 22, 1995, the Company commenced operations and began accepting waste at the
landfill utilizing existing capacity. On October 11, 1995, a Major Modification
Permit was issued by the Massachusetts Department of Environmental
Protection("DEP") including an Authorization to Construct and remodel the
initial cell at the landfill. Since then, the Company has completed remodeling
and constructed an initial cell at the landfill, and on August 12, 1996, the
Company received final authorization from the DEP to operate the cell under the
Town's current existing permit at 150 TPD. On November 8, 1995, an action was
17
<PAGE>
brought against various parties including the Company relating to the remodeling
permits at the Fairhaven landfill seeking among other things to appeal the
permit that had been issued for remodeling the landfill. See "Legal
Proceedings". On September 9, 1996, pursuant to the Massachusetts Administrative
Procedures Act, the action was heard by a Bristol County Superior Court Judge.
As of March 26,1997, a ruling has not been issued. The Company, until the
outcome of this litigation is determined, has ceased making additional capital
investments in this project and has operated the landfill at a reduced capacity.
Based on the extensive delays and additional operating costs to the project
because of this litigation and engineering impacts of delays associated with the
litigation, resulting in the current uncertainty of the long-term economic
viability of the project, the Company has decided to write-off its capital
investment in the project through December 31, 1996, of $6,342,196. Included in
the $6,342,196 is a reserve of $500,000 for additional litigation and ongoing
site construction costs. When the litigation is resolved, the Company at that
time will reassess the continued feasibility of the project.
The Company has been chosen to remodel additional landfills in
Massachusetts. See "Business--Landfill Remodeling--Other Landfill Remodeling
Projects."
If the Company is successful in raising additional capital to meet
existing commitments and to support additional capital investments, the Company
intends to pursue and increase its landfill remodeling and operation business,
and develop an integrated solid waste management company, therefore dramatically
increasing its capital requirements during the next few years. Typically, the
Company expects to be required to incur substantial capital costs in connection
with feasibility studies, contracting, permitting and initial development, and
other due diligence costs ranging from $500,000 up to $2.0 million, for any such
landfill remodeling or operation project in the initial phases of the project.
After completion of these initial phases, the Company will generally seek to
obtain project-level financing to recapture a part of its initial investment
from such project financing. The Company will therefore be required to commit
substantial capital resources from internal sources in the case of any landfill
remodeling or operation project prior to being able to obtain outside financing
or to derive material operating revenues from the project.
To the extent practicable, the Company seeks in its projects to retain
the flexibility to defer scheduled capital investments. For example, the total
investments required for a landfill project as described above assume completion
of landfill remodeling over the entire site. The Company may stage remodeling
investments over an extended period of time while still collecting projected
project revenues from the utilization of existing space.
In summary, the Company's total investment required to complete its
Moretown, Vermont landfill project, in addition to amounts already invested as
of December 31, 1996, will be approximately $13 million, subject to possible
cost overruns which cannot be predicted. Furthermore, feasibility studies
required under the Company's contracts with the Towns of South Hadley and
Buckland are expected to cost approximately $1 million, and if these projects
are determined to be feasible, substantial investments, comparable to those
required for the Company's other landfill remodeling projects would be required
to complete the projects. The Company has under discussion and negotiation a
number of additional landfill remodeling or operation projects or acquisitions,
and any contracts resulting from these discussions and negotiations would
increase the Company's capital requirements accordingly. In addition, the
Company requires cash to fund its corporate staff and other overhead expenses,
which may grow significantly as the Company expands the scope of its operations
including the development of an integrated solid waste management company.
Although the Company has recently begun receiving cash revenues from operation
of the Moretown landfill, the Company will require additional financing in order
to satisfy its existing and pending commitments. The Company's alternatives
under consideration in this regard include the raising of additional equity or
long-term debt financing, see Item 1, "Business - Recapitalization", and certain
prospects for bank financing in relation to specific projects. There can be no
assurance that all or any of these financing plans and expectations will be
realized. Failure of the Company to obtain required financing in the short term
could have a materially adverse effect on the Company's financial condition and
operations.
Inflation
WSI does not believe its operations have been materially affected by
inflation.
18
<PAGE>
Item 8. Financial Statements and Supplementary Data
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets at December 31, 1996 and 1995 F-2 to F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 and for the period from
April 23, 1990 (inception) through December 31, 1996 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 and for the period from
April 23, 1990 (inception) through December 31, 1996 F-5 to F-6
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1996, 1995 and 1994 and
for the period from April 23, 1990 (inception) through
December 31, 1996 F-7 to F-12
Notes to Consolidated Financial Statements F-13 to F-35
All Schedules have been omitted as they are inapplicable or not required, or the
information has been included in the consolidated financial statements or in the
notes thereto
19
<PAGE>
Independent Auditors' Report
The Board of Directors
Waste Systems International, Inc.:
We have audited the accompanying consolidated balance sheets of Waste Systems
International, Inc. (a Delaware Corporation) and subsidiaries (a Development
Stage Company) as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the years in the three-year period ended December 31, 1996, and for the
period from April 23, 1990 (inception) through December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Waste Systems
International, Inc. and subsidiaries (a Development Stage Company) as of
December 31, 1996 and 1995, and the consolidated results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 1996, and for the period from April 23, 1990 (inception) through December
31, 1996, in conformity with generally accepted accounting principles.
The consolidated financial statements have been prepared assuming that Waste
Systems International, Inc. will continue as a going concern. As discussed in
note 1 to the consolidated financial statements, the Company must raise
substantial additional capital and must achieve a level of revenues adequate to
support the Company's cost structure, which raises substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 28, 1997
F-1
<PAGE>
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
<CAPTION>
December 31, December 31,
Assets 1996 1995
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash $ 264,776 $ 5,237,064
Accounts and notes receivable, net (Note 3) 1,158,677 2,047,065
Assets held for sale (Note 4) 275,000 --
Prepaid expenses and other current assets 499,000 515,558
------------ ------------
Total current assets 2,197,453 7,799,687
Accounts and notes receivable (Note 3) 451,169 --
Assets held for sale (Note 4) -- 505,980
Restricted cash and securities 1,210,017 187,500
Due from former employee (Note 5) 500,000 385,425
Property and equipment, net (Note 7) 11,705,712 12,503,091
Deferred financing costs 664,105 1,182,251
Other assets 129,634 99,772
Investment in Affiliate (Note 6) -- 10,029
Prepaid consulting fees (Note 8) -- 834,375
------------ ------------
Total assets $ 16,858,090 $ 23,508,110
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
<CAPTION>
December 31, December 31,
Liabilities and Stockholders' Equity 1996 1995
------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt and notes payable (Note 9) $ 2,165,378 $ 1,526,188
Accounts payable 1,529,076 2,483,510
Accrued expenses (Notes 7, 10 and 13) 1,225,715 698,538
Restructuring and current liabilities related to
discontinued operations (Note 4) 1,785,097 622,624
Income and franchise taxes payable (Note 11) -- 75,535
------------ ------------
Total current liabilities 6,705,266 5,406,395
Long-term debt and notes payable (Note 9) 9,450,373 12,266,003
Landfill closure and post-closure costs (Notes 7 and 12) 1,520,000 1,500,000
------------ ------------
Total liabilities 17,675,639 19,172,398
------------ ------------
Commitments and Contingencies (Note 13)
Minority interest 1,031,456 1,044,111
------------ ------------
Stockholders' equity (deficit): (Notes 14, 15, 16 and 18)
Common stock, $.001 par value. Authorized
100,000,000 shares; 16,802,569 and
11,706,338 shares issued and outstanding
at December 31, 1996 and December 31, 1995,
respectively 16,802 11,706
Additional paid-in capital 21,351,280 12,607,210
Deficit accumulated during the development stage (23,217,087) (9,327,315)
------------ ------------
Total stockholders' equity (deficit) (1,849,005) 3,291,601
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 16,858,090 $ 23,508,110
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
<CAPTION>
Period from
April 23, 1990
(inception) to
Years ended December 31, December, 31
-------------------------------------------------------------
1996 1995 1994 1996
<S> <C> <C> <C> <C>
Landfill Revenues $ 1,495,606 $ 1,344,397 -- $ 2,840,003
------------- ------------- ------------- -------------
Cost of landfill operations:
Operating expenses 920,553 766,012 -- 1,686,565
Depreciation and amortization of landfill costs 369,785 71,649 -- 441,434
Write-off of landfill development costs (Note 7) 6,652,075 -- -- 6,652,075
------------- ------------- ------------- -------------
Total cost of landfill operations 7,942,413 837,661 -- 8,780,074
------------- ------------- ------------- -------------
Gross profit (6,446,807) 506,736 -- (5,940,071)
Selling, general and administrative expenses 2,442,816 3,286,680 1,484,554 10,468,503
Amortization of prepaid consulting fees 834,375 500,625 -- 1,335,000
Restructuring (Note 4) 1,741,729 -- -- 1,741,729
------------- ------------- ------------- -------------
Income (loss) from operations (11,465,727) (3,280,569) (1,484,554) (19,485,303)
------------- ------------- ------------- -------------
Other income (expense):
Royalty and other income, net (Note 3) 922,703 865,220 1,850,000 5,847,922
Interest income 178,224 289,145 13,708 562,154
Gain on sale of assets -- -- 222,728 222,728
Interest expense and financing costs (1,182,118) (471,763) (166,085) (2,210,302)
Equity in loss of affiliate (Note 6) (96,144) -- -- (96,144)
Write-off of accounts and notes receivable (Note 3) -- (2,975,001) -- (2,975,001)
Loss on investment in marketable securities -- (90,625) (9,375) (100,000)
Write-off of assets (21,858) -- -- (263,403)
------------- ------------- ------------- -------------
Total other income (expense) (199,193) (2,383,024) 1,910,976 987,954
------------- ------------- ------------- -------------
Income (loss) before income taxes , minority interest
and discontinued operations (11,664,920) (5,663,593) 426,422 (18,497,349)
Federal and state income tax expense (benefit) (Note 11) (23,456) (109,465) 185,000 154,579
------------- ------------- ------------- -------------
Income (loss) before minority interest
and discontinued operations (11,641,464) (5,554,128) 241,422 (18,651,928)
Minority interest (12,655) 13,016 -- 361
------------- ------------- ------------- -------------
Income (loss) from continuing operations (11,628,809) (5,567,144) 241,422 (18,652,289)
Discontinued operations (Note 4) (2,260,963) (2,303,835) -- (4,564,798)
------------- ------------- ------------- -------------
Net income (loss) (13,889,772) (7,870,979) 241,422 $ (23,217,087)
=============
Preferred stock dividend -- 9,500 107,834
------------- ------------- -------------
Net income (loss) available for
common shareholders $ (13,889,772) (7,880,479) 133,588
============= ============= =============
Net income (loss) per share:
Income (loss) from continuing operations $ (0.82) (0.58) 0.03
Discontinued operations (0.16) (0.24) --
------------- ------------- -------------
Net income (loss) per share $ (0.98) (0.82) 0.03
============= ============= =============
Weighted average number of shares used in
computation of net income (loss) per share 14,174,207 9,664,046 4,498,635
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
<CAPTION>
Period from
April 23, 1990
(inception) to
Years ended December 31, December, 31
-------------------------------------------------------------
1996 1995 1994 1996
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (13,889,772) $(7,870,979) $ 241,422 $ (23,217,087)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Discontinued operations 2,260,963 2,303,835 -- 4,564,798
Depreciation and amortization 1,556,380 689,186 8,770 2,369,773
Deferred income taxes -- (185,000) 185,000 --
Loss on investment in marketable securities -- 90,625 9,375 100,000
Equity on loss in affiliate 96,144 -- -- 96,144
Minority interest (12,655) 13,016 -- 361
Allowance for doubtful accounts - non -trade -- 334,926 -- 334,926
Allowance for doubtful accounts - trade 10,000 12,500 -- 22,500
Write-off of accounts and notes receivable -- 2,975,001 -- 2,975,001
Issuance of common stock for services 17,157 303,300 80,000 400,457
Write-off of landfill development costs 6,652,075 -- -- 6,652,075
Write-off of assets 21,858 -- -- 263,404
Changes in assets and liabilities:
Accounts and notes receivable 375,519 (1,695,436) (1,329,770) (3,228,692)
Prepaid expenses and other current assets 16,558 (512,653) 14,595 (499,000)
Accounts payable (1,253,507) 2,157,252 507,637 1,763,527
Accrued expenses 845,629 129,163 78,005 1,194,347
Income and franchise taxes payable (75,535) (22,470) (4,495) --
Deferred income -- -- -- (500,000)
------------- ------------- ------------- -------------
Net cash used by continuing operations (3,379,186) (1,277,734) (209,461) (6,707,466)
Net cash used by discontinued operations (560,377) (1,689,906) -- (2,250,283)
------------- ------------- ------------- -------------
Net cash used by operating activities (3,939,563) (2,967,640) (209,461) (8,957,749)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Assets held for sale 127,500 (402,500) -- (275,000)
Restricted cash and securities (1,022,517) (187,500) -- (1,210,017)
Receivable from One, Three, Six, Inc. -- -- (800,000) (800,000)
Investment in affiliate (86,115) (10,029) -- (96,144)
Construction in progress (5,199,493) (8,699,803) (634,094) (14,609,398)
Future landfill development projects (467,855) (324,752) (21,725) (814,332)
Operating equipment at landfills (669,263) (31,814) -- (701,077)
Other property and equipment (262,053) (693,008) (135,726) (1,219,711)
Patents (35,261) (20,795) (15,253) (98,646)
Other assets (26,162) (12,316) 18,765 (60,704)
Licenses and permits -- -- -- (78,807)
------------- ------------- ------------- -------------
Net cash provided (used) by investing activities (7,641,219) (10,382,517) (1,588,033) (19,963,836)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Deferred financing and registration costs (86,074) (1,216,480) (27,416) (1,503,866)
Net borrowings and advances
from stockholders and related parties (114,575) (662,072) 72,269 266,806
Repayments of notes payable and long-term debt (426,734) (1,000,984) (93,580) (1,621,298)
Borrowings from notes payable and long-term debt 1,117,982 568,271 980,500 3,366,407
Issuance of subordinated notes payable -- 11,225,000 900,000 12,405,000
Repayments of subordinated notes payable -- (490,000) (300,000) (790,000)
Minority interest 1,031,095 -- 1,031,095
Net proceeds from issuance of common stock 6,117,895 8,970,998 841,229 16,449,551
Redemption of preferred stock -- -- (300,000) (300,000)
Preferred stock dividends -- (9,500) (107,834) (117,334)
------------- ------------- ------------- -------------
Net cash provided by financing activities 6,608,494 18,416,328 1,965,168 29,186,361
------------- ------------- ------------- -------------
Increase (decrease) in cash (4,972,288) 5,066,171 167,674 264,776
Cash, beginning of period 5,237,064 170,893 3,219 --
------------- ------------- ------------- -------------
Cash, end of period $ 264,776 $ 5,237,064 $ 170,893 $ 264,776
============= ============= ============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Supplemental disclosures of cash flow information:
During the years ended December 31, 1996, 1995 and 1994, cash paid for
interest was $1,201,864, $221,458, and $192,243, respectively.
Supplemental disclosures of noncash activities:
In 1991, 1992, 1993 and 1994, the Company issued 270,750, 1,075,125, 62,310
and 20,000 shares of common stock for no cash consideration. Shares were
granted to related parties, including stockholders, and outsiders for
various investment considerations and consulting services.
In 1992, the Company sold certain technology and entered into various
royalty agreements in exchange for a note receivable in the amount of
$500,000.
In 1993, the Company acquired assets of $20,498 under a capital lease
obligation.
In 1993, the Company issued 7,750 shares of preferred stock in exchange for
retirement of $775,000 of debt.
In 1994, the Company exchanged $240,000 of subordinated notes payable
and $5,952 of accrued interest for 61,488 shares of common stock.
In 1994, the Company received a note for $450,000 in payment of accounts
receivable and issued a note payable for $57,394 in satisfaction of
accounts payable.
As part of the merger on March 29, 1995, all of the 4,750 outstanding
shares of $100 par value preferred stock were converted into 237,500 shares
of common stock of the Company, the Company converted 1,100 units of $1,000
face amount 10% convertible subordinated notes plus accrued interest into
558,578 shares of common stock, the Company issued 200,000 shares of common
stock, and charged to stockholder's equity at $2.00 per share, to US Sachem
LP for investment banking services, the Company issued 890,000 shares of
common stock, and recorded as prepaid consulting fees at $1.50 per share,
to Liviakis Financial Communications, Inc. to provide ongoing assistance
and consultation to the Company. See Notes 8, 14 and 15.
In 1995, in connection with the acquisition of Waste Professionals of
Vermont, Inc., the Company recorded a receivable for the purchase of rights
to $850,000 in escrow funds held by the State of Vermont (see Note 3) and
provided for $1,500,000 for estimated closure and post-closure costs
existing at acquisition. See Note 12.
In 1996 and 1995, the Company acquired assets of $683,777 and $1,148,516,
respectively, under capital lease obligations.
In 1996, the Company exchanged $2,850,000 of convertible subordinated debt
and $27,425 of accrued interest for 1,569,960 shares of common stock. See
Note 9.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
(1) Business Combination and Nature of Operations
Waste Systems International, Inc. (a Delaware Corporation) (the "Company"
or "BioSafe"), (formerly Zoe Capital, Corp.), is a Development Stage
Company. The Company is a nonhazardous solid waste management company
currently engaged in the business of rehabilitating landfills to permit
their continued operation with increased capacity in an environmentally
sound manner, referred to by BioSafe as "landfill remodeling", and
landfill operation.
Prior to March 27, 1996, the Company had been actively developing other
technologies with potential application in a number of business areas.
On March 27, 1996, the Company announced its intention to take
meaningful actions to conserve cash and working capital, including
restructuring the Company's operations to focus its resources and
activities on its core business of landfill remodeling and operation.
See Note 4 for discussion of nonrecurring charges related to the
restructuring and discontinued operations.
The Company has generated limited revenue since its organization and has
been engaged in activities such as project development, engineering,
permitting, and marketing and sales efforts. The Company will continue
to seek out landfill remodeling and operating landfill projects for
investment and will require substantial additional funds to fully
develop and bring to commercial viability all of its currently planned
projects. Successful completion of the Company's development program is
dependent on raising substantial additional capital and achieving a
level of revenues adequate to support the Company's cost structure.
There can be no assurance that the Company will be successful in
developing and implementing commercial landfill remodeling and
operation projects, or that any such development can be accomplished
without excessive cost or delay.
(2) Summary of Significant Accounting Policies
Basis for Presentation
Theaccompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Minority interest consists of 20% of Waste Professionals of Vermont, Inc.
Revenue Recognition
TheCompany's revenues from its landfill operations consist of disposal
fees (known as tipping fees) charged to customers. Tipping fees are
recognized as revenue based on the volume or weight of solid waste
disposed of at the Company's operated or owned landfill sites. The
daily volume of waste disposed at the Company's disposal facilities may
vary according to market and weather conditions.
The Company recognizes royalty revenue from its medical waste technology
business based on the terms of the license agreements as plants are
completed and for consulting services when rendered.
Cost of Landfill Operations
Cost of operations includes direct labor, fuel, equipment maintenance,
insurance, depreciation and amortization of equipment and project
development costs, accruals for ongoing closure and post-closure
regulatory compliance (for landfills owned), and other routine
F-13
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
maintenance and operating costs directly related to landfill
operations. Also included in the cost of landfill operations are
payments made to the Towns in which each landfill is located in the
form of "Host Town Fees" and "Closure Fees" (for landfills operated
under management contracts), which are negotiated on a rate per ton
basis as part of the contract with the Town. In such Towns, the Town is
responsible for the closure and post-closure costs related to the
landfill.
Landfill Closure and Post-Closure Costs
The Company estimates and accrues closure and post-closure costs for
landfills owned or acquired on a unit-of-production basis over each
facility's estimated remaining airspace capacity. The Company records
reserves, as necessary, as a component of the purchase price of
facilities acquired, in acquisitions accounted for under the purchase
method, when the acquisition is consummated.
Property and Equipment
Capitalization of landfill development costs begins with the signing of
landfill management contracts for facilities operated by the Company
that are not owned, or upon determination by the Company of the
economic feasibility or extended useful life of each landfill acquired
as a result of comprehensive engineering and profitability studies.
Capital costs include acquisition, engineering, legal, and other direct
costs associated with the permitting and development of new landfills,
expansions at existing landfills, and cell development. These costs are
capitalized pending receipt of all necessary operating permits or
commencement of operations.
Interest is capitalized on landfill costs related to permitting, site
preparation, and facility construction during the period that these
assets are undergoing activities necessary for their intended use.
Interest costs of $42,014 and $82,195 were capitalized during 1996 and
1995, respectively.
Landfill project development costs are amortized using the
unit-of-production method, which is calculated using the total units of
airspace filled during the year in relation to total estimated
permitted airspace capacity. The determination of airspace usage and
remaining airspace capacity is an essential component in the
amortization calculation. The determination is performed by conducting
annual topography surveys of the Company's landfill facilities to
determine remaining airspace capacity in each landfill. The surveys are
reviewed by the Company's consulting engineers, the Company's internal
operating and engineering staff, and its financial and accounting
staff. Current year-end remaining airspace capacity is compared with
prior year-end remaining airspace capacity to determine the amount of
airspace used during the current year. The result is compared against
the airspace consumption figures used during the current year for
accounting purposes to ensure proper recording of the amortization
provision. The reevaluation process did not impact results of
operations for any years presented.
The Company performs assessments for each landfill of the recoverability
of capitalized costs which requires considerable judgment by management
with respect to certain external factors, including, but not limited
to, anticipated future revenues, estimated economic life and changes in
environmental regulation. It is the Company's policy to periodically
review and evaluate that the benefits associated with these costs are
expected to be realized and therefore capitalization and depletion is
justified. Capitalized costs related to landfill development for which
no future economic benefit is determined by the Company are expensed in
the period in which such determination is made.
F-14
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
All other property and equipment are stated at cost. Depreciation and
amortization is provided using the straight-line method over the
estimated useful lives of the respective assets as follows:
Buildings, facilities and improvements 10 to 30 years
Vehicles and equipment 5 to 10 years
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
All short-term investments which have an original maturity of 90 days or
less are considered to be cash equivalents.
Restricted Cash and Securities
Restricted Cash and Securites consist principally of funds or securities
deposited in connection with landfill closure and post-closure
obligations. Amounts are principally invested in fixed income
securities of federal, state and local governmental entities and
financial institutions. The Company considers its landfill closure and
post-closure investments to be held to maturity. Substantially all of
these investments mature within one year. The market value of these
investments approximates their aggregate cost basis at December 31,
1996.
Prepaid Consulting Fees
Prepaid consulting fees are amortized on a straight-line basis over the
term of the related consulting agreement.
Deferred Financing Costs
Deferred financing costs are amortized on a straight-line basis over the
life of the related notes payable or debt.
Income Taxes
Effective January 1, 1993, WSI became a C corporation for Federal and
state income tax purposes. Previously, WSI had elected Subchapter S
status.
WSI has adopted the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS 109"). SFAS 109
requires recognition of deferred tax liabilities and assets for the
estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Measurements of deferred
tax liabilities and assets are based upon provisions of enacted tax
laws and the effects of future changes in tax laws or rates are not
anticipated.
Earnings Per Share
Primary earnings per common share are based on the weighted average number
of common shares and dilutive common stock equivalent shares
outstanding during each period. Fully diluted earnings per share have
been omitted since they are either the same as primary earnings per
share or are anti-dilutive.
F-15
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued expenses approximates fair value because of the short maturity
of these items. The carrying amount of debt, notes and balances with
bank lines of credit with interest rates related to the prime rate
approximate fair value because the interest rates change with the
market interest rates. Other debt approximates fair value as the
interest rates charged approximate the Company's external borrowing
rate.
Reclassifications
Certain amounts in prior year financial statements have been reclassified
to conform to the 1996 presentation.
New Accounting Pronouncements
In 1995 the Financial Accounting Standards Board issued Statement Of
Financial Accounting Standards No. 121, Accounting for the Impairment
of Long-Lived Assets to be Disposed Of, (SFAS No. 121). SFAS No. 121
sets forth standards for recognition and measurement of impairment
of long-lived assets. The adoption of SFAS No. 121 did not have a
material effect on the Company's consolidated financial statements in
1996.
In 1995 the Financial Accounting Standards Board issued FASB Statement
123, "Accounting for Stock-Based Compensation" (SFAS 123) where the
fair value of stock options is determined using an option pricing model
and included in operations. As permitted under SFAS 123 the Company has
elected to continue to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options where no
compensation expense is recognized on employee stock options if the
exercise price equals the market price at the date of grant. As
required under SFAS 123, pro forma information regarding net income and
earning (loss) per share is disclosed as if SFAS 123 had been adopted.
(3) Accounts and Notes Receivable
Accounts and notes receivable consist of the following:
December 31,
1996 1995
Trade $ 353,862 $ 352,524
ScotSafe Limited 719,703 78,000
One, Three, Six, Inc. 400,000 400,000
State of Vermont - 850,000
Interest - 151,041
Other 158,781 447,646
------------ ------------
1,632,346 2,279,211
Allowance for doubtful accounts (22,500) (232,146)
------------ ------------
1,609,846 2,047,065
Less current portion 1,158,677 2,047,065
------------ ------------
Long-term portion $ 451,169 $ -
============ ============
F-16
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Trade
On July 31, 1995, the Company entered into a contract with Waste
Management of Rhode Island, Inc. ("WMRI"). The contract requires WMRI
to provide a fixed annual quantity of waste, approximately 95% of the
available annual permitted capacity of the Fairhaven landfill for seven
years. At December 31, 1996 and 1995, the balance due from WMRI was
$4,500 and $130,500, or .1% and 45%, respectively, of the total trade
accounts receivable balance. For the years ended December 31, 1996 and
1995, revenues from WMRI were approximately $387,800 and $586,000, or
26% and 44%, repectively of landfill revenues.
ScotSafe Limited
On February 9, 1996, the Company entered into a licensing and royalty
agreement with ScotSafe Limited (ScotSafe), a Glasgow, Scotland based
company, for the exclusive rights to use WSI's continuous flow auger
("CFA") medical waste processing technology in the British Isles and
Ireland. On November 6, 1996, the Company and ScotSafe expanded their
licensing agreement throughout Europe. The initial licensing agreement
contemplated that ScotSafe would establish as many as nine CFA plants,
each of which would result in additional licensing fees to WSI . In
accordance with the agreement, WSI will provide technical assistance in
connection with these facilities including facility design,
installation, testing and training. In addition to royalty payments for
each plant, ScotSafe has agreed to pay WSI for consulting and other
services, and will reimburse the Company for its out-of-pocket expenses
and disbursements in connection with these services. As of December
1996, the Company has completed two plants for ScotSafe under this
agreement and has generated approximately $1,000,000 in gross revenues
in 1996. The royalty per plant is payable on a monthly basis over a two
year period.
One, Three, Six, Inc.
During 1994, WSI made a refundable deposit for the option to purchase 80
percent of the common stock of Shred Pax Corporation (now known as One,
Three, Six, Inc.) ("OTS"), a manufacturer of shredding and grinding
equipment. The option expired on March 31, 1994, but was extended by
WSI under the option agreement which in turn resulted in the deposit
being used to purchase 16 percent of OTS common stock. OTS sold
substantially all of its assets to a third party on August 31, 1994,
and adopted a plan of liquidation. Pursuant to the plan of liquidation,
the Company had the right to receive its share of the net proceeds of
liquidation upon completion of winding up the affairs of OTS. The
Company recognized a gain of $222,728 in 1994 from this transaction.
During 1996, the Company entered into litigation with OTS to settle on
monies due the Company under OTS's plan of liquidation. See Note 13 -
Commitments and Contingencies.
State of Vermont
In connection with the acquisition of a landfill in Moretown, Vermont, the
Company purchased the rights to certain funds held by the State for
closure and post-closure costs which were set aside in escrow by the
prior owner to obtain a landfill operating permit. The Company actually
realized approximately $400,000 from this amount after the State of
Vermont's Agency of Natural Resources and Department of Taxes offset
claims against the previous bankrupt owner of the landfill.
BioMedical Waste Systems, Inc.
The Company had previously licensed its medical waste processing
technology to BioMedical Waste Systems, Inc. ("BioMed"). As a result of
the financial, legal and operating difficulties experienced by BioMed,
BioMed did not pay the Company the outstanding amounts owed at July 31,
1995, and the Company elected to terminate the technology agreement
with BioMed effective August 1, 1995. As a result of the termination,
F-17
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
BioMed was no longer contractually obligated to repay the outstanding
accounts receivable balance to the Company, and the outstanding March
31, 1995 balance of $2,575,000, as well as the outstanding note
receivable balance of $400,000, was written off as of June 30, 1995.
The Company recognized revenues under the technology agreement of
$1,850,000 and $1,300,000 in the years ended December 31, 1994 and
1993, respectively, and $725,000 in the quarter ended March 31, 1995,
and ceased accruing revenues thereafter. The Company's medical waste
technology was then relicensed to ScotSafe in the European territory.
(4) Restructuring of Operations, Discontinued Operations and Assets Held
for Sale
On March 27, 1996, the Company announced its intention to take meaningful
action to conserve cash and working capital, including the
restructuring of the Company's operations to focus its resources and
activities on its core business of landfill remodeling and operation.
Also on that date, Dr. Richard H. Rosen ("Rosen") resigned from the
offices of Chairman of the Board of Directors, President, Chief
Executive Officer, and Treasurer of the Company and all of its
subsidiaries and affiliates (See Note 5 - Due from Former Employee).
The Board of Directors named Philip Strauss, Chief Operating Officer,
to the additional positions of Chief Executive Officer, and President
of the Company, and on June 24, 1996 the Company also named Philip
Strauss, Chairman of the Board of Directors.
Restructuring of Operations
During the year ended December 31, 1996, the Company recorded
restructuring charges of $1,741,729 for costs associated with
management's plan to focus on the core business of landfill remodeling
and operation. These costs included accruals for employee severance,
non-cancelable lease commitments, professional fees and litigation
costs. The restructuring plan is expected to result in annual savings
in excess of $1.0 million. As of December 31, 1996, a reserve of
$175,000 has been recorded for additional estimated costs to complete
the restructuring. At December 31, 1996 and 1995, the Company has
reserves and liabilities associated with restructuring activities of
approximatley $1,415,000 and $0, respectivley.
Discontinued Operations
On March 27, 1996, as part of the announced restructuring, the Company
ceased operations at its technology center in Woburn, Massachusetts,
and discharged all employees and consultants previously engaged in
developing technologies with potential application in activities
including the manufacture of useful materials from tires and other
recycled materials, contaminated soil cleanup and recycling, industrial
sludge disposal, size reduction equipment design and manufacture (the
"Ancillary Technologies"), and Major Sports Fantasies, Inc. ("MSF"), a
business unrelated to the environmental industry. No substantial
revenues were received from the technology center operations or MSF
activities.
The expenses associated with operating the Ancillary Technologies and MSF
for all periods presented are reported in the accompanying reclassified
consolidated statements of operations and cash flows under discontinued
operations. The charge for discontinued operations relates primarily to
losses from operations and the costs associated with the termination of
these operations. There were no material asset sales from these
operations and no interest costs or general corporate overhead costs
have been allocated to discontinued operations. . At December 31, 1996
and 1995, the Company has reserves and liabilites associated with
discontinued operations of approximatley $370,000 and $0, respectively.
F-18
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Assets Held for Sale
During the fourth quarter of 1995, the Company recorded a non-recurring
charge to 1995 earnings of approximately $1.3 million primarily related
to the write-down of the assets of the discontinued operations to their
then estimated net realizable value. During 1996 the Company recorded
an additional charge of $2,260,963 to reduce the carrying value of the
assets to their net realizable value and to complete the discontinuance
of the Anciliary Technologies and MSF operations. No income tax expense
or benefit was recognized due to the Company's net operating loss
carryforwards. As a result of discontinuance of these operations, the
Company expects annual savings in excess of $2.0 million. The Company
expects to dispose of the remaining assets held for resale during 1997.
As of December 31, 1996 a reserve of $125,000 has been recorded for
additional estimated costs to complete the disposal of the Ancillary
Technologies and MSF in 1997.
(5) Due From Former Employee
In July 1996, the Company commenced arbitration proceedings against Rosen,
former Chairman, Chief Executive Officer and President of the Company,
seeking to recover amounts, excluding interest, which the Company
believes it was owed by Rosen. This action was undertaken at the
direction of the Board of Directors following its receipt of a report
by a special committee which had been appointed to investigate Rosen's
financial dealings with the Company. The Special Committee retained
independent counsel in connection with its investigation. Rosen
resigned from all offices with the Company on March 27, 1996. Amounts
which the Company sought to recover included among other things,
unreimbursed advances and amounts which the Company believed
constituted improper expense reimbursements and payments of Company
funds for personal benefit.
An arbitration hearing was completed on October 25, 1996. On January 2,
1997, the arbitrator issued the Award of Arbitration, directing Rosen
to pay $780,160, excluding interest and litigation costs, for breaches
by Rosen of his employment agreement with the Company "in failing to
discharge in good faith the duties of his positions and failing to act
under the direction of the Board of Directors" of the Company. On
February 25, 1997 the Middlesex Superior Court in Cambridge,
Massachusetts confirmed the arbitration award and entered the judgement
against Rosen. No assurance can be given that the Company will be able
to collect any amounts awarded in arbitration. The Company is carrying
on its December 31, 1996 consolidated balance sheet an amount of
$500,000 due from Rosen, but the Company's other claims and additional
advances have not been reflected on the balance sheet at this time.
(6) Investment in Affiliate
In December 1995, the Company entered an agreement to form WSI Europe PLC
to introduce the Company's landfill remodeling technology throughout
Europe and certain other territories. Subsequent to the restructuring
announced by the Company on March 27, 1996, the Company determined it
was best to terminate this agreement in order to focus all of its
attention and resources on the successful completion of the
restructuring of the Company's domestic operations.
F-19
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
(7) Property and Equipment
Property and equipment are stated at cost and consist of the following;
December 31,
1996 1995
------------------------------------
Landfills - owned $ 7,937,307 $ 5,152,750
Landfills - operated - 3,774,659
Landfill development projects 427,357 269,381
Machinery and equipment 2,673,505 2,285,142
Buildings, facilities and improvements 792,255 552,060
Other property and equipment 330,746 702,821
---------------- ----------------
12,161,170 12,736,813
Less accumulated depreciation and
amortization (455,458) (233,722)
---------------- ----------------
Property and Equipment net $ 11,705,712 $ 12,503,091
================ ================
Town of Fairhaven
On July 24, 1994, WSI entered into a contract with the Town of Fairhaven,
Massachusetts to remodel the Town's existing 26 acre landfill. On June
22, 1995, the Company commenced operations and began accepting waste at
the landfill utilizing existing capacity. Since then, the Company has
remodeled and constructed an initial cell at the landfill, and on
August 12, 1996, the Company received final authorization from the
Massachusetts Department of Environmental Protection to operate the
cell under the Town's current existing permit at 150 TPD. On November
8, 1995, an action was brought against various parties including the
Company relating to the Fairhaven landfill. See Note 13 - Commitments
and Contingencies. On September 9, 1996, pursuant to the Massachusetts
Administrative Procedures Act, the action was heard by a Bristol County
Superior Court Judge. As of March 26, 1997, a ruling has not been
issued. The Company, until the outcome of this litigation is
determined, has ceased making additional capital investments in this
project and has operated the landfill at a reduced capacity. Based on
the extensive delays and additional operating costs to the project
because of this litigation and engineering impacts of delays associated
with the litigation, resulting in the current uncertainty of the
long-term economic viability of the project, the Company has decided to
write-off its capital investment in the project at December 31, 1996 of
$6,342,196. Included in the $6,342,196 is a reserve of $500,000 for
additional litigation and ongoing site construction costs. When the
litigation is resolved, the Company at that time will reassess the
continued feasibility of the project.
The contract requires the Company to pay a "Host Town Fee" of $2.00 per
ton or 5% of the tipping fees for solid waste and $3.00 per ton to
contribute to the Town's closure and post-closure costs, excluding
waste from the Town and waste for "beneficial reuse." The term of the
Company's agreement with the Town of Fairhaven is twenty years.
Acquisition of Landfill in Moretown, Vermont
In May 1995, the Company submitted a successful bid through the Company's
80%-owned subsidiary, Waste Professionals of Vermont, Inc. ("WPV"), to
purchase a landfill located in Moretown, Vermont, and certain related
assets at an auction conducted by the United States Bankruptcy Court
for the District of Vermont. On June 2, 1995, the Bankruptcy Court
entered its order authorizing and directing the sale of this landfill
and certain related assets to WPV, which transaction closed on July 5,
1995.
F-20
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
On September 9, 1996 the Company received its Full Certification from the
Vermont Department of Natural Resources (VDNR) to commence operations
at the Moretown landfill using available capacity and to begin
construction of Cell One, Phase II. The Act 250 Land Use Permit was
received on September 30, 1996 which enabled the Company to commence
operations at an average of 350 tons of waste per day. The Company
commenced operation at the landfill on October 7, 1996. Revenues from
October 7, 1996 through December 31, 1996 were $338,225.
In October, 1996, the Company signed a host town agreement with the Town
of Moretown, Vermont which requires the Company to pay a host town fee
of $2.00 per ton plus an annual CPI increase. The term of this
agreement is for five years.
The Company's ownership of the landfill through its subsidiary WPV
involves a greater degree of exposure to potential environmental
liabilities than is involved with landfills operated under a management
contract. In conjunction with the acquisition, the Company recorded
$1.5 million in estimated closure and post-closure costs based on
engineering estimates of the current condition of the landfill. See
Note 12.
(8) Consulting Agreement
On March 29, 1995, contemporaneous with the merger (see Note 15), the
Company entered into a two year agreement with Liviakis Financial
Communications, Inc. ("Liviakis"), whereby Liviakis would provide
ongoing assistance and consultation to the Company on matters
concerning mergers and acquisitions, corporate finance, investor
relations and financial public relations. As compensation for services
to be rendered by Liviakis, the Company issued Liviakis 890,000 shares
of the Company's common stock. As a result, on March 29, 1995, the
Company recorded a prepaid asset of $1,335,000 representing a 25%
discount from the private placement share value since, under the
agreement, the Liviakis shares are restricted and may not be sold or
transferred without the Company's consent before March 29, 1997.
Amortization of prepaid consulting fees for each of the years ended
December 31, 1996 and 1995 was $500,625.
On December 18, 1996, the Company terminated its Consulting Agreement with
Liviakis. As a result, the Company expensed the remaining prepaid
consulting fees in the amount of $333,750. As part of the termination
agreement, the Company released all restrictions on the resale of the
stock held by Liviakis.
F-21
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
(9) Long-term Debt and Notes Payable
Long-term debt and notes payable consists of:
December 31,
1996 1995
--------------------------------
Capital leases and equipment notes
payable $ 1,589,989 $ 1,022,377
FDIC 511,093 511,093
Boston Private Bank 150,733 211,065
Mortgages 195,372 200,037
One, Three, Six, Inc. 400,000 400,000
Other notes payable 243,564 72,619
Convertible subordinated debt 8,525,000 11,375,000
-------------- ------------
11,615,751 13,792,191
Less current portion 2,165,378 1,526,188
-------------- --------------
Long-term portion $ 9,450,373 $ 12,266,003
============== ==============
Maturity of Long Term Debt and Notes Payable, Excluding Capital Leases and
Equipment Notes Payable
Scheduled maturities of long-term debt and notes payable are as follows:
Payments due in the year ending December 31,
1997 $ 1,334,638
1998 133,410
1999 7,309
2000 8,382,964
2001 8,958
Thereafter 158,483
--------------
$ 10,025,762
Capital Leases and Equipment Notes Payable
The Company leases certain facilities, equipment, and vehicles under
agreements which are classified as capital leases. Leased capital
assets included in property are as follows:
December 31,
1996 1995
---------------------------------
Buildings $ 56,250 $ 56,250
Machinery and equipment 2,378,560 1,360,560
-------------- -------------
2,434,810 1,416,810
Accumulated amortization (202,714) (58,966)
--------------- -------------
$ 2,232,096 $ 1,357,844
=============== =============
F-22
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Future minimum lease payments, by year and in the aggregate, under
non-cancelable capital leases and operating leases with initial or
remaining terms of one year or more at December 31, 1996 are as
follows:
Capital Operating
Leases Leases
Payments due in the year ending December 31,
1997 $ 1,028,972 $ 76,116
1998 320,194 74,102
1999 317,089 -
2000 219,604 -
------------ ------------
Total minimum lease payments 1,885,859 $ 150,218
============
Amounts representing interest 295,870
------------
Present value of net minimum
lease payments 1,589,989
Less current portion 830,740
Long-term portion $ 759,249
============
The Company's rental expense for operating leases was $293,766,
$292,492, and $66,648 for the years ended December 31, 1996, 1995
and 1994, respectively.
The Company has reclassified approximately $380,785 and $582,000 of
capitalized lease obligations to current since it was not in compliance
with certain financial covenants at December 31, 1996 and 1995,
respectively.
Bank Debt
During 1994, the Company renegotiated its existing FDIC line of credit and
extended the due date on the note to May 1, 1997. Interest is due
monthly at prime plus 1.5 (9.75% and 10.% at December 31, 1996 and
1995, respectively). The debt is secured by the Company's assets.
During 1994, the Company entered into a term loan agreement with Boston
Private Bank and borrowed $300,000. The note is payable in monthly
installments of $6,667, plus interest at prime plus 2.0% (10.25% and
10.5% at December 31, 1996 and 1995, repectively) through June 6, 1998.
The debt is secured by the Company's assets and the principal residence
of Rosen and Marguerite Piret, wife of Rosen, See Note 5 - Due From
Former Employee.
Mortgages
Mortgage notes are secured by the respective assets, and are due in
various amounts through 2015.
One, Three, Six, Inc.
In 1994, the Company received $400,000 in the form of a note as an advance
against the initial distribution of proceeds from the sale of the
assets of OTS. The note, which bears interest at 10% payable quarterly,
was due in March, 1996. During 1996, the Company entered litigation to
settle monies due the Company under OTS's plan of liquidation, See Note
13 - Commitments and Contingencies.
F-23
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Convertible Subordinated Debt
The Company issued a three-year $150,000 Convertible Subordinated Note to
an investor in August 1994. The note may be converted into common stock
at the option of the holder at the rate of one share of common stock
for each $2.44 in outstanding principal and interest.
On October 6 and 12, and November 7, 1995, the Company closed a
"Regulation S" offering of $11,225,000 in convertible subordinated
notes and warrants to overseas investors, which resulted in net
proceeds to the Company of $10,085,587. The offering consisted of 449
units. Each unit sold for $25,000, and consisted of one convertible
subordinated note ("Note") along with Series F Warrants ("Warrants") to
purchase shares of Common Stock at a price of $2.44. The Notes mature
on September 30, 2000, and bear interest at 10%, payable quarterly. The
Notes are convertible into Common Stock at $1.84 per share. The Notes
are callable at the option of the Company at any time after October 6,
1996, if the closing sale price of the Common Stock has exceeded $10.00
per share for a period of 20 consecutive trading days prior to
redemption notice. The Warrants expire on September 30, 1998. The Notes
and Warrants have not been registered under the Securities Act and may
not be sold in the United States without such registration or an
applicable exemption from the requirement of registration. Under most
circumstances, resales in the United States of Notes and shares of
Common Stock acquired on conversion of Notes or exercise of Warrants is
exempt from registration under prevailing interpretations of Regulation
S. In connection with the offering, the Company issued to the Placement
Agent warrants to purchase up to 701,563 shares of Common Stock at $10
per share. These warrants were subsequently exchanged into 350,000
warrants at $3.50 as part of a subsequent financing in June 1996, see
Note 15 - Common Stock.
Through December 31, 1996, $2,850,000 of notes plus $27,425 of accrued
interest have been converted into 1,569,960 shares of common stock.
Stockholders and Related Parties
On March 31, 1995, all notes payable to stockholders and related parties
were repaid. Interest expense on notes to stockholders and related
parties for years ended December 31, 1995, and 1994 amounted to $2,701
and $16,733, respectively.
(10) Accrued Expenses
Accrued expenses consisted of the following:
December 31,
1996 1995
---------------------------
Interest $ 242,185 $ 209,631
Professional and consulting fees 237,399 421,500
Fairhaven landfill reserve (See Note 7) 500,000 -
Litigation settlement (See Note 13) 125,000 -
Salaries and wages - 37,809
Insurance - 25,345
Other 121,131 4,253
------------ ------------
$ 1,225,715 $ 698,538
============ ============
F-24
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
(11) Income Taxes
As discussed in Note 2, effective January 1, 1993, the Company became
taxable as a C Corporation for Federal and State income tax purposes.
The Company has adopted SFAS 109. The cumulative effect of this change
in accounting for income taxes was not material.
Income tax expense (benefit) consists of:
Current Deferred Total
------- -------- -----
Year ended December 31, 1996:
Federal $ - $ - $ -
State (23,456) - (23,456)
-----------------------------------------
$ (23,456) $ - $ (23,456)
=========================================
Year ended December 31, 1995:
Federal $ - $ (141,358) $ (141,358)
State 75,535 (43,642) 31,893
-----------------------------------------
$ 75,535 $ (185,000) $ (109,465)
=========================================
Year ended December 31, 1994:
Federal $ - $ 141,358 $ 141,358
State - 43,642 43,642
-----------------------------------------
$ - $ 185,000 $ 185,000
=========================================
A reconciliation between federal income tax expense (benefit) at the
statutory rate and the Company's federal tax expense (benefit) is as
follows for the year ended December 31:
1996 1995 1994
---- ---- ----
Statutory Federal
income tax (benefit)$ (4,717,894) $ (2,708,925) $ 144,983
State taxes, net of
Federal income tax
benefit (1,210,466) (704,604) 35,211
Valuation allowance 5,898,245 3,294,764 -
Other 6,659 9,300 4,806
--------------- ---------------- ------------
$ (23,456) $ (109,465) $ 185,000
=============== ================ ===========
The tax effects of temporary differences between financial statement and
tax accounting that gave rise to significant portions of the Company's
net deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below.
F-25
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
1996 1995
---- ----
Deferred tax assets:
Accounts receivable $ 9,788 $ 116,001
Inventories - 80,899
Long-term contracts - 191,559
Property and equipment 236,323 12,990
Other accrued liabilities - 174,370
Operating loss and credit
carryforwards 8,946,898 2,953,174
------------- --------------
Gross deferred tax assets 9,193,009 3,528,993
Less: valuation allowance (9,193,009) (3,294,764)
-------------- ---------------
Net deferred tax assets - 234,229
------------- --------------
Deferred tax liabilities:
Deferred income and capitalized costs - 234,229
------------- --------------
Total deferred tax liabilities - 234,229
------------- --------------
Net deferred tax liability $ - $ -
============= ==============
At December 31, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $21 million which are
available to offset future federal taxable income, if any, and which
expire through December 31, 2011. The Company's ability to utilize its
existing net operating loss carryforwards, under certain circumstances
may be limited if there is change in ownership of the Company of
greater than 50% within a three-year period.
(12) Landfill Closure and Post-Closure Costs
Landfills are typically developed in a series of cells, each of which is
constructed, filled, and capped in sequence over the operating life of
the landfill. When the cell is filled and the operating life of the
landfill is over, the final cell must be capped, the entire site must
be closed and post-closure care and monitoring activities begin. The
Company will have material financial obligations relating to the final
closure and post-closure costs of each landfill the Company owns.
The Company has estimated as of December 31, 1996, that the total costs
for final closure and post-closure of Cell I at the Moretown, Vermont
landfill, including capping costs, cap maintenance, groundwater
monitoring, methane gas monitoring, and leachate treatment and disposal
for up to 30 years after closure, is approximately $2.1 million. Based
upon the capacity of Cell I under the current permit and existing
conditions of the landfill at acquisition, approximately $1.5 million
has been accrued for at December 31, 1996.
The Company bases its estimates for these accruals on respective State
regulatory requirements, including input from its internal and external
consulting engineers and interpretations of current requirements and
proposed regulatory changes. The closure and post-closure requirements
are established under the standards of the U.S. Environmental
Protection Agency's Subtitle D regulations as implemented and applied
on a state-by-state basis.
The determination of airspace usage and remaining airspace capacity is an
essential component in the calculation of closure and post-closure
accruals. See Note 2, significant accounting policies.
F-26
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
(13) Commitments and Contingencies
Landfill related activities
In the normal course of its business, and as a result of the extensive
governmental regulation of the solid waste industry, the Company
periodically may become subject to various judicial and administrative
proceedings involving federal, state, or local agencies. In these
proceedings, the agency may seek to impose fines on the Company or to
revoke or deny renewal of an operating permit held by the Company. From
time to time, the Company also may be subjected to actions brought by
citizens' groups in connection with the permitting of its landfills or
transfer stations, or alleging violations of the permits pursuant to
which the Company operates. Certain federal and state environmental
laws impose strict liability on the Company for such matters as
contamination of water supplies or the improper disposal of hazardous
waste. The Company's operation of landfills subjects it to certain
operational, monitoring, site maintenance, closure and post-closure
obligations which could give rise to increased costs for monitoring and
corrective measures. See Note 12 - Landfill Closure and Post Closure
Costs.
The Company has obtained environmental impairment liability insurance
covering claims for sudden or gradual onset of environmental damage. If
the Company were to incur liability for environmental damage in excess
of its insurance limits, its financial condition could be adversely
affected. The Company carries a comprehensive general liability
insurance policy which management considers adequate at this time to
protect its assets and operations from other risks.
None of the Company's landfills are currently connected with the Superfund
National Priorities List or potentially responsible party issues.
Employment Contracts
The Company has entered into an employment agreement with one of its
senior executives. The agreement provides for employment until
terminated by either party at an annual salary of $150,000.
Legal Matters
The Company is party to pending legal proceedings and claims. Although the
outcome of such proceedings and claims cannot be determined with
certainty, the Company's management, after consultation with outside
legal counsel, is of the opinion that the expected final outcome should
not have a material adverse effect on the Company's financial position,
results of operations or liquidity, and are summarized as follows:
a) In July 1996, the Company commenced arbitration proceedings against Dr.
Richard Rosen (Rosen), former Chairman, Chief Executive Officer and
President of the Company, seeking to recover amounts, excluding
interest, which the Company believes it was owed by Rosen. This action
was undertaken at the direction of the Board of Directors following its
receipt of a report by a special committee which had been appointed to
investigate Rosen's financial dealings with the Company. The Special
Committee retained independent counsel in connection with its
investigation. Rosen resigned from all offices with the Company on
March 27, 1996. Amounts which the Company sought to recover included
unreimbursed advances and amounts which the Company believed
constituted improper expense reimbursements and payments of Company
funds for personal benefit.
An arbitration hearing was completed on October 25, 1996. On January 2,
1997, the arbitrator issued the Award of Arbitrator, directing Rosen to
pay $780,160, excluding interest and litigation costs, for breaches by
F-27
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Rosen of his employment agreement with the Company "in failing to
discharge in good faith the duties of his positions and failing to act
under the direction of the Board of Directors of the Company. On
February 25, 1997 the Middlesex Superior Court in Cambridge,
Massachusetts confirmed the arbitration award and entered the judgment
against Rosen. No assurance can be given that the Company will be able
to collect any amounts awarded in arbitration. The Company is carrying
on its December 31, 1996 balance sheet an amount of $500,000 in
unreimbursed advances due from Rosen, but the Company's other claims
and additional advances have not been reflected on the balance sheet at
this time.
b) Susan Allua, et al. v. Massachusetts Department of Environmental
Protection, Town of Fairhaven and BioSafe, Inc. Two cases involving the
same parties were brought in Bristol Superior Court by sixteen
residents of Fairhaven, Massachusetts who reside in the vicinity of the
landfill owned by the Town of Fairhaven (the "Landfill") which is being
remodeled and operated by the Company. The first case commenced on
November 8, 1995. In that case, Plaintiffs appealed a permit issued by
the Massachusetts Department of Environmental Protection (the "DEP")
authorizing the construction of a component of the remodeling project
(the "Authorization to Construct" or "ATC"). Plaintiffs also have
brought claims alleging that the DEP violated the Massachusetts
Environmental Policy Act in issuing the ATO (the "MEPA Claim").
Further, Plaintiffs have brought common law claims against the Company
for nuisance, trespass and strict liability based principally on
alleged dust and odor conditions resulting from the Company's
excavation activities at the Landfill. The Company is contesting all
claims, and is receiving the cooperation of the Town of Fairhaven and
the DEP in opposing the claims in which those parties are involved.
Pursuant to the Massachusetts Administrative Procedures Act, the ATO
Appeal was heard by a Bristol County Superior Court Judge. The Court
had a hearing on the Permit Appeal on September 5, 1996, but has not
yet announced its findings.
The Company believes that the Plaintiffs' stated grounds in the ATC appeal
are without merit and that the ATC will be upheld as a result of the
hearing. However, if the DEP's granting of the permit were reversed the
Company's plans with respect to the Fairhaven landfill project would be
materially adversely affected. The ATC permit remains in effect during
the pendency of the appeal.
Previously on January 12, 1996, the Company filed a motion to dismiss the
MEPA Claims. The Town and DEP have filed a similar motion. The Court
heard oral argument on the motions to dismiss on April 9, 1996. On May
1, 1996, the Court issued a decision on the motions to dismiss in favor
of WSI and the Town, dismissing the MEPA claims in their entirety.
Plaintiffs' common law claims for nuisance, trespass and strict liability
are based principally on allege dust and odor conditions resulting from
the Company's excavation activities at the Fairhaven Landfill during
the summer and early fall of 1995. The Company is pursuing factual
discovery with regards to these claims. If the Plaintiffs pursue these
claims after disposition of the ATC appeal, a period of additional
discovery and other pre-trial proceedings would take place prior to
trial on the merits.
The second case was commenced September 9, 1996. In that case, the same
Plaintiffs appealed a permit issued by the DEP authorizing the
operation of a component of the remodeled landfill (the "Authorization
to Operate" or "ATO"). The plaintiffs challenge to the ATO raises
issues similar, and in some instances identical, to those raised in the
ATC appeal. Accordingly, as a legal or practical matter, a decision in
the ATC appeal may resolve the ATO appeal, and this case is essentially
on hold pending the outcome of the ATC appeal. As with the ATC permit,
the ATO permit remains in effect during the pendency of the appeal.
F-28
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
c) During 1994, the Company made a refundable deposit for the option to
purchase 80 percent of the common stock of Shred Pax Corporation (now
known as One, Three, Six, Inc.)("OTS"), a manufacturer of shredding and
grinding equipment. The option expired on March 31, 1994 but was
extended by the Company under the option agreement which in turn
resulted in the deposit being used to purchase 16 percent of OTS common
stock. OTS sold substantially all of its assets to a third party on
August 31, 1994, and adopted a plan to liquidate OTS. Pursuant to the
plan of liquidation, the Company had the right to receive its share of
the net proceeds of liquidation upon completion of winding up the
affairs of OTS.
In December 1994, the Company received $400,000 in the form of a note as
an advance against the initial distribution of proceeds from the sale
of the assets of OTS. In September 1996, OTS filed a lawsuit against
the Company in the Circuit Court of DuPage County, Illinois, seeking
recovery of $433,000 in principal and interest allegedly due under the
promissory note. Pursuant to a confession-of-judgment provision in the
promissory note, on or about September 26, 1996, OTS obtained an order
of judgment in its favor for the amount at issue plus costs. The
Company contended that OTS obtained the promissory note by
misrepresentations and had violated the Company's rights as a minority
stockholder. The Company filed the necessary paperwork to re-open the
judgment and to assert its affirmative defenses and counterclaims. By a
Complaint filed October 17, 1996, in Massachusetts Superior Court, OTS
commenced proceedings to enforce the judgment entered by the Illinois
Court.
In early March 1997, the parties entered into an agreement to settle both
the Illinois and Massachusetts actions, and they have both been
dismissed with prejudice. As part of the settlement, in addition to
general releases, the Company exchanged its 16% interest in OTS for all
claims under the note.
d) On or about August 1, 1996, the Company became aware that it had been
joined as a defendant in a lawsuit pending in the State of Vermont in
Washington Superior Court, Docket No. 579-10-95 Wncv, Caption Stuart
Savage, John Savage, Adelle Savage and Andrew R Field, Trustee v. Major
Sport Fantasies, Inc. a Vermont Corporation, Robert Dowdell, Jr.
BioSafe, Inc. and Major Sports Fantasies, Inc., a Delaware Corporation,
(the "Vermont Litigation"). The Plaintiff sought damages in an amount
in excess of $480,000, plus punitive damages, attorneys' fees and court
costs. On or about August 1, 1996, the Company also learned that the
Plaintiffs had obtained an attachment , in the amount of $850,000, on
the Company's property known as the WPV Solid Waste Facility, located
on Route 2, Moretown, Vermont (the "Attachment").
On March 26, 1997, the Company settled the Vermont Litigation on the
following terms: The Company will deliver to the Plaintiffs (a)
$35,000, (b) a note in the amount of $225,000 and (c) general releases
of, and covenants not to sue, the Plaintiffs; in exchange, the Company
received (a) general release and covenants not to sue by the
plaintiffs, (b) discharge of the Attachment, and (c) dismissal of the
Vermont Litigation.
e) The Company currently has ongoing four complaints with the
Massachusetts Commission Against Discrimination, principally as the
result of actions of the Company's ex-operator of the Fairhaven
landfill, Gary Rogers. The Company is not in a position to evaluate the
likelihood that damages or other relief will be awarded, or that the
amount of damages awarded could be material. The Company has set up an
estimated reserve of $125,000 for litigation costs for these matters as
of December 31, 1996.
F-29
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
(14) Preferred Stock
In 1993, the Company issued 7,750 shares of newly created Series A 8%
preferred stock to related and unrelated parties, in exchange for the
retirement of $775,000 of debt.
During 1994, the Company redeemed from a principal stockholder 3,000
shares of preferred stock for a purchase price of $300,000.
On March 29, 1995 all outstanding shares of preferred stock were converted
into 237,500 shares of common stock.
(15) Common Stock
During 1993, the Company issued 280,000 shares and received gross proceeds
of $420,000.
During 1994, the Company circulated a private placement memorandum that
raised gross proceeds of $1,025,000 through the issuance of 256,250
shares of common stock at a price of $4.00 per share (before adjustment
for the 1.75 to 1 stock split).
On December 1, 1994, the Company converted 240,000 of subordinated notes
payable and $5,952 accrued interest into 61,488 shares of common stock.
During 1991, 1992, 1993, and 1994, the Company issued 270,750, 1,075,125,
62,310 and 20,000 shares of common stock, respectively, in exchange for
various investment considerations and consulting services. No value was
assigned by the Company to the shares that were issued in 1991, 1992,
and 1993 since, at the time of issuance, the Company had not sold any
stock since inception and the Company had a substantial stockholders'
deficit. The 1994 shares were recorded at a current value of $4.00 per
share (before adjustment for the 1.75-to-1 stock split).
From January 1 through March 29, 1995, the Company issued 2,450 shares for
employee bonuses, 31,500 shares in exchange for Directors' fees, and
11,250 shares for consulting services at $4.00 per share (before
adjustment for the 1.75 to 1 stock split).
On February 1, 1995, WSI closed a private placement of 1,100 units with
net proceeds of $997,250. Each unit consisted of a $1,000 face amount
10% convertible subordinated note, a Series C Warrant to purchase 500
shares of Common Stock at $2.00 per share, and a Series D Warrant to
purchase 500 shares of Common Stock at $4.75 per share. The convertible
notes and all accrued interest were then converted into 558,578 shares
of the Company's Common Stock on March 29, 1995, as part of the merger
transaction described below.
On February 17, 1995, WSI began offering units consisting of four shares
of Common Stock with a Series D Warrant to purchase two shares of
Common Stock at $4.75 a share. Contemporaneous with the merger on March
29, 1995, described below, WSI completed an initial closing of its
private placement with gross proceeds of $4.0 million from the sale of
500,000 units at $8.00 per unit. After the merger, on April 18, 1995
and April 24, 1995, the Company closed an aggregate of $5,000,000 in
additional gross proceeds with respect to the private placement from
the sale of 625,000 units at $8.00 per unit.
F-30
<PAGE>
In March, 1995, the Company issued warrants to purchase 114,625 shares at
$2.29 per share and 50,000 shares at $3.50 per share to certain
investors for investment considerations and professional services
rendered.
On March 29, 1995, the Company acquired BioSafe in a merger accounted for
as a reverse recapitalization. The acquisition was consummated through
an exchange of shares of the Company for an equal number of shares of
BioSafe. To accomplish this, the stockholders of the Company approved a
1 for 73.083 reverse stock split while the stockholders of BioSafe
approved a 1.75 to 1 forward stock split. Since stockholders of BioSafe
received the majority stock of the resulting combined enterprise,
management of BioSafe became management of the combined enterprise. The
name of the Company was then changed from Zoe Capital Corp. to BioSafe
International, Inc. The financial statements presented treat BioSafe as
the surviving entity in the combination. The financial statements for
December 31, 1994 and prior periods exclude BioSafe International, Inc.
since such financial statements are not material.
As part of the merger agreement, all of the outstanding shares of
BioSafe's Preferred Stock (total of 4,750 shares with $100 par value)
were converted into 237,500 shares of Common Stock of the Company. On
March 29, 1995, the Company also issued to the existing BioSafe
stockholders Series E Warrants on a pro-rata basis to purchase an
aggregate of 500,000 shares of the Company's Common Stock at $3.50 a
share.
The Company has the right to accelerate the expiration of the Warrants in
the event that the average market price of the Common Stock for 20
consecutive trading days exceeds $4.625 per share in the case of Series
A Warrants and $5.75 per share in the case of Series C Warrants, Series
D Warrants and Series E Warrants. In the event that the Company
accelerates the expiration of any Warrants, the holders of such
Warrants would be permitted to exercise the Warrants during a period of
not less than 20 days following notice of such event.
On March 30, 1995, the Company issued three-year non-callable Warrants to
purchase 720,000 shares of the Company's Common Stock at $2.30 per
share and 200,000 shares of Common Stock, issued and charged to
stockholder's equity at $2.00 per share, to Capital Growth
International, Inc. ("Capital Growth") as compensation for investment
banking services rendered in connection with the private placement and
the merger.
On March 30, 1995, the Company issued 890,000 shares of Common Stock and
recorded the issuance as prepaid consulting expense at $1.50 per share,
to Liviakis Financial Communications, Inc. in conjunction with the two
year consulting agreement described more fully in Note 8 to these
consolidated financial statements.
The Company used a portion of the proceeds from the merger and private
placement to repay notes payable, notes payable to stockholders and
related parties and subordinated notes payable.
On November 6, 1995, the SEC declared effective the Company's registration
Statement on Form S-1 relating to the resale by certain security
holders of up to 16,606,356 shares of Common Stock, 122,719 Series A
Warrants and 550,000 Series C Warrants, 2,800,000 Series D Warrants,
and 500,000 Series E Warrants. The Company did not receive any proceeds
from the sale of shares of Common Stock or Warrants from the selling
security holders. The Company will receive proceeds from the issuance
of Secondary Warrant Stock when, and if, any of the Warrants are
exercised by the warrant holders.
F-31
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
On June 28, 1996, the Company closed an offering to overseas investors
under Regulation S of the Securities Act of approximately 3.3 million
shares of common stock at approximately $2.00 per share raising net
proceeds of approximately $5.9 million. The purchasers were all non
U.S. persons and were primarily existing institutional WSI shareholders
and internationally recognized environmental mutual funds. These shares
have not been registered under the Securities Act and may not be sold
in the United States without such registration or an applicable
exemption from the requirement of registration.
In 1996 and 1995 the Company issued additional warrants to purchase common
stock in connection with various financing transactions.
(16) Stock Options
Employee Stock Option Plan
On March 27, 1995, the WSI 1993 Stock Option Plan was assumed by the
Company, adjusted to reflect the 1.75 to 1 stock split. The Plan
provides for the issuance of options to purchase up to 1,500,000 shares
of Common Stock to employees, directors, and consultants of the
Company. Options granted under the Plan may be either Incentive Stock
options or Non-Qualified Stock Options for purposes of federal income
tax law. Options are generally subject to vesting over a period of four
years from the date of grant and are exercisable only to the extent
vested from time to time, although certain options have provided for
earlier vesting. The selection of individuals to receive awards of
options under the Plan and the amount and terms of such awards may be
determined by the Board of Directors of the Company or an Administering
Committee appointed by the Board of Directors.
As of December 31, 1996, options to purchase 806,000 shares of Common
Stock had been granted and options to purchase up to an additional
694,000 shares remained available for grant. The per share weighted
average fair value of stock options granted during 1996 and 1995 was
approximately $.82 and $2.15, respectively, using the Black Scholes
option-price model with the following weighted average assumptions:
volativity, 30%; expected dividend yield, 0%; risk free interest rate,
5.3%; and expected life, 5 years.
The Company applies APB Opinion No. 25 in accounting for stock options
and, accordingly, no compensation cost has been recorded in the
financial statements. If the Company had determined compensation costs
based on the fair value of its stock options at their grant date under
SFAS No. 123, the Company's net losses in 1996 and 1995 would have
increased to the amounts shown below.
1996 1995
---- ----
Net loss - as reported $ (13,889,772) $ (7,870,979)
- pro forma $ (14,334,772) $ (8,303,479)
Net loss per share - as reported $ (0.98) $ (0.82)
- pro forma $ (1.01) $ (0.86)
Proforma net income reflects only the effects of options granted in 1996
and 1995. Therefore, it does not reflect the full effect of calculating
the cost of stock options under SFAS No. 123 because the cost of
options issued prior to January 1, 1995 is not considered. As a result,
it may not be representative of the pro forma effects on operating
results that will be disclosed in future years.
F-33
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Changes in options and option shares under the plan during the respective
years were as follows:
1996 1995
Weighted ave. Weighted ave.
exercise price Number exercise price Number
per share of shares per share of shares
Options outstanding,
beginning of year $6.19 619,125 $2.00 555,625
Options granted $2.25 741,250 $5.50 287,500
Options exercised $2.00 6,562 -
Options canceled $3.83 547,813 $2.00 224,000
---------- ---------
Options outstanding,
end of year $2.23 806,000 $6.19 619,125
Shares reserved for future grants 694,000 880,875
---------- ---------
Total options in the plan 1,500,000 1,500,000
========== =========
Options exercisable,
end of year $2.23 511,125 $2.00 147,656
========== =========
Options outstanding at December 31, 1996 and market value at date of grant
were as follows:
Number Price
of shares per share Amount
--------- --------- ------
Year of grant:
1994 47,250 $ 2.00 $ 94,500
1995 17,500 $ 2.00 35,000
1996 741,250 $ 2.25 1,667,813
---------- ------------
806,000 $ 1,797,313
========== ============
Non - Employee Directors Stock Option Plan
On June 24, 1996, WSI adopted the 1995 Stock Option Plan for Non Employee
Directors. The plan entitles each Director to receive a grant of Non
Qualified Options to purchase 10,000 shares of the Company's Common
Stock for each calendar year of service as a director of the Company
commencing January 1, 1996. Each such option is subject to vesting at a
rate of 2,500 shares for each year that the holder remains a Director
of the Company.
F-33
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
In 1994 options to purchase 43,750 shares of Common Stock were granted
outside of the Option Plan to a director. Fifty percent of these are
exercisable at $2.00 per share at December 31, 1996.
Changes in options and option shares under the plan during the respective
years were as follows:
1996 1995
---------------------------- --------------------------
Weighted ave. Weighted ave.
exercise price Number exercise price Number
per share of shares per share of shares
------------- ---------- --------------- ---------
Options outstanding,
beginning of year $2.00 43,750 $2.00 43,750
Options granted $3.56 53,334 - -
Options exercised - - - -
Options canceled - - - -
---------- ---------
Options outstanding,
end of year $2.86 97,084 $2.00 43,750
=========== =========
Options exercisable,
end of year $2.59 35,208 $2.00 10,937
========== =========
Options outstanding at December 31, 1996 and market value at date of grant
were as follows:
Number Price
of shares per share Amount
--------- --------- ------
Year of grant:
1994 43,750 $ 2.00 $ 87,500
1995 40,000 $ 3.91 156,400
1996 13,334 $ 2.56 34,135
---------- ------------
97,084 $ 278,035
========== ============
(17) Related Party Transactions
During the years ended December 31, 1996, 1995 and 1994 the Company paid
and accrued investment advisory fees of $29,430, $45,936 and $45,740,
respectively, to Newbury, Piret & Company, Inc., a Company owned by
Marguerite A. Piret, a stockholder, ex-director of the Company and the
wife of Rosen, See Note 5 - Due From Former Employee.
As part of the merger discussed in Note 15, the Company entered into a
one-year investment banking agreement with Capital Growth
International, Inc. at $4,500 per month, which expired in March, 1996.
(18) Subsequent Events
In January 1997, the Company closed a private placement of 860,000 shares
of common stock at $.50 per share with net proceeds of $430,000. These
shares have not been registered under the Securities Act and may not be
sold in the United States without such registration or an applicable
exemption from the requirement of registration.
F-34
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
On or about March 31, 1997, the Company's subsidiary, Waste Professionals
of Vermont, Inc.("WPV") expects to close a $1 million term loan with
The Howard Bank of Burlington, Vermont. The term of the loan is for 36
months with an initial rate of 15%. The initial rate shall be reduced
when the Company raises additional equity as outlined in the agreement.
The loan is primarily secured by a first mortgage on WPV's landfill and
the royalties due the Company under its licensing agreement with
ScotSafe (See Note - 3), and is guaranteed by the Company.
F-35
<PAGE>
PART III
Item 10. Directors and Executive Officers
Information Regarding Directors and Executive Officers
- ------------------------------------------------------
The following table and biographical descriptions set forth
certain information as of March 31, 1997, unless otherwise specified, with
respect to the directors and the executive officers who are not directors, based
on information furnished to the Company by each director and officer.
Directors and Executive Officers
--------------------------------
Amount and
Directors Nature of
or Officers Beneficial Ownership Percent
Name Age Since of Common Stock of Class
- -------------------------------------------------------------------------------
Richard S. Golob 45 1996 21,355 *
Jay Matulich 43 1995 17,500 *
William B. Philipbar 71 1996 1,667 *
Daniel J. Shannon 62 1994 46,250 *
Barry D. Simmons 57 1990 217,875 1.2%
Philip W. Strauss 48 1995 250,000 1.4%
B.G. Taylor 72 1990 222,875 1.2%
Robert Rivkin 38 1994 250,875 1.4%
Joseph Motzkin 53 1996 30,000 *
* Less than one percent.
Jay J. Matulich. Since 1994, Mr. Matulich has been a
Senior Vice-President of Capital Growth International L.L.C., formerly U.S.
Sachem Financial Consultants, L.P. ("Capital Growth"). From May 1990 to October
1994, Mr. Matulich was a Vice President of Gruntal & Co., Incorporated,
investment bankers. Mr. Matulich was elected to the Board of Directors in March
1995 pursuant to an agreement between the Company and Capital Growth, in
connection with Capital Growth's role as placement agent for certain securities
of the Company.
Philip W. Strauss. Mr. Strauss has been the Chief Executive
Officer and President since March 27, 1996 and previously had been Executive
Vice President and Chief Operating Officer of the Company since September 1995.
He has 24 years of experience in project, business and corporate development.
Mr. Strauss was co-founder of BioMedical Waste Systems, Inc., a publicly-held
waste management firm, where he served as Executive Vice President from its
inception in 1987 until May 1992 and as a Director from inception until
May 1993.
Richard S. Golob. Mr. Golob has been a Director of the Company
since May 8, 1996. He is President of World Information Systems, a private
consulting and publishing company in the environmental industry. Through World
Information Systems and his two newsletters, Hazardous Materials Intelligence
Report and Oil Pollution Bulletin, Mr. Golob provides information and advisory
services to environmental companies on business development, marketing and
financing. He is also founder and chairman of the Environmental Business
Conferences, which provides biannual forums for environmental business
executives to discuss critical business issues. He served as a member of the
Environmental Advisory Board of Charles River Partnership IV, a venture capital
fund that invests in the environmental industry.
20
<PAGE>
William B. Philipbar. Mr. Philipbar has been a Director of
the Company since May 8, 1996. He has been a director of Matlack Systems, Inc.
and Rollins Leasing Corp. since 1993. He has also been serving as a
director of Rollins Environmental Services, Inc. since 1972. Until 1995 he
was also a director of Charles River Ventures, a company that he continues to
serve as an advisor.
21
<PAGE>
Daniel J. Shannon. Mr. Shannon has been a Director of the
Company since 1994. He is a certified public accountant with experience in
public and private finance, public service, health care, and pension
management. Mr. Shannon is currently Director of LaSalle Street Capital
Management, Ltd. ("LaSalle Capital"), a subsidiary of LaSalle National Trust,
a financial institution headquartered in Chicago, Illinois. Mr. Shannon's
duties as Director of LaSalle Capital are primarily those of an advisor to
clients in the marketing of investment products.
Barry D. Simmons, MD. Dr. Simmons has been a Director
of the Company since 1990. He is an orthopedic surgeon and has been
associated with Brigham Orthopedic Associates, Inc. at the Brigham and
Women's Hospital since 1974. Dr. Simmons has been the Chief, Hand Surgery
Service, at the Brigham and Women's Hospital since 1982. In 1985, Dr. Simmons
was appointed an Associate Clinical Professor of Orthopedic Surgery at
Harvard Medical School, and in that same year, he began his association with
Waterville Valley Medical Associates, Inc. situated at the Waterville Valley
Ski Area.
B.G. Taylor. Mr. Taylor has been a Director of the Company
since 1990. He is a private investor and was President and Chief Operating
Officer of The Halliburton Services Company and Executive Vice President of The
Halliburton Company. Mr. Taylor has over 40 years of diverse operating
experience in large organizations.
Senior Executive Officers Who Are Not Directors
Robert Rivkin. Mr. Rivkin, a Certified Public Accountant, has
been Vice President of WSI since July 1994, Chief Financial Officer since March
1995, Secretary since May 1995 and Treasurer since June 1996. From 1989 to 1994,
Mr. Rivkin was a principal at The Envirovision Group Inc., a full service
environmental engineering, consulting and contracting company, where he was
responsible for marketing and strategic planning, finance and overall business
management. Previously, Mr. Rivkin practiced public accounting in New York where
he specialized in mergers and acquisitions, IPO's and SEC reporting.
Joseph E. Motzkin. Mr. Motzkin has been a Vice President of
WSI since August 1996. From 1994 to 1996, he was a General Manager at Prins
Recycling Corporation, where he operated landfills, established recycling
programs, and directed sales programs and customer service activities. From
1989 to 1994, he was a General Manager for Laidlaw Waste Systems, where he was
responsible for their New England operations. Mr. Motzkin has 26 years of
experience in the solid waste management business.
The Board of Directors and Its Committees
- -----------------------------------------
Board of Directors
The Company is currently managed by a seven-member Board of
Directors, a majority of whom are independent of the Company's management. Each
director will hold office for the term to which he is elected and until his
successor is duly elected and qualified.
The Board of Directors held 10 meetings during fiscal year
1996. Each of the directors attended at least 75% of the total number of
meetings of the Board of Directors and of the committees of the Company of which
he was a member.
F-21
<PAGE>
The Board of Directors has appointed an Audit Committee,
Compensation Committee and an Executive Committee.
Compensation Committee. The Compensation Committee, which
consisted of Messrs. Matulich and Simmons as of December 31, 1996, makes
recommendations and exercises all powers of the Board of Directors in connection
with certain compensation matters, including incentive compensation and benefit
plans. The Compensation Committee administers, and has authority to grant awards
under, the Waste Systems International, Inc. 1995 Stock Option and Incentive
Plan (the "Plan") to the employee directors and management of the Company and
its subsidiaries and other key employees. The Compensation Committee met one
time in 1996.
Executive Committee. The Executive Committee, which consists of
Messrs. Strauss, Golob, and Philipbar, is authorized to manage and direct
the affairs of the Company between meetings of the Board of Directors,
subject to limitations imposed by applicable law and other resolutions of the
Board of Directors. The Executive Committee met six times in 1996.
Audit Committee. The Audit Committee which currently consists
of Messrs. Matulich, Philipbar and Shannon, is empowered to recommend to the
Board the appointment of the Company's independent public accountants and to
periodically meet with such accountants to discuss their fees, audit and
non-audit services, and the internal controls and audit results for the Company.
The Audit Committee also is empowered to meet with the Company's accounting
personnel to review accounting policies and reports. The Audit Committee met one
time during 1996.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the Nasdaq Small-Cap Market. Officers, directors and
greater than 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. To the Company's
knowledge, based solely on review of the copies of such reports furnished to the
Company and written representations that no other reports were required during
the fiscal year ended December 31, 1996, all Section 16(a) filing requirements
applicable to its executive officers, directors and greater than 10% beneficial
owners were satisfied except that Mr. Joseph Motzkin inadvertently filed a Form
3 Statement of Beneficial Ownership Securities, which was due August 11, 1996,
approximately 30 days late.
Item 11. Executive Compensation
Director Compensation
- ---------------------
Pursuant to a Resolution adopted by the Directors in January 1996,
the Company is not paying cash compensation to its Directors. Non-Employee
Directors are entitled to stock option grants under the 1995 Stock Option Plan
for Non-Employee Directors. The Board may reconsider the payment of cash
compensation to Directors at a future date.
Summary Compensation Table. The following table sets forth the
aggregate cash compensation paid by the Company with respect to the fiscal years
ended December 31, 1996, 1995 and 1994 to the Company's Chief Executive Officer
and the one other senior executive officer in office on December 31, 1996 who
earned at least $100,000 in cash compensation during 1996 (the "Named Executive
Officers").
22
<PAGE>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
------
Annual Shares
Compensation Underlying
Name and Principal Position Year Salary Options
($) (#)
- ---------------------------- ----- ---------- --------------
Philip Strauss (1) 1996 150,000 250,000
President and Chief 1995 43,750 200,000
Executive Officer
Robert Rivkin 1996 150,000 206,250
Vice President, Chief
Financial 1995 150,000 0
Officer, Secretary and
Treasurer 1994 75,000 43,750
Richard H. Rosen (2) 1996 45,000 0
Chief Executive Officer,
President 1995 180,000 0
and Treasurer 1994 180,000 175,000
- -----------------
(1)Mr. Strauss became Chief Executive Officer on March 27, 1996. Prior to that,
Mr. Strauss was Executive Vice President and Chief Operating Officer which
offices he had held since September 19, 1995.
(2)Dr. Richard H. Rosen resigned from all offices and positions with the Company
on March 27, 1996.
23
<PAGE>
Option Grants in Fiscal Year 1996. The following table sets forth the
options granted during fiscal year 1996 and the value of the options held on
December 31, 1996 by the Company's named executive officers.
OPTION GRANTS IN FISCAL YEAR 1996
---------------------------------
Percent of
Total Options Exercise [Grant
Number of Granted to or Base Date
Shares Underlying Employees in Price Expiration Present
Name Options Granted Fiscal Year ($/share) Date Value $]
- --------------------------------------------------------------------------------
Philip Strauss 250,000 34% $2.25 2006 $204,250
Robert Rivkin 206,250 28% $2.25 2006 $168,506
Option Exercises and Year-End Holdings. The following table sets forth
the options exercised during fiscal year 1996 and the value of the options held
on December 31, 1996 by the Company's Named Executive Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND FISCAL YEAR-END 1996 OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options Options
at fiscal at fiscal
Shares Year-End (#) Year-End ($)
Acquired Value ------------- -------------
On Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- -------------- ----------- -------- ------------- -------------
Philip Strauss 0 0 250,000/0 0
Robert S. Rivkin 0 0 250,000/0 0
Richard H. Rosen 0 0 0 0
Option Repricings The following table sets forth the options repriced
during fiscal year 1996.
10-YEAR OPTION REPRICING
Length of
Original
Number of Market Option
Securities Price of Exercise Term
Underlying Stock at Price at Remaining
Options Time Time New at Date
Repriced of of Exercise of
Name Date (#) Repricing Repricing Price Repricing
- --------------------------------------------------------------------------------
Philip Strauss 6/28/96 200,000 $5.44 $5.44 $2.25 9 years
24
<PAGE>
Employment Agreements. As of December 31, 1996, the Company was a party
to an employment agreement with Mr. Rivkin. The terms of the Company's
employment agreement with Mr. Rivkin, provides (i) that Mr. Rivkin receive a
salary of $150,000 per year; and (ii) that he agree not to compete with WSI
following termination of his employment by WSI for a period of one year
following such termination. The terms of this agreement shall continue in effect
until terminated by either party. WSI may exercise the right to terminate the
agreement with or without cause at any time and Mr. Rivkin may exercise the
right to terminate the agreement on 30 days' written notice at any time.
Stock Performance Graph
- -----------------------
The Securities and Exchange Commission requires the Company to
present a chart comparing the cumulative total shareholder return on its Common
Stock with the cumulative total shareholder return of (i) a broad equity market
index and (ii) a published industry index or peer group. Although such a chart
would normally be for a five-year period, the Common Stock has been listed on
the Nasdaq Small-Cap Market only since November 14, 1995 and, as a result, the
following chart reflects only the period during which the Common Stock has been
listed on that market. The chart compares the Common Stock with (i) the Media
General Nasdaq Market Value Index (the "Nasdaq Index") and (ii) the Media
General Waste Management Industry Index (the "Waste Management Index"). The
total return for each of the Common Stock, the Nasdaq Index and the Waste
Management Index, assumes the reinvestment of dividends, although dividends have
not been declared on the Company's Common Stock. This chart assumes an
investment of $100 on November 14, 1995 in each of the Common Stock, the stocks
comprising the Nasdaq Index and the stocks comprising the Waste Management
Index. The Nasdaq Index tracks the aggregate price performance of all domestic
equity securities traded on the Nasdaq Market.
Industry
WSI Index Broad Market
------ -------- ------------
November 14, 1995 100.00 100.00 100.00
December 31, 1995 89.33 107.37 101.13
December 31, 1995 14.00 133.17 125.67
25
<PAGE>
Report of the Compensation Committee
- ------------------------------------
The Compensation Committee's executive compensation philosophy is
to establish competitive levels of compensation, link management's pay to the
achievement of the Company's performance goals, and enable the Company to
attract and retain qualified management. The Company's compensation policies
seek to align the financial interests of senior management of the Company with
those of the stockholders.
Base Salary. The Company has established base salary levels for
senior management based on a number of factors, including market salaries for
such positions, the responsibilities of the position, the experience, and the
required knowledge of the individual. The Compensation Committee attempts to fix
base salaries on a basis generally in line with base salary levels for
comparable companies.
Incentive Compensation. During each fiscal year the non-employee
directors who are members of the Compensation Committee may consider granting
senior executives of the Company awards of stock or options under the Plan. Such
awards are based on various factors, including both corporate and individual
performance during the preceding year and incentives to reach certain goals
during future years. During 1996, the Company lowered the exercise price of
options granted to all Company employees, including the Named Executives, in
lieu of raising salaries. The new exercise price is $2.25.
Chief Executive Officer Compensation. Base compensation of the
Chief Executive Officer, Philip Struass, for fiscal year 1995 and 1996 was
$150,000 which was not tied to any performance indicators. Mr. Strauss did
not receive any bonus for 1995 or 1996 as there was no bonus plan in place.
Submitted by the Compensation Committee:
Jay Matulich and Barry D. Simmons
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
Jay Matulich and Dr. Simmons served on the Compensation
Committee in 1996. No member of the Compensation Committee has ever served as
an officer of the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table presents information as to all directors and senior
executive officers of the Company as of March 31, 1997 and persons or entities
known to the Company to be beneficial owners of more than 5% of the
Company's Common Stock as of March 31, 1997, unless otherwise indicated,
based on representations of officers and directors of the Company and filings
received by the Company on Schedules 13D and 13G or Form 13F under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All such
information was provided by the stockholders listed and reflects their
beneficial ownership known by the Company on March 31, 1997.
26
<PAGE>
Beneficial Ownership of Common Stock
------------------------------------
Directors, Officers Shares Percent
and 5% Stockholders(1) Owned of Class
-------------------------------------------------------------
Richard Golob(2) 21,355 *
1105 Massachusetts Ave, 5D
Cambridge, MA 02138
Liviakis Financial
Communications, Inc. 910,000 5.15%
Sacramento, CA 95816
Jay Matulich(3) 17,500 *
1007 Maple Street
Santa Monica, CA 90405
Joseph Motzkin 30,000 *
15 North Hill Drive
Lynnfield, MA 01940
William B. Philipbar(2) 1,667 *
4870 S.W. Parkgate Blvd.
Palm City, FL 34990
Bob Rivkin(4) 250,875 1.41%
23 Marshall Path
Acton, MA 01720
Richard Rosen 997,209 5.61%
162 Washington Street
Belmont, MA 02178
Barry D. Simmons(5) 217,875 1.2%
204 Prospect Street
Belmont, MA 02178
Daniel J. Shannon(6) 46,250 *
746 Exmoor Oaks Drive
Highland Park, IL 60035
Philip W. Strauss(4) 250,000 1.4%
4 Standish Road
Norfolk, MA 02056
B.G. Taylor(7) 222,875 1.2%
1200 Shirley Lane
Midland, TX 79705
All directors and officers as a
group (7 persons) 1,058,397 6.0%
* less than 1%
27
<PAGE>
(1) The persons named in the above table have sole voting and investing
power with respect to all shares shown as beneficially owned by them
subject to community property laws where applicable and the information
contained in footnotes to this table.
(2) Includes 1,667 shares subject to stock options which are fully vested
and are currently exercisable.
(3) Shareholdings do not include shares and warrants held by Capital Growth
International, L.P., of which Mr. Matulich disclaims beneficial
ownership. Also includes 2,500 shares subject to stock options which
are fully vested and are currently exercisable.
(4) Includes 250,000 shares subject to stock options which are fully vested
and are currently exercisable.
(5) Includes 17,750 shares of Common Stock held by Dr. Simmons' immediate
family, including one minor child and two adult children, of which
shares he disclaims beneficial ownership. Also includes 1,667 shares
subject to stock options which are fully vested and are currently
exercisable.
(6) Includes 46,250 shares subject to stock options which are fully vested
and are currently exercisable.
(7) Includes 1,500 shares of Common Stock held by Mr. Taylor's wife, of
which shares he does not disclaim beneficial ownership. Also includes
2,500 shares subject to stock options which are fully vested and are
currently exercisable.
28
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------------------------------------------------
3(i).1 Articles of Incorporation of the Company.
(Incorporated by reference to Exhibit No. 3(i).1 to the
Registration Statement on Form S-1 of BioSafe, No.
33-93966.)
3(i).2 Articles of Amendment to Articles of Incorporation of
the Company. (Incorporated by reference to Exhibit
No. 3(i).2 to the Registration Statement on Form S-1
of BioSafe International, Inc., No. 33-93966.)
3(i).3 Certificate of Incorporation of BioSafe, Inc., as
amended. (Incorporated by reference to Exhibit No.
3(i).3 to the Registration Statement on Form S-1 of
BioSafe International, Inc., No. 33-93966.)
3(ii).1 Bylaws of the Company, as amended on March 26, 1996.
(Incorporated by reference to Exhibit No. 3(ii).1 to
Form 10-K For the Fiscal Year Ended December 31, 1995
of BioSafe International, Inc.)
3(ii).2 Bylaws of BioSafe, Inc. (Incorporated by reference
to Exhibit No. 3(ii).2 to the Registration Statement on
Form S-1 of BioSafe International, Inc., No. 33-93966.)
4.1 Form of Series A Warrant Certificate. (Incorporated
by reference to Exhibit No. 4.1 to the Registration
Statement on Form S-1 of BioSafe International, Inc.,
No.33-93966.)
4.2 Series A Warrant Agreement. (Incorporated by reference
to Exhibit No. 4.2 to the Registration Statement on
Form S-1 of BioSafe International, Inc., No. 33-93966.)
4.3 Form of Series C Warrant Certificate. (Incorporated by
reference to Exhibit No. 4.3 to the Registration
Statement on Form S-1 of BioSafe International, Inc.,
No.33-93966.)
4.4 Series C and Series D Warrant Agreement. (Incorporated
by reference to Exhibit No. 4.4 to the Registration
Statement on Form S-1 of BioSafe International, Inc.,
No. 33-93966.)
4.5 Form of Series D Warrant Certificate. (Incorporated by
reference to Exhibit No. 4.5 to the Registration
Statement on Form S-1 of BioSafe International, Inc.,
No. 33-93966.)
4.6 Series D Warrant Agreement. (Incorporated by reference
to Exhibit No. 4.6 to the Registration Statement on
Form S-1 of BioSafe International, Inc., No. 33-93966.)
4.7 Form of Series E Warrant Certificate. (Incorporated by
reference to Exhibit No. 4.7 to the Registration
Statement on Form S-1 of BioSafe International, Inc.,
No. 33-93966.)
4.8 Series E Warrant Agreement. (Incorporated by reference
to Exhibit No. 4.8 to the Registration Statement on
Form S-1 of BioSafe International, Inc., No. 33-93966.)
4.9 Form of Placement Agent Warrant. (Incorporated by
reference to Exhibit No. 4.9 to the Registration
Statement on Form S-1 of BioSafe International, Inc.,
No. 33-93966.)
4.10 Form of Series F Warrant Certificate. (Incorporated by
reference to Exhibit No. 4.10 to Form 10-K For the
Fiscal Year Ended December 31, 1995 of BioSafe
International, Inc.)
29
<PAGE>
4.11 Series F Warrant Agreement. (Incorporated by reference
to Exhibit No. 4.10 to Form 10-K For the Fiscal Year
Ended December 31, 1995 of BioSafe International, Inc.)
10.1 Amended and Restated Joint Venture Agreement between
BioSafe, Inc. and BioMed Environmental Systems, Inc.,
dated December 24, 1992. (Incorporated by reference to
Exhibit No. 10.1 to the Registration Statement on Form
S-1 of BioSafe International, Inc., No. 33-93966.)
10.2 Agreement between BioSafe, Inc. and the Town of
Fairhaven, Massachusetts, dated July 24, 1995.
(Incorporated by reference to Exhibit No. 10.2 to the
Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
10.3 Letter Agreement from the Town of Fairhaven to the
Company, dated June 20, 1995. (Incorporated by
reference to Exhibit No. 10.3 to the Registration
Statement on Form S-1 of BioSafe International, Inc.,
No. 33-93966.)
10.4 Agreement and Plan of Merger dated as of March 17, 1995
among the Company, Zoe Resources, Inc., certain
stockholders of the Company and BioSafe, Inc.
(Incorporated by Reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K, dated
March 29, 1995.)
10.5 1995 Stock Option Plan (Incorporated by Reference to
Exhibit 10.1 of the Company's Current Report on Form
8-K, dated March 29, 1995.)
10.6 Employment Agreement between S. Russell Sylva and the
Company. (Incorporated by reference to Exhibit No. 10.7
to the Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
10.7 Employment Agreement between Robert Rivkin and the
Company. (Incorporated by reference to Exhibit No. 10.8
to the Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
10.8 Selling Agreement between the Company and U.S. Sachem
Financial Consultants, LP, dated March 29, 1995.
(Incorporated by reference to Exhibit No. 10.9 to the
Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
10.9 Consulting Agreement between the Company and Liviakis
Financial Communications, Inc., dated February 1, 1995.
(Incorporated by reference to Exhibit No.10 to the
Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
10.10 Agreement between BioSafe, Inc. and Waste Management of
Rhode Island, Inc., dated July 31, 1995. (Incorporated
by reference to Exhibit No. 10.11 to the Registration
Statement on Form S-1 of BioSafe International, Inc.,
No. 33-93966.)
10.11 Agreement between BioSafe, Inc. and the Town of South
Hadley, Massachusetts, dated August 22, 1995.
(Incorporated by reference to Exhibit No. 10.12 to
the Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
10.12 Agreement between BioSafe, Inc. and Janos Szombathy,
dated April 4, 1995. (Incorporated by reference to
Exhibit No. 10.13 to the Registration Statement on Form
S-1 of BioSafe International, Inc., No. 33-93966.)
10.13 USA Tire Recycling, LLC Pre-Formation Agreement between
Michael A. Bowers and BioSafe, Inc., dated
April 3, 1995. (Incorporated by reference to
Exhibit No. 10.13 to the Registration Statement on Form
S-1 of BioSafe International, Inc., No. 33-93966.)
10.14 Asset Purchase and Stockholders' Agreement among
BioSafe International, Inc., BioSafe Landfill
Technology, Inc., Cairns Associates, Inc. and
Benjamin F. Cairns, dated December 28, 1995.
(Incorporated by reference to Exhibit No. 10.14 to the
Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
30
<PAGE>
10.15 Form of 10% Convertible, Redeemable, Subordinated Note
Due 2000. (Incorporated by reference to Exhibit
No. 10.15 to the Registration Statement on Form S-1 of
BioSafe International, Inc., No. 33-93966.)
10.16 Venture Agreement and Engineering Services and License
Agreement relating to BioSafe Europe, plc.
(Incorporated by reference to Exhibit No. 10.16 to the
Registration Statement on Form S-1 of BioSafe
International, Inc., No. 33-93966.)
10.17 Agreement between BioSafe International Inc. and
ScotSafe Limited dated February 6, 1996.
10.18 Agreement between BioSafe International Inc. and
ScotSafe Limited dated November 15, 1996.
10.19 Indemnification Agreement between BioSafe International
Inc. and Richard Golob dated May 8, 1996.
10.20 Indemnification Agreement between BioSafe International
Inc. and William Philipbar dated May 8, 1996.
16.1 Letter regarding change in certifying accountant.
(Incorporated by reference to Exhibit A to the
Current Report on Form 8-K/A of BioSafe
International, Inc., dated July 31, 1995.)
21.1 Schedule of Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP. (Incorporated by
reference to Exhibit No. 10.16 to the Registration
Statement on Form S-1 of BioSafe International, Inc.,
No. 33-93966.)
(b) Financial Statement Schedules
None.
(c) Reports on Form 8-K
None.
31
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 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.
WASTE SYSTEMS INTERNATIONAL, INC.
---------------------------------
/s/ Philip Strauss
Date:December 19, 1997 By: -----------------------
----------------- Philip Strauss
Chairman, Chief Executive Officer
and President
Date:December 19, 1997 By: /s/ Robert Rivkin
----------------- -----------------------
Robert Rivkin
Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
32
<PAGE>
<PAGE>
EXHIBIT 10.17
LICENSE AND SERVICES AGREEMENT
------------------------------
LICENSE and SERVICES
AGREEMENT
between
BIOSAFE INTERNATIONAL INC.,
having an office and place of business at 10
Fawcett Street, Cambridge, MA 02138
(`BioSafe," which reference shall be deemed,
in the context of this agreement, with the
exception of section 6.2 Hereof) to include
Biosafe International Inc. and its direct and
indirect subsidiaries, collectively,
and
SCOTSAFE LIMITED, a company
incorporated under the Companies Acts with
registered number SC0146908 and having its
registered office at 4 Fitzroy Place, Glasgow,
G37RH ("ScotSafe")
WHEREAS, BioSafe is the owner of certain intellectual property
rights, including but not limited to certain patent rights, unpatented
technology, trade secrets, and proprietary and other know-how relating to the
disposal of infectious medical waste by means of a process incorporating
continuous flow augur technology; and
WHEREAS, ScotSafe wishes to obtain a license to use the continuous
flow auger technology solely for the purpose of constructing and operating a
continuous flow auger at the Sites (as hereinafter defined); and
WHEREAS, BioSafe and ScotSafe desire that BioSafe license the
continuous flow auger technology to ScotSafe and provide ScotSafe with certain
engineering services in consideration for which ScotSafe will pay royalties and
consulting fees as set forth herein.
THEREFORE, IT IS AGREED as follows:
<PAGE>
SECTION 1. DEFINITIONS
In this Agreement words importing the singular shall
include the plural unless otherwise required by the context. In addition, the
following terms shall have the meanings as defined herein:
"Agreement" shall mean this Agreement and any modification,
alteration, addition or deletion hereto made in writing and after the date of
execution of this Agreement.
"Applicable Environmental Laws" shall mean any provisions,
statutory or otherwise, of United Kingdom, international or local law in the
jurisdiction where the CFA Unit (as hereinafter defined) is located and the
regulations thereunder and any other United Kingdom, international or local laws
or regulations that govern:
(a) the existence, assessment,
cleanup or remedy of
contamination of any kind of
Hazardous Materials at, on
or under the Site (as
hereinafter defined);
(b) the protection of the
environment or of public
health or safety from a
release, spill, deposit or
otherwise emplaced
contamination of Hazardous
Materials;
(c) the control and containment
of Hazardous Materials;
or
(d) the use, generation,
transport, treatment,
storage, disposal, removal,
containment or recovery of
Hazardous Materials,
including, without
limitation, building
materials.
Applicable Environmental Laws shall include all such environmental
laws, provisions and regulations, statutory or otherwise, now existing or from
time to time enacted during the term of this Agreement in respect of which
ScotSafe notifies BioSafe promptly after enactment thereof and shall include
without limitation or prejudice to the foregoing generality, the Environmental
Protection Act of 1990, the Control of Pollution Act of 1974, the Control of
Pollution (Special Waste) Regulations of 1980 the Sewerage (Scotland) Act 1968,
such provisions of the Environment Act of 1995 as may be in force during the
term of this Agreement, and EC Directives, Regulations and Conventions (to the
extent such laws are applicable to the Sites).
"CFA" shall mean the continuous flow auger developed by
BioSafe and conforming to the description contained in Schedule A attached
hereto.
<PAGE>
"CFA Technology" shall mean all of the intellectual
property rights including, but not limited to, patent rights, unpatented
technology, trade secrets and proprietary or other know-how which BioSafe now
owns, or which it may own, which directly relate to (a) the continuous flow
auger technology covered by the Patents (as hereinafter defined), and (b) all
trade secrets, know-how, and other proprietary and confidential information
possessed by BioSafe directly relating to the use of the CFA in the disposal of
clinical infectious waste ("CIW").
"CFA Units" shall mean continuous flow augers installed at
the Sites which embody the CFA Technology.
"CIW" shall mean Clinical Infectious Waste, excluding
Hazardous Material, human and animal tissue, chemotherapeutic and radioactive
waste.
"Hazardous Material" shall mean any substance which as of
the date of this Agreement shall be identified as "hazardous" or "toxic" or
otherwise regulated under Applicable Environmental Laws or which has been or
shall be determined at any time by any agency or court to be a hazardous or
toxic substance under Applicable Environmental Laws. The term "Hazardous
Material" shall also include, without limitation, raw materials, building
components, the products of any manufacturing or other activities on the
properties, wastes, petroleum, and source, special nuclear or by-product
material.
"Facilities" shall mean the processing facilities operated
by ScotSafe located at the Sites and incorporating the CFA Unit.
"Medical Waste" shall mean medical waste as defined under
laws and regulations applicable to the Sites and shall include any modifications
of such term as used from time to time in such laws and regulations.
"Patents" shall mean the patents throughout the world
covering the continuous flow auger technology developed by BioSafe, including
without limitation U.S. Patent No. 5,277,136, captioned "Processing Facility
for Disposing of Infectious Wastes."
"Sites" shall mean the sites at which the CFA Units will
operate, the respective location of which are set forth on Schedule B attached
hereto.
"Territory" shall mean the British Isles.
SECTION 2. LICENSE OF CFA TECHNOLOGY
2.1 License of CFA Technology. In consideration for the Royalties (as
hereinafter defined in Section 5.1 hereof) to be paid by ScotSafe to BioSafe
hereunder, BioSafe hereby grants an exclusive license to ScotSafe in respect of
the Territory, under and relative to the Patents, to make and have made, and to
use, the CFA Technology solely in the construction and operation of the CFA
Units at the Sites. ScotSafe shall have no right to sublicense the CFA
<PAGE>
Technology. ScotSafe may call on the CFA Technology and BioSafe's services
elsewhere in Europe on terms to be mutually agreed by BioSafe and ScotSafe.
2.2 Term of License. The term of the license granted pursuant to
Sections 2.1 hereof for the CFA Technology which is protected by the Patents
shall be for the duration of the Patents, plus any renewals permitted by law.
The term of the license for the CFA Technology which is not protected by the
Patents shall be the term of this Agreement.
2.3 Proprietary Rights. All proprietary rights in and to the CFA
Technology, including, without limitation, all rights with respect to patents,
copyrights and trademarks, including, without limitation, the "BioSafe" mark,
and rights under the trade secret laws of any jurisdiction, shall be and remain
the sole property of BioSafe. ScotSafe shall have no right, title or interest
therein except as expressly provided herein. ScotSafe agrees to display all
appropriate notices of any patent registration or application of which it is
given notice by BioSafe, in accordance with BioSafe's reasonable instructions as
to the content of such notices, and shall promptly notify BioSafe of any
infringement of BioSafe's proprietary rights of which it has knowledge.
2.4 Substitute Technology. BioSafe in consultation with ScotSafe
shall have the right to substitute other proprietary technologies of BioSafe in
place of the CFA Technology in the event that BioSafe determines that such other
technologies are preferable and can be provided on a cost-effective basis, in
which event all references herein to "CFA" or the "CFA Technology" or the "CFA
Unit" shall be deemed to refer to such substitute technology.
2.5 Developments by ScotSafe. In the event that ScotSafe shall
develop any improvements to the CFA Technology or any other patented or
unpatented technology for processing medical waste during the term of this
Agreement, either alone or jointly with BioSafe, ScotSafe shall promptly
disclose such improvements or new technology to BioSafe. All rights in any such
improvements or new technology developed by ScotSafe shall be the property of
BioSafe and shall be deemed for all purposes of this Agreement to constitute a
part of the CFA Technology. ScotSafe hereby assigns to BioSafe all of its rights
in any such improvements or new technology, and shall execute any documents or
instruments required to confirm such assignment. In the event that BioSafe shall
decide to seek patent protection for any such improvements or new technology,
ScotSafe shall cooperate, at BioSafe's expense, in BioSafe's efforts in seeking
such patent protection, and in connection therewith shall execute, and cause its
employees to execute, any patent applications, assignments, or other documents
required in connection therewith.
<PAGE>
SECTION 3. SERVICES
3.1 Purchase and Delivery of the CFA Unit. ScotSafe shall have
responsibility for arranging the manufacture, purchase and delivery of the CFA
Unit and the shipping of the CFA Unit to the Site; provided that BioSafe will
co-operate fully with ScotSafe in arranging, at ScotSafe's expense, for such
manufacture, as well as all necessary insurance, shipping instructions,
insurance, import licenses, permits, and other necessary documents for the
shipment and delivery of the CFA Units to the Sites.
3.2 BioSafe Services. ScotSafe shall retain BioSafe to provide the
services listed in subsections (a) through (c) below, for which services BioSafe
will be paid Consulting Fees as set forth in Section 5.2 hereof:
(a) BioSafe shall have responsibility for overseeing
and managing the installation and commissioning
of the CFA Units at the Sites, including:
(i) planning and design of each Facility,
including CFA, recycling, sharps
programme, and residue disposal;
(ii) equipment specification and procurement;
(iii) installation and acceptance testing (as
further described in Section 4 hereof),
provided that BioSafe will have approval
authority on all vendor equipment and
contractors associated with the
installation of each CFA Unit;
(iv) testing for required permits and
approvals; and
(v) the provision of written materials and
protocols for the operation of each CFA
Unit.
BioSafe acknowledges and understands that during the course of this
Agreement ScotSafe may want to assume responsibility for some of the services
provided by BioSafe under this Section 3.2(a); therefore, BioSafe agrees to
negotiate in good faith with ScotSafe with respect to any reasonable reduction
in the services provided by BioSafe hereunder.
(b) BioSafe shall provide reasonable operations
training and technical support for the employees of ScotSafe required for
operation of the CFA Units at the Sites as deemed necessary by both parties.
This training and technical support may involve reasonable travel by BioSafe
personnel, at ScotSafe's expense, to the office of ScotSafe and to the Sites.
<PAGE>
(c) BioSafe will provide assistance to ScotSafe in
preparing, submitting, negotiating and all other
similar actions relating to any patent
applications, patent renewal applications,
applications to register trademarks and any and
all other similar governmental filings which
ScotSafe may be required to make during the term
of this Agreement in the United Kingdom in order
to protect ScotSafe's interest in the CFA
Technology. ScotSafe will provide similar
assistance to BioSafe to protect BioSafe's
interest in the CFA Technology.
3.3 ScotSafe Responsibilities. ScotSafe, at its expense, will
be responsible for developing each Site, including without limitation:
(a) preparing the structure at each Site to house the
CFA Unit at that Site in accordance with requirements specified by BioSafe;
(b) providing water, power and gas utilities at each
Site sufficient to operate the CFA Unit at that Site in accordance with
requirements specified by BioSafe;
(c) obtaining all required licenses and permits to
install and operate the CFA Unit at each Site subject to such CFA Unit
satisfying the Acceptance Tests; and
(d) providing CIW and any other test and maintenance
materials as required by BioSafe in a timely manner and in adequate amounts to
conduct process testing and the Acceptance Tests.
3.4 Initiation Notice. ScotSafe shall provide written notification to
BioSafe upon the initiation of any purchase order or contractual agreement or
understanding relating to the design, fabrication or installation of each CFA
Unit, with the exception of the first two CFA Units commissioned hereunder (such
notification referred to herein as an "Initiation Notice").
SECTION 4. ACCEPTANCE OF CFA UNITS
4.1 Acceptance Tests. The acceptance test standards for
evaluation of the CFA Units at the Sites are set forth on Schedule C attached
hereto (collectively, the "Acceptance Tests").
4.2 Completion of Acceptance Tests. No later than one month after the
installation of the CFA Unit at each Site has been completed in accordance with
BioSafe's specifications, the Acceptance Tests shall commence. Acceptance
Testing will be conducted under the joint supervision of BioSafe and ScotSafe.
ScotSafe will be responsible for determining the local codes and regulations
that must be satisfied, and provide copies of all relevant requirements to
BioSafe prior to commencing installation of the CFA Unit at each Site. The
results of all testing completed by outside contractors and consultants will be
transmitted simultaneously to BioSafe and ScotSafe. Upon completion of the
Acceptance Tests, BioSafe shall submit to ScotSafe a report which summarizes
<PAGE>
commissioning and acceptance testing activities, including the results of the
Acceptance Tests ("the Acceptance Test Results"). The date of the ScotSafe's
receipt of the Acceptance Test Results shall be deemed the Acceptance Date
unless, within fourteen (14) days of receipt, ScotSafe delivers to BioSafe
written notification detailing each acceptance standard which ScotSafe asserts
has not been satisfied. BioSafe shall make such modifications and repeat tests
with the co-operation of ScotSafe as necessary to satisfy the Acceptance Tests.
In the event that the CFA Unit does not satisfy the agreed Acceptance Tests
within six (6) months from BioSafe's delivery of a certificate of mechanical
completion of the installation of the CFA Unit at each Site, BioSafe will use
its reasonable efforts to correct the deficiency within such period of time as
is mutually agreed between ScotSafe and BioSafe, and if this is not possible
then BioSafe will cooperate with, and provide to ScotSafe appropriate assistance
to remedy such deficiency, subject to the limitations on BioSafe liability
contained in Section 8.2 hereof.
4.3 Disputes Regarding Acceptance. In the event that there is a
disagreement regarding whether a particular CFA Unit has satisfied the
Acceptance Tests, the matter shall be referred for final settlement to an
independent third party acting as an expert and not as an arbiter, nominated
jointly by BioSafe and ScotSafe. Failing such joint nomination, an independent
third party shall be nominated on the application of either party by the then
current Secretary of the Association of Consulting Engineers, London. The
decision of such third party shall be final and binding on BioSafe and ScotSafe.
SECTION 5. ROYALTIES AND CONSULTING FEES
5.1 Royalties. In consideration of the license granted by BioSafe
herein, ScotSafe shall pay BioSafe royalties for each CFA Unit in the amounts
set forth in Schedule D attached hereto (the "Royalties"). The Royalties shall
be payable in twenty-four equal monthly payments, until paid in full, on the
following terms. The first Royalty payment for each of the first two (2) CFA
Units shall be due on the date Acceptance Tests for such CFA Unit has commenced
in accordance with Section 4.2 hereof, and subsequent Royalty payments shall be
due monthly thereafter. The first Royalty payment for each additional CFA Unit
shall be due upon, and enclosed with, delivery to BioSafe of an Initiation
Notice (as defined in Section 3.4 hereof) with respect to each such CFA Unit,
and subsequent Royalty payments for each such CFA Unit shall be due monthly
thereafter.
5.2 Consulting Fees. ScotSafe shall pay BioSafe compensation for the
services rendered by BioSafe to ScotSafe under Sections 3.2 and 4.2 or
otherwise. Payment shall be on a time-and-materials basis, for which purpose the
services of BioSafe personnel will be charged at reasonable hourly rates no
higher than the rates then customarily charged by BioSafe for such personnel or
personnel of comparable skills and experience. Rates for BioSafe personnel as of
the date of execution of this Agreement are set forth in Schedule E
<PAGE>
attached hereto, provided, however, that BioSafe reserves the right to change
these rates at any time. BioSafe shall submit invoices for such services and any
related disbursements reimbursable under Section 5.3 hereof on a regular basis,
and ScotSafe shall pay all charges reflected on such invoices within thirty (30)
days after presentation.
5.3 Expenses. ScotSafe will reimburse BioSafe for reasonable expenses
incurred by BioSafe in the performance of its obligations hereunder, including,
without limitation, coach-class air travel, lodging and meals, when these
expenses are supported by receipts.
5.4 Currency. Royalties and Consulting Fees payable hereunder shall
be paid in U.S. dollars, and any conversion from foreign currencies shall be
calculated at the exchange rates prevailing on the last day of the month in
which such Royalties or Consulting Fees accrue.
5.5 Interest. Any amounts not paid when due hereunder shall accrue
interest at a rate per annum equal to two percent (2%) over the Prime Rate
quoted from time to time in the Wall Street Journal.
SECTION 6. TERM; TERMINATION
6.1 Term of the Agreement. This Agreement shall commence on the last
date of execution of this Agreement and shall expire on 30 November, 2020,
except as earlier terminated in accordance with the terms of this Agreement, or
by mutual agreement of the parties hereto.
6.2 Termination.
(a) BioSafe may terminate this Agreement in the event
ScotSafe fails to pay any amount owed to BioSafe hereunder when due, which
failure has not been cured within thirty (30) days.
(b) Either party may terminate this Agreement in the
event of a material breach of this Agreement, which breach has not been cured
within thirty (30) days of receipt of written notice thereof.
(c) ScotSafe may terminate this Agreement immediately
by written notice to BioSafe upon the occurrence of (i) the adjudication of
BioSafe bankruptcy or insolvency of BioSafe International, Inc. pursuant to the
provisions of any United States federal or state bankruptcy or insolvency act,
(ii) the appointment of a receiver or trustee of all, or substantially all, of
the property or assets of BioSafe, (iii) the filing of a petition by, or of an
involuntary petition against, BioSafe under the provisions of any federal or
state bankruptcy or insolvency act, (iv) the making by BioSafe of an assignment
for the benefit of creditors or (v) the dissolution of BioSafe. BioSafe shall
have the same rights to terminate in the event ScotSafe shall suffer any of the
occurrences listed in clauses (i) - (v) above under applicable United Kingdom
bankruptcy or insolvency laws. Upon termination of this Agreement
<PAGE>
for any reason ScotSafe shall cease all use and exploitation of the CFA
Technology, and each party shall return to the other any and all documents or
other materials containing Confidential Information of the other (as defined
herein).
6.3 Survival of Obligations. Upon any termination of this Agreement,
all rights and obligations of the parties under this Agreement shall cease
except for (a) ScotSafe's obligations to make any payment which was due and
payable on or prior to the date of termination, (b) the parties' obligations of
confidentiality under Section 7 of this Agreement, and (c) the obligations of
the parties under this Section 6.3.
SECTION 7. CONFIDENTIALITY
7.1 General.
(a) Both parties shall maintain in strictest
confidence and shall cause their directors, officers, employees, agents, counsel
and representatives to maintain in strictest confidence, all proprietary and
confidential information and materials (whether or not patentable), including,
without limitation, equipment, processes, methods, data, software, reports,
know-how, sources of supply, customer lists, patent positions and business plans
which are communicated to, learned of, developed or otherwise acquired by any
party pursuant to this Agreement and any other information designated by the
disclosing party as confidential or proprietary in relation to the subject
matter of this Agreement, which information is provided by one party to the
other either directly or indirectly ("Confidential Information").
(b) ScotSafe will ensure that any agents of ScotSafe
who have access to the CFA Technology execute a confidentiality and proprietary
information agreement in a form reasonably acceptable to BioSafe and ScotSafe,
which agreement shall require such agent to perform the obligations required to
be performed by ScotSafe in Section 2.5 hereof.
7.2 Exceptions. Confidential Information shall not include any
information that (i) becomes known to the general public without the fault or
breach (including simple negligence) of the receiving party; or (ii) was already
known to or by the recipient as evidenced by prior written documents in its
possession; or (iii) is disclosed to the recipient by a third party who is not
in default of any confidentiality obligations to the disclosing party hereunder;
or (iv) is developed by or on behalf of the receiving party, without reliance on
confidential information received hereunder. Each party shall be entitled, in
addition to any other right or remedy it may have, at law or in equity, to an
injunction, without the posting of any bond or other security, enjoining or
restraining the other party from any violation or threatened violation of this
Section.
7.3 Employees. ScotSafe agrees that if any of its directors,
officers, key employees or other employees, who could reasonably be expected to
possess Confidential Information the disclosure of which could be harmful to
<PAGE>
BioSafe's interest, shall leave the employment of ScotSafe, then ScotSafe will
use reasonable efforts to obtain from such departing person an agreement not to
disclose to any third party at any time such Confidential Information in such
person's possession, and to cause such person to deliver to ScotSafe and not
take with him or retain, any such Confidential Information, and to provide
written certification to ScotSafe that all such materials have been so delivered
to ScotSafe prior to departure from employment.
7.4 Survival. The obligations of the parties under this
Section 7 shall survive any termination of this Agreement for any reason.
SECTION 8. RISK; INDEMNIFICATION
8.1 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH HEREIN,
BIOSAFE DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION ANY WARRANTIES AS TO THE SUITABILITY OR MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE OF THE CFA TECHNOLOGY, THE CFA UNIT OR ANY SERVICES
FURNISHED HEREUNDER. NEITHER BIOSAFE, NOR ITS EMPLOYEES, AGENTS OR
SUBCONTRACTORS SHALL BE LIABLE FOR ANY LOST OR ANTICIPATED PROFITS, OR ANY
INCIDENTAL, INDIRECT EXEMPLARY, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS BY REASON
OF PLANT OR FACILITY SHUT DOWN OR NON-OPERATION; INCREASED EXPENSE OF OPERATION
OF ANY FACILITY OR EQUIPMENT; DAMAGE OR INJURY TO THE ENVIRONMENT (INCLUDING
WITHOUT LIMITATION, POLLUTION, ECOLOGY AND LIKE MATTERS); OR ANY OTHER SPECIAL
OR CONSEQUENTIAL LOSS OR DAMAGE, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE,
REGARDLESS OF WHETHER BIOSAFE WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8.2 Defects. In the event the CFA Unit fails to meet specifications
due to a defect in materials or workmanship of a CFA Unit, BioSafe shall
cooperate with the manufacturer of such CFA Unit in order to rectify such
defects, for which cooperation ScotSafe shall pay BioSafe Consulting Fees as
described in Section 5.2 hereof. In the event that a CFA Unit fails to meet
specifications due to a defect in the CFA Technology, BioSafe's liability
hereunder shall be limited to, at BioSafe's sole option (after discussion with
ScotSafe), repair of such defects or refund of the Royalties paid to BioSafe
hereunder with respect to such CFA Unit.
8.3 Loss or Damage. Each party agrees to indemnify and defend the
other and hold them harmless from and against any claims for personal injury or
property damage arising out of the negligence or misconduct of the employees or
agents of such party; provided however, that neither party shall be responsible
for indirect, special or consequential damages.
<PAGE>
8.4 Infringement. BioSafe represents and warrants that, to the best
knowledge and belief of BioSafe, the CFA Technology does not infringe upon any
valid patent of any third party in the United States and the United Kingdom, and
BioSafe is not aware of any claim by any third party that such infringement
exists. BioSafe agrees to defend, at its own expense, and to pay all costs and
damages awarded against ScotSafe based on, any and all claims by third parties
arising from actual or alleged infringement by the CFA Technology of any such
patent if it is shown that BioSafe knew of such infringement or possible claim
of infringement; provided that BioSafe's obligation to pay such costs and
damages under this Section 8.4 shall not apply to the extent that such actual or
alleged infringement arises out of modifications to the CFA Technology made by
ScotSafe; and provided that BioSafe's obligation to pay such costs and damages
shall be subject to and limited by the following provisions of this Section 8.4.
In the event that ScotSafe receives a claim or notice of a claim that is or may
be subject to indemnification hereunder, ScotSafe shall (i) give BioSafe prompt
written notice of such claim or notice of claim, (ii) cooperation with BioSafe
at BioSafe's expense in every reasonable manner in the defense of such claim,
and (iii) permit BioSafe to assume and control the defense thereof at BioSafe's
cost and expense, provided that ScotSafe shall have the right, at its option and
at its expense, to participate in the defense of such claim through counsel of
its own choosing. If infringement is held to exist, or if a finding of
infringement is likely, BioSafe may, at its option, revise the infringing
material so as to make it non-infringing, or arrange to procure for ScotSafe the
right to continue using the infringing material to the extent permitted by this
Agreement.
8.5 Indemnification by ScotSafe. ScotSafe agrees to indemnify and
defend BioSafe and hold it harmless from and against any claims arising out of
the activities of ScotSafe or its employees or agents under the license
conferred hereby, including without limitation, any such claims alleging loss or
damage arising from the use of the CFA Technology or the construction or
operation by ScotSafe of any or all of the CFA Units.
8.6 Indemnification by BioSafe. BioSafe agrees to indemnify and
defend ScotSafe and hold it harmless from and against any claims arising out of
the activities of BioSafe or its employees or agents under the license conferred
hereby, including without limitation any such claims alleging loss or damage
arising from the services as set out herein provided by BioSafe in respect of
any or all of the CFA Units.
<PAGE>
SECTION 9. GOVERNING LAW
9.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the law of Scotland. In the event that there is a dispute
under this Agreement (with the exception of disputes arising under Section 4.3
hereof), the parties hereto shall submit to binding arbitration at the
International Court of Arbitration at Paris, France or otherwise to such
arbitral or judicial proceeding, governed by the law of Scotland, as the parties
may mutually agree.
SECTION 10. MISCELLANEOUS
10.1 Force Majeure. For the purposes of this Agreement, Force Majeure
Event means any circumstances beyond the control of either party to this
Agreement (including without limitation acts of war or civil unrest, strikes,
lockouts or other industrial action, storm, explosion, Act of God, accident or
prohibitive government regulations) provided, however, the parties shall make
diligent good faith efforts to perform their respective obligations hereunder.
If due to any Force Majeure Event either party is unable to a material extent to
fulfill its obligations under this Agreement the party so unable shall not be
liable to the other for any delay or non-performance.
10.2 Notices. Any notice or other communication to be given or served
hereunder shall be sufficiently given or serviced if it is delivered to the
party to whom such notice was addressed personally or if sent by first class
mail, postage prepaid, or if sent by telex or facsimile transmission to that
party at the address stated below:
If to BioSafe:
Richard H. Rosen, Ph.D.
BioSafe International, Inc.
10 Fawcett Street
Cambridge, MA 02138
with copies to: Jeffrie Bettinger
BioSafe International, Inc.
10 Fawcett Street
Cambridge, MA 02138
Thomas P. Storer, P.C.
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109-2881
If to ScotSafe:
ScotSafe Limited
4 Fitzroy Place
Glasgow, G3 7RH
<PAGE>
with copies to:
John (known as Ian) Reynolds
14 Argyll Gardens, Larkhall,
Strathclyde ML 9 2EN
George Bonnar Weir
6 Kirkdene Crescent, Newton Mearns,
Glasgow, G77 5RP
Kevin Sweeney
McGrigor Donald, Solicitors
Pacific House
70 Wellington Street
Glasgow, G2 6SB
or at such other address which the recipient most recently has notified the
other for the purpose of this Section. Any document sent by first class mail
shall be deemed to be received ten (10) days after the same shall have been
sent. Any notice sent by telex or facsimile shall be deemed given when received,
answer back confirmed.
10.3 Assignment. The rights and liabilities conferred by this
Agreement are personal to the parties hereto and may not be assigned or
transferred to any other party hereto without the prior consent in writing of
the other party; except that either party may assign its rights and obligations
hereunder to any of its direct or indirect subsidiaries or to a corporation or
other entity which may acquire all or substantially all of the assets or
business of that party, provided that in such event the assigning party shall
not be relieved of its obligations hereunder.
10.4 Effect of Waiver. No delay or omission or any party in
exercising any right, power, privilege or remedy in respect of this Agreement
shall impair such right, power, privileged or remedy or be construed as a waiver
thereof nor shall any single or partial exercise of such right, power,
privileged or remedy preclude any further exercise of any right, power,
privilege or remedy. The rights, powers, privileges and remedies herein provided
are cumulative and not exclusive of any rights, powers, privileges or remedies
provided by law.
10.5 Amendments. This Agreement may only be amended or supplemented
by a writing that refers expressly to this Agreement and that is signed by both
of the parties.
<PAGE>
10.6 Severability. If at any time any of the provisions of this
Agreement is or becomes invalid, illegal or unenforceable in any respect under
the law of any jurisdiction, neither the validity, legality or enforceability of
the remaining provisions nor the validity, legality or enforceability of such
provision under the law of any other jurisdiction shall in any way be affected
or impaired thereby.
10.7 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the matters dealt with herein and
supersedes any previous agreement between the parties hereto in relation to such
matters. Each of the parties acknowledges that in entering into this Agreement,
it has not relied on any representation or warranty save as expressly set out
herein or in any document referred to herein. No variation of this Agreement
shall be valid or effective unless made by one or more instruments in writing
and signed by such of the parties which would be affected by such variation.
10.8 Costs and Attorneys' Fees. Each party will pay its own costs and
attorneys' fees incident to this Agreement and the transaction contemplated
hereby (except as may be specifically provided for herein) whether or not this
transaction shall be consummated.
10.9 Public Announcements. Neither of the parties hereto shall issue
any press release or otherwise publicize this Agreement or the transactions
contemplated herein without the approval of the other party, which approval
shall not be unreasonably withheld. ScotSafe recognizes that BioSafe is a public
company subject to disclosure requirements under applicable law. The approval of
a specific press release or other form of publicity shall not constitute
approval of subsequent press releases or publicity.
10.10 No Joint Venture. The parties acknowledge and agree that
each is an independent contractor and not an agent, joint venturer or partner of
the other party. This Agreement shall not be construed as constituting either
party as a partner of the other party or
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
to create a joint venture or any other form of legal association that would
impose liability upon one party of the act or failure to act of the other party
or as providing either party with the right, power or authority (express or
implied) to create any duty or obligation on behalf of the other party.
SUBSCRIBED for and on behalf of
BIOSAFE at ______________________________
on_______________________________________
by_______________________________________
being a Director/the Secretary/or an
Authorized Signatory of BioSafe in
the presence of:
Witness___________________________
Name_____________________________
Address___________________________
Occupation_________________________
SUBSCRIBED for and on behalf of
SCOTSAFE at______________________
on________________________________
by________________________________
being Director/the Secretary/or an
Authorized Signatory of SCOTSAFE in
the presence of:
Witness__________________________
Name___________________________
Address_________________________
Occupation_______________________
<PAGE>
Schedule A
CFA COMPONENT LIST
Dryers
Shredders
Oil Heater
Computer Control
Condenser/Cooling Tower
Air Filtration
Auxiliary Conveyors
Control and Monitoring Systems and other minor components
<PAGE>
Schedule B
Location of the Site
Location of the Site: Newcastle, England and other sites in the Territory to be
determined by mutual agreement of ScotSafe and BioSafe.
<PAGE>
Schedule C
Acceptance Test Standards
The Acceptance Test Standards for the CFA Units are as follows:
1. Description of Microbiological Efficacy Test. The
Microbiological Efficacy Test will be determined by mutual agreement of BioSafe
and ScotSafe.
2. Other Acceptance Test Standards. Other acceptance standards
include those standards required to satisfy the applicable local authorities at
each Site with respect to:
(i) environmental health;
(ii) health and safety;
(iii) the suitability of the CFA
Unit at the Site for use in treating
and disposing CIW;
(iv) any aspects of planning to
the extent that they are dependent on
sub-clauses (i) and (ii) above;
(v) the waste residue generated
by the CFA Unit at the Site being
microbiologically accepted for
landfill; and
(vi) such other standards as are
mutually agreed to by BioSafe and
ScotSafe in writing (collectively
"the Acceptance Tests").
<PAGE>
Schedule D
Royalties
$400 x 1,500 pounds per hour = $600,000 in respect of the first CFA Unit and,
thereafter, in respect of each additional CFA Unit as follows:
CFA Unit 2$200 x 1,500 pounds per hour = $300,000
CFA Unit 3$300 x 1,500 pounds per hour = $450,000
CFA Unit 4$150 x 1,500 pounds per hour = $225,000
CFA Unit 5$50 x 1,500 pounds per hour = $75,000
CFA Unit 6$50 x 1,500 pounds per hour = $75,000
CFA Unit 7$50 x 1,500 pounds per hour = $75,000
CFA Unit 8$50 x 1,500 pounds per hour = $75,000
CFA Unit 9$50 x 1,500 pounds per hour = $75,000
Each CFA Units installed in the Territory after the ninth CFA Unit shall be
subject to a royalty of $50 per pound per hour of actual nameplate capacity for
such CFA Unit.
It is understood that the 1,500 pounds per hour figure is a warranted minimum
capacity, and that it is the intention of BioSafe that each Facility will be
constructed to achieve a targeted maximum of 3,000 pounds per hour under ideal
conditions.
<PAGE>
Schedule E
Current BioSafe Personnel Rates
Category/Title Daily Rate
President $2097
Director of Process Technology $932
Senior Engineer $700
Engineer $526
Engineering Associate $468
Process Technician $351
Rates shown above are in U.S. Dollars and are typical billing rates for CY 1996
subject to change based on actual personnel and inflation. BioSafe will charge
the actual rate for personnel engaged in the work at our then current multiplier
for overheads. The daily rate includes all overheads and fees including profit
at 15%. All expenses incurred in the conduct of the work including travel,
lodging and meals, are billed as direct costs.
241836.c5
<PAGE>
EXHIBIT 10.18
LICENSE AND SERVICES AGREEMENT - EUROPEAN LICENSE
LICENSE and SERVICES
AGREEMENT - EUROPEAN LICENSE
between
BIOSAFE INTERNATIONAL INC.,
having an office and place of business at 10
Fawcett Street, Cambridge, MA 02138
(`BioSafe," which reference shall be deemed,
in the context of this agreement, with the
exception of section 6.2 Hereof) to include
Biosafe International Inc. and its direct and
indirect subsidiaries, collectively,
and
SCOTSAFE LIMITED, a company
incorporated under the Companies Acts with
registered number SC0146908 and having its
registered office at 4 Fitzroy Place, Glasgow,
G37RH ("ScotSafe")
WHEREAS, BioSafe is the owner of certain intellectual property
rights, including but not limited to certain patent rights, unpatented
technology, trade secrets, and proprietary and other know-how relating to the
disposal of infectious medical waste by means of a process incorporating
continuous flow augur technology; and
WHEREAS, ScotSafe wishes to obtain a license to use the continuous
flow auger technology solely for the purpose of constructing and operating a
continuous flow auger at the Sites (as hereinafter defined); and
WHEREAS, BioSafe and ScotSafe desire that BioSafe license the
continuous flow auger technology to ScotSafe and provide ScotSafe with certain
engineering services in consideration for which ScotSafe will pay royalties and
consulting fees as set forth herein.
THEREFORE, IT IS AGREED as follows:
<PAGE>
SECTION 1. DEFINITIONS
In this Agreement words importing the singular shall
include the plural unless otherwise required by the context and a reference to a
Schedule with an alphabetic designation shall be a reference to the Schedule
bearing that alphabetic designation annexed hereto. In addition, the following
terms shall have the meanings as defined herein:
"Agreement" shall mean this Agreement and any modification,
alteration, addition or deletion hereto made in writing and after the date of
execution of this Agreement.
"Applicable Environmental Laws" shall mean any provisions,
statutory or otherwise, of international, national or local law in the
jurisdiction where the CFA Unit (as hereinafter defined) islocated and the
regulations thereunder and any other international, national or local laws or
regulations that govern:
(a) the existence, assessment, cleanup or
remedy of contamination of any kind of Hazardous
Materials at, on or under the Site
(as hereinafter defined);
(b) the protection of the environment or
of public health or safety from a release,
spill, deposit or otherwise emplaced
contamination of Hazardous Materials;
(c) the control and containment of
Hazardous Materials;
or
(d) the use, generation, transport,
treatment, storage, disposal, removal,
containment or recovery of Hazardous Materials,
including, without limitation, building
materials.
Applicable Environmental Laws shall include all such environmental
laws, provisions and regulations, statutory or otherwise, now existing or from
time to time enacted during the term of this Agreement in respect of which
ScotSafe notifies BioSafe promptly after enactment thereof.
"CFA" shall mean the continuous flow auger developed by
BioSafe and conforming to the description contained in Schedule A attached
hereto.
"CFA Technology" shall mean all of the intellectual
property rights including, but not limited to, patent rights, unpatented
technology, trade secrets and proprietary or other know-how which BioSafe now
<PAGE>
owns, or which it may own, which directly relate to (a) the continuous flow
auger technology covered by the Patents (as hereinafter defined), and (b) all
trade secrets, know-how, and other proprietary and confidential information
possessed by BioSafe directly relating to the use of the CFA in the disposal of
clinical infectious waste ("CIW).
"CFA Units" shall mean continuous flow augers installed at
the Sites which embody the CFA Technology.
"CIW" shall mean Clinical Infectious Waste, excluding
Hazardous Material, human and animal tissue, chemotherapeutic and radioactive
waste.
"Hazardous Material" shall mean any substance which as of
the date of this Agreement shall be identified as "hazardous" or "toxic" or
otherwise regulated under Applicable Environmental Laws or which has been or
shall be determined at any time by any agency or court to be a hazardous or
toxic substance under Applicable Environmental Laws. The term "Hazardous
Material" shall also include, without limitation, raw materials, building
components, the products of any manufacturing or other activities on the
properties, wastes, petroleum, and source, special nuclear or by-product
material.
"Facilities" shall mean the processing facilities operated
by ScotSafe located at the Sites and incorporating the CFA Unit.
"Medical Waste" shall mean medical waste as defined under
laws and regulations applicable to the Sites and shall include any modifications
of such term as used from time to time in such laws and regulations.
"Patents" shall mean the patents throughout the world
covering the continuous flow auger technology developed by BioSafe, including
without limitation U.S. Patent No. 5,277,136, captioned "Processing Facility
for Disposing of Infectious Wastes."
"Sites" shall mean the sites at which the CFA Units will
operate, the respective location of which are set forth on Schedule B attached
hereto.
"Territory" shall mean Austria, Belgium, Denmark, Finland,
France, Germany, Italy, the Netherlands, Norway, Portugal, Spain, Sweden and
Switzerland.
<PAGE>
SECTION 2. LICENSE OF CFA TECHNOLOGY
2.1 License of CFA Technology. In consideration for the Royalties (as
hereinafter defined in Section 5.1 hereof) to be paid by ScotSafe to BioSafe
hereunder, BioSafe hereby grants an exclusive (subject to Section 5.1 hereof)
license to ScotSafe in respect of the Territory, under and relative to the
Patents, to make and have made, and to use, the CFA Technology solely in the
construction and operation of the CFA Units at the Sites. ScotSafe shall have no
right to subcontract or to sublicense the CFA Technology without the express
prior written approval of BioSafe, which approval BioSafe may withhold in its
sole discretion. In the event that BioSafe grants to ScotSafe the right to
subcontract or to sublicense the CFA Technology, such sublicense shall be on
terms to be mutually agreed on by BioSafe and ScotSafe.
2.2 Term of License. The term of the license granted pursuant to
Section 2.1 hereof for the CFA Technology which is protected by the Patents
shall be for the duration of the Patents, plus any renewals permitted by law.
The term of the license for the CFA Technology which is not protected by the
Patents shall be the term of this Agreement.
2.3 Proprietary Rights. All proprietary rights in and to the CFA
Technology, including, without limitation, all rights with respect to patents,
copyrights and trademarks, including, without limitation, the "BioSafe" mark,
and rights under the trade secret laws of any jurisdiction, shall be and remain
the sole property of BioSafe. ScotSafe shall have no right, title or interest
therein except as expressly provided herein. ScotSafe agrees to display all
appropriate notices of any patent registration or application of which it is
given notice by BioSafe, in accordance with BioSafe's reasonable instructions as
to the content of such notices, and shall promptly notify BioSafe of any
infringement of BioSafe's proprietary rights of which it has knowledge.
2.4 Substitute Technology. BioSafe in consultation with ScotSafe
shall have the right to substitute other proprietary technologies of BioSafe in
place of the CFA Technology in the event that BioSafe determines that such other
technologies are preferable and can be provided on a cost-effective basis, in
which event all references herein to "CFA" or the "CFA Technology" or the "CFA
Unit" shall be deemed to refer to such substitute technology.
2.5 Developments by ScotSafe. In the event that ScotSafe shall
develop any improvements to the CFA Technology or any other patented or
unpatented technology for processing medical waste during the term of this
Agreement, either alone or jointly with BioSafe, ScotSafe shall promptly
disclose such improvements or new technology to BioSafe. All rights in any such
improvements or new technology developed by ScotSafe shall be the property of
BioSafe and shall be deemed for all purposes of this Agreement to constitute a
part of the CFA Technology. ScotSafe hereby assigns to BioSafe all of its rights
in any such improvements or new technology, and shall execute any documents or
instruments required to confirm such assignment. In the event that BioSafe shall
<PAGE>
decide to seek patent protection for any such improvements or new technology,
ScotSafe shall cooperate, at BioSafe's expense, in BioSafe's efforts in seeking
such patent protection, and in connection therewith shall execute, and cause its
employees to execute, any patent applications, assignments, or other documents
required in connection therewith.
SECTION 3. SERVICES
3.1 Purchase and Delivery of the CFA Unit. ScotSafe shall have
responsibility for arranging the manufacture, purchase and delivery of the CFA
Unit and the shipping of the CFA Unit to the Site; provided that BioSafe will
co-operate fully with ScotSafe in arranging, at ScotSafe's expense, for such
manufacture, as well as all necessary insurance, shipping instructions,
insurance, import licenses, permits, and other necessary documents for the
shipment and delivery of the CFA Units to the Sites.
3.2 BioSafe Services. ScotSafe shall retain BioSafe to provide the
services listed in subsections (a) through (c) below, for which services BioSafe
will be paid Consulting Fees as set forth in Section 5.2 hereof:
(a) BioSafe shall have responsibility for overseeing
and managing the installation and commissioning of the CFA Units at the Sites,
including:
(i) planning and design of each Facility,
including CFA, recycling, sharps
programme, and residue disposal;
(ii) equipment specification and procurement;
(iii) installation and acceptance testing
(as further described in Section 4
hereof), provided that BioSafe will have
approval authority on all vendor
equipment and contractors associated
with the installation of each CFA Unit;
(iv) testing for required permits and
approvals; and
(v) the provision of written materials and
protocols for the operation of each CFA
Unit.
BioSafe acknowledges and understands that during the course of this
Agreement ScotSafe may want to assume responsibility for some of the services
provided by BioSafe under this Section 3.2(a); therefore, BioSafe agrees to
negotiate in good faith with ScotSafe with respect to any reasonable reduction
in the services provided by BioSafe hereunder.
<PAGE>
(b) BioSafe shall provide reasonable operations
training and technical support for the employees of ScotSafe required for
operation of the CFA Units at the Sites as deemed necessary by both parties.
This training and technical support may involve reasonable travel by BioSafe
personnel, at ScotSafe's expense, to the office of ScotSafe and to the Sites.
(c) BioSafe will provide assistance to ScotSafe in
preparing, submitting, negotiating and all other similar actions relating to any
patent applications, patent renewal applications, applications to register
trademarks and any and all other similar governmental filings which ScotSafe may
be required to make during the term of this Agreement in order to protect
ScotSafe's interest in the CFA Technology. ScotSafe will provide similar
assistance to BioSafe to protect BioSafe's interest in the CFA Technology.
3.3 ScotSafe Responsibilities. ScotSafe, at its expense, will
be responsible for developing each Site, including without limitation:
(a) preparing the structure at each Site to house the
CFA Unit at that Site in accordance with requirements specified by BioSafe;
(b) providing water, power and gas utilities at each
Site sufficient to operate the CFA Unit at that Site in accordance with
requirements specified by BioSafe;
(c) obtaining all required licenses and permits to
install and operate the CFA Unit at each Site subject to such CFA Unit
satisfying the Acceptance Tests; and
(d) providing CIW and any other test and maintenance
materials as required by BioSafe in a timely manner and in adequate amounts to
conduct process testing and the Acceptance Tests.
3.4 Initiation Notice. ScotSafe shall provide written notification to
BioSafe upon the initiation of any purchase order or contractual agreement or
understanding relating to the design, fabrication or installation of each CFA
Unit (such notification referred to herein as an "Initiation Notice").
SECTION 4. ACCEPTANCE OF CFA UNITS
4.1 Acceptance Tests. The acceptance test standards for
evaluation of the CFA Units at the Sites are set forth on Schedule C attached
hereto (collectively, the "Acceptance Tests").
4.2 Completion of Acceptance Tests. No later than one month after the
installation of the CFA Unit at each Site has been completed in accordance with
BioSafe's specifications, the Acceptance Tests shall commence. Acceptance
Testing will be conducted under the joint supervision of BioSafe and ScotSafe.
<PAGE>
ScotSafe will be responsible for determining the local codes and regulations
that must be satisfied, and provide copies of all relevant requirements to
BioSafe prior to commencing installation of the CFA Unit at each Site. The
results of all testing completed by outside contractors and consultants will be
transmitted simultaneously to BioSafe and ScotSafe. Upon completion of the
Acceptance Tests, BioSafe shall submit to ScotSafe a report which summarizes
commissioning and acceptance testing activities, including the results of the
Acceptance Tests ("the Acceptance Test Results"). The date of the ScotSafe's
receipt of the Acceptance Test Results shall be deemed the Acceptance Date
unless, within fourteen (14) days of receipt, ScotSafe delivers to BioSafe
written notification detailing each acceptance standard which ScotSafe asserts
has not been satisfied. BioSafe shall make such modifications and repeat tests
with the co-operation of ScotSafe as necessary to satisfy the Acceptance Tests.
In the event that the CFA Unit does not satisfy the agreed Acceptance Tests
within six (6) months from BioSafe's delivery of a certificate of mechanical
completion of the installation of the CFA Unit at each Site, BioSafe will use
its reasonable efforts to correct the deficiency within such period of time as
is mutually agreed between ScotSafe and BioSafe, and if this is not possible
then BioSafe will cooperate with, and provide to ScotSafe appropriate assistance
to remedy such deficiency, subject to the limitations on BioSafe liability
contained in Section 8.2 hereof.
4.3 Disputes Regarding Acceptance. In the event that there is a
disagreement regarding whether a particular CFA Unit has satisfied the
Acceptance Tests, the matter shall be referred for final settlement to an
independent third party acting as an expert and not as an arbiter, nominated
jointly by BioSafe and ScotSafe. Failing such joint nomination, an independent
third party shall be nominated on the application of either party by the then
current Secretary of the Association of Consulting Engineers, London. The
decision of such third party shall be final and binding on BioSafe and ScotSafe.
SECTION 5. ROYALTIES AND CONSULTING FEES
5.1 Royalties. In consideration of the license granted by BioSafe
herein, ScotSafe shall pay BioSafe royalties for each CFA Unit in the amounts
and in the manner set forth in Schedule D attached hereto (the "Royalties"). The
license from BioSafe to ScotSafe shall be exclusive to ScotSafe within the
Territory provided that ScotSafe pays to BioSafe the minimum Royalties in the
amounts and in the manner set forth in Schedule D attached hereto (the "Minimum
Royalties"). In the event that ScotSafe does not pay to BioSafe the Minimum
Royalties for each calendar year during which they are required to be paid,
ScotSafe shall perform one of the following within ten (10) days following the
end of such calendar year:
(a) pay to BioSafe a single cash payment in an amount equal to
the shortfall in the Minimum Royalty amount for such calendar year;
(b) notify BioSafe in writing of ScotSafe's election to conver
the license granted under Section 2.1 hereof to a non-exclusive license within
the Territory; or
<PAGE>
(c) notify BioSafe in writing of ScotSafe's election to
terminate this Agreement.
If ScotSafe elects to convert the license granted in Section 2.1 hereof to a
non-exclusive license within the Territory in accordance with Section 5.1(b)
above, BioSafe shall have the right to terminate this Agreement upon 12 months
prior written notice to ScotSafe. If BioSafe does not receive the Minimum
Royalty shortfall payment described in Section 5.1(a) above or either of the
notices described in Section 5.1(b) and (c) above, within ten (10) days
following the end of the calendar year for which such Minimum Royalties apply,
BioSafe shall have the right to terminate this Agreement upon ten (10) days
written notice to ScotSafe.
5.2 Consulting Fees. ScotSafe shall pay BioSafe compensation for the
services rendered by BioSafe to ScotSafe under Sections 3.2 and 4.2 or
otherwise. Payment shall be on a time-and-materials basis, for which purpose the
services of BioSafe personnel will be charged at reasonable hourly rates no
higher than the rates then customarily charged by BioSafe for such personnel or
personnel of comparable skills and experience. Rates for BioSafe personnel as of
the date of execution of this Agreement are set forth in Schedule E attached
hereto, provided, however, that BioSafe reserves the right to change these rates
at any time. BioSafe shall submit invoices for such services and any related
disbursements reimbursable under Section 5.3 hereof on a regular basis, and
ScotSafe shall pay all charges reflected on such invoices within thirty (30)
days after presentation.
5.3 Expenses. ScotSafe will reimburse BioSafe for reasonable expenses
incurred by BioSafe in the performance of its obligations hereunder, including,
without limitation, coach-class air travel, lodging and meals, when these
expenses are supported by receipts.
5.4 Currency. Royalties and Consulting Fees payable hereunder shall
be paid in U.S. dollars, and any conversion from foreign currencies shall be
calculated at the exchange rates prevailing on the last day of the month in
which such Royalties or Consulting Fees accrue.
5.5 Interest. Any amounts not paid when due hereunder shall accrue
interest at a rate per annum equal to two percent (2%) over the Prime Rate
quoted from time to time in the Wall Street Journal.
SECTION 6. TERM; TERMINATION
6.1 Term of the Agreement. This Agreement shall commence on the last
date of execution of this Agreement and shall expire on 30 November, 2020,
except as earlier terminated in accordance with the terms of this Agreement, or
by mutual agreement of the parties hereto.
<PAGE>
6.2 Termination.
(a) BioSafe may terminate this Agreement in the event
ScotSafe fails to pay any amount owed to BioSafe hereunder when due, including
without limitation the minimum Royalties set forthon Schedule D attached
hereto, which failure has not been cured within thirty (30) days.
(b) Either party may terminate this Agreement in the
event of a material breach of this Agreement, which breach has not been cured
within thirty (30) days of receipt of written notice thereof.
(c) ScotSafe may terminate this Agreement immediately
by written notice to BioSafe upon the occurrence of (i) the adjudication of
BioSafe bankruptcy or insolvency of BioSafe International,Inc. pursuant to the
provisions of any United States federal or state bankruptcy or insolvency act,
(ii) the appointment of a receiver or trustee of all, or substantially all, of
the property or assets of BioSafe, (iii) the filing of a petition by, or of an
involuntary petition against, BioSafe under the provisions of any federal or
state bankruptcy or insolvency act, (iv) the making by BioSafe of an assignment
for the benefit of creditors or (v) the dissolution of BioSafe. BioSafe shall
have the same rights to terminate in the event ScotSafe shall suffer any of the
occurrences listed in clauses (i) - (v) above under applicable United Kingdom
bankruptcy or insolvency laws. Upon termination of this Agreement for any
reason ScotSafe shall cease all use and exploitation of the CFA Technology, and
each party shall return to the other any and all documents or other materials
containing Confidential Information of the other (as defined
herein).
6.3 Survival of Obligations. Upon any termination of this Agreement,
all rights and obligations of the parties under this Agreement shall cease
except for (a) ScotSafe's obligations to make any payment which was due and
payable on or prior to the date of termination, (b) the parties' obligations of
confidentiality under Section 7 of this Agreement, and (c) the obligations of
the parties under this Section 6.3.
SECTION 7. CONFIDENTIALITY
7.1 General.
(a) Both parties shall maintain in strictest
confidence and shall cause their directors, officers, employees, agents, counsel
and representatives to maintain in strictest confidence, all proprietary and
confidential information and materials (whether or not patentable), including,
without limitation, equipment, processes, methods, data, software, reports,
know-how, sources of supply, customer lists, patent positions and business plans
which are communicated to, learned of, developed or otherwise acquired by any
party pursuant to this Agreement and any other informationdesignated by the
disclosing party as confidential or proprietary in relation to the subject
matter of this Agreement, which information is provided by one party to the
other either directly or indirectly ("Confidential Information").
<PAGE>
(b) ScotSafe will ensure that any agents or
subcontractors of ScotSafe or sublicensees (approved under Section 2.1 hereof)
who have access to the CFA Technology execute a confidentiality and proprietary
information agreement in a form reasonably acceptable to BioSafe and ScotSafe,
which agreement shall require such agent, subcontractor or approved sublicensee
to perform the obligations required to be performed by ScotSafe in Section 2.5
hereof.
7.2 Exceptions. Confidential Information shall not include any
information that (i) becomes known to the general public without the fault or
breach (including simple negligence) of the receiving party; or (ii) was already
known to or by the recipient as evidenced by prior written documents in its
possession; or (iii) is disclosed to the recipient by a third party who is not
in default of any confidentiality obligations to the disclosing party hereunder;
or (iv) is developed by or on behalf of the receiving party, without reliance on
confidential information received hereunder. Each party shall be entitled, in
addition to any other right or remedy it may have, at law or in equity, to an
injunction, without the posting of any bond or other security, enjoining or
restraining the other party from any violation or threatened violation of this
Section.
7.3 Employees. ScotSafe agrees that if any of its directors,
officers, key employees or other employees, who could reasonably be expected to
possess Confidential Information the disclosure of which could be harmful to
BioSafe's interest, shall leave the employment of ScotSafe, then ScotSafe will
use reasonable efforts to obtain from such departing person an agreement not to
disclose to any third party at any time such Confidential Information in such
person's possession, and to cause such person to deliver to ScotSafe and not
take with him or retain, any such Confidential Information, and to provide
written certification to ScotSafe that all such materials have been so delivered
to ScotSafe prior to departure from employment.
7.4 Survival. The obligations of the parties under this
Section 7 shall survive any termination of this Agreement for any reason.
<PAGE>
SECTION 8. RISK; INDEMNIFICATION
8.1 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH HEREIN,
BIOSAFE DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION ANY WARRANTIES AS TO THE SUITABILITY OR MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE OF THE CFA TECHNOLOGY, THE CFA UNIT OR ANY SERVICES
FURNISHED HEREUNDER. NEITHER BIOSAFE, NOR ITS EMPLOYEES, AGENTS OR
SUBCONTRACTORS SHALL BE LIABLE FOR ANY LOST OR ANTICIPATED PROFITS, OR ANY
INCIDENTAL, INDIRECT EXEMPLARY, SPECIAL OR CONSEQUENTIAL DAMAGES, LOSS BY REASON
OF PLANT OR FACILITY SHUT DOWN OR NON-OPERATION; INCREASED EXPENSE OF OPERATION
OF ANY FACILITY OR EQUIPMENT; DAMAGE OR INJURY TO THE ENVIRONMENT (INCLUDING
WITHOUT LIMITATION, POLLUTION, ECOLOGY AND LIKE MATTERS); OR ANY OTHER SPECIAL
OR CONSEQUENTIAL LOSS OR DAMAGE, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE,
REGARDLESS OF WHETHER BIOSAFE WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8.2 Defects. In the event the CFA Unit fails to meet specifications
due to a defect in materials or workmanship of a CFA Unit, BioSafe shall
cooperate with the manufacturer of such CFA Unit in order to rectify such
defects, for which cooperation ScotSafe shall pay BioSafe Consulting Fees as
described in Section 5.2 hereof. In the event that a CFA Unit fails to meet
specifications due to a defect in the CFA Technology, BioSafe's liability
hereunder shall be limited to, at BioSafe's sole option (after discussion with
ScotSafe), repair of such defects or refund of the Royalties paid to BioSafe
hereunder with respect to such CFA Unit.
8.3 Loss or Damage. Each party agrees to indemnify and defend the
other and hold them harmless from and against any claims for personal injury or
property damage arising out of the negligence or misconduct of the employees or
agents of such party; provided however, that neither party shall be responsible
for indirect, special or consequential damages.
8.4 Infringement. BioSafe represents and warrants that, to the best
knowledge and belief of BioSafe, the CFA Technology does not infringe upon any
valid patent of any third party in the United States and in the Territory, and
BioSafe is not aware of any claim by any third party that such infringement
exists. BioSafe agrees to defend, at its own expense, and to pay all costs and
damages awarded against ScotSafe based on, any and all claims by third parties
arising from actual or alleged infringement by the CFA Technology of any such
patent if it is shown that BioSafe knew of such infringement or possible claim
of infringement; provided that BioSafe's obligation to pay such costs and
damages under this Section 8.4 shall not apply to the extent that such actual or
alleged infringement arises out of modifications to the CFA Technology made by
ScotSafe; and provided that BioSafe's obligation to pay such costs and damages
shall be subject to and limited by the following provisions of this Section 8.4.
<PAGE>
In the event that ScotSafe receives a claim or notice of a claim that is or may
be subject to indemnification hereunder, ScotSafe shall (i) give BioSafe prompt
written notice of such claim or notice of claim, (ii) cooperation with BioSafe
at BioSafe's expense in every reasonable manner in the defense of such claim,
and (iii) permit BioSafe to assume and control the defense thereof at BioSafe's
cost and expense, provided that ScotSafe shall have the right, at its option and
at its expense, to participate in the defense of such claim through counsel of
its own choosing. If infringement is held to exist, or if a finding of
infringement is likely, BioSafe may, at its option, revise the infringing
material so as to make it non-infringing, or arrange to procure for ScotSafe the
right to continue using the infringing material to the extent permitted by this
Agreement.
8.5 Indemnification by ScotSafe. ScotSafe agrees to indemnify and
defend BioSafe and hold it harmless from and against any claims arising out of
the activities of ScotSafe or its employees or agents under the license
conferred hereby, including without limitation, any such claims alleging loss or
damage arising from the use of the CFA Technology or the construction or
operation by ScotSafe of any or all of the CFA Units.
8.6 Indemnification by BioSafe. BioSafe agrees to indemnify and
defend ScotSafe and hold it harmless from and against any claims arising out of
the activities of BioSafe or its employees or agents under the license conferred
hereby, including without limitation any such claims alleging loss or damage
arising from the services as set out herein provided by BioSafe in respect of
any or all of the CFA Units.
SECTION 9. GOVERNING LAW
9.1 Governing Law. This Agreement shall be governed by and construed
in accordance with the law of Scotland. In the event that there is a dispute
under this Agreement (with the exception of disputes arising under Section 4.3
hereof), the parties hereto shall submit to binding arbitration at the
International Court of Arbitration at Paris, France or otherwise to such
arbitral or judicial proceeding, governed by the law of Scotland, as the parties
may mutually agree.
SECTION 10. MISCELLANEOUS
10.1 Force Majeure. For the purposes of this Agreement, Force Majeure
Event means any circumstances beyond the control of either party to this
Agreement (including without limitation acts of war or civil unrest, strikes,
lockouts or other industrial action, storm, explosion, Act of God, accident or
prohibitive government regulations) provided, however, the parties shall make
diligent good faith efforts to perform their respective obligations hereunder.
If due to any Force Majeure Event either party is unable to a material extent to
fulfill its obligations under this Agreement the party so unable shall not be
liable to the other for any delay or non-performance.
<PAGE>
10.2 Notices. Any notice or other communication to be given or served
hereunder shall be sufficiently given or serviced if it is delivered to the
party to whom such notice was addressed personally or if sent by first class
mail, postage prepaid, or if sent by telex or facsimile transmission to that
party at the address stated below:
If to BioSafe:
Philip W. Strauss
BioSafe International, Inc.
10 Fawcett Street
Cambridge, MA 02138
with copies to: Jeffrie Bettinger
BioSafe International, Inc.
10 Fawcett Street
Cambridge, MA 02138
Thomas P. Storer, P.C.
Goodwin, Procter & Hoar
Exchange Place
Boston, MA 02109-2881
If to ScotSafe:
ScotSafe Limited
4 Fitzroy Place
Glasgow, G3 7RH
with copies to:
John (known as Ian) Reynolds
14 Argyll Gardens, Larkhall,
Strathclyde ML 9 2EN
George Bonnar Weir
6 Kirkdene Crescent, Newton Mearns,
Glasgow, G77 5RP
Kevin Sweeney
McGrigor Donald, Solicitors
Pacific House
70 Wellington Street
Glasgow, G2 6SB
or at such other address which the recipient most recently has notified the
other for the purpose of this Section. Any document sent by first class mail
<PAGE>
shall be deemed to be received ten (10) days after the same shall have been
sent. Any notice sent by telex or facsimile shall be deemed given when received,
answer back confirmed.
10.3 Assignment. The rights and liabilities conferred by this
Agreement are personal to the parties hereto and may not be assigned or
transferred to any other party hereto without the prior consent in writing of
the other party; except that either party may assign its rights and obligations
hereunder to any of its direct or indirect subsidiaries or to a corporation or
other entity which may acquire all or substantially all of the assets or
business of that party, provided that in such event the assigning party shall
not be relieved of its obligations hereunder.
10.4 Effect of Waiver. No delay or omission or any party in
exercising any right, power, privilege or remedy in respect of this Agreement
shall impair such right, power, privileged or remedy or be construed as a waiver
thereof nor shall any single or partial exercise of such right, power,
privileged or remedy preclude any further exercise of any right, power,
privilege or remedy. The rights, powers, privileges and remedies herein provided
are cumulative and not exclusive of any rights, powers, privileges or remedies
provided by law.
10.5 Amendments. This Agreement may only be amended or supplemented
by a writing that refers expressly to this Agreement and that is signed by both
of the parties.
10.6 Severability. If at any time any of the provisions of this
Agreement is or becomes invalid, illegal or unenforceable in any respect under
the law of any jurisdiction, neither the validity, legality or enforceability of
the remaining provisions nor the validity, legality or enforceability of such
provision under the law of any other jurisdiction shall in any way be affected
or impaired thereby.
10.7 Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the matters dealt with herein and
supersedes any previous agreement between the parties hereto in relation to such
matters. Each of the parties acknowledges that in entering into this Agreement,
it has not relied on any representation or warranty save as expressly set out
herein or in any document referred to herein. No variation of this Agreement
shall be valid or effective unless made by one or more instruments in writing
and signed by such of the parties which would be affected by such variation.
10.8 Costs and Attorneys' Fees. Each party will pay its own costs and
attorneys' fees incident to this Agreement and the transaction contemplated
hereby (except as may be specifically provided for herein) whether or not this
transaction shall be consummated.
10.9 Public Announcements. Neither of the parties hereto shall issue
any press release or otherwise publicize this Agreement or the transactions
contemplated herein without the approval of the other party, which approval
<PAGE>
shall not be unreasonably withheld. ScotSafe recognizes that BioSafe is a public
company subject to disclosure requirements under applicable law. The approval of
a specific press release or other form of publicity shall not constitute
approval of subsequent press releases or publicity.
10.10 No Joint Venture. The parties acknowledge and agree that
each is an independent contractor and not an agent, joint venturer or partner of
the other party. This Agreement shall not be construed as constituting either
party as a partner of the other party or
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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to create a joint venture or any other form of legal association that would
impose liability upon one party of the act or failure to act of the other party
or as providing either party with the right, power or authority (express or
implied) to create any duty or obligation on behalf of the other party.
SUBSCRIBED for and on behalf of
BIOSAFE at ______________________________
on_______________________________________
by_______________________________________
being a Director/the Secretary/or an
Authorized Signatory of BioSafe in
the presence of:
Witness___________________________
Name_____________________________
Address___________________________
Occupation_________________________
SUBSCRIBED for and on behalf of
SCOTSAFE at______________________
on________________________________
by________________________________
being Director/the Secretary/or an
Authorized Signatory of SCOTSAFE in
the presence of:
Witness__________________________
Name___________________________
Address_________________________
Occupation_______________________
<PAGE>
This Schedule A and the following four
Schedules (Schedules B to E inclusive)
are the Schedules referred to in the
foregoing Agreement between BioSafe
International, Inc. and ScotSafe Limited
Schedule A
CFA COMPONENT LIST
Dryers
Shredders
Oil Heater
Computer Control
Condenser/Cooling Tower
Air Filtration
Auxiliary Conveyors
Control and Monitoring Systems and other minor components
<PAGE>
Schedule B
Location of the Site
Location of the Site: To be determined by mutual agreement of ScotSafe and
BioSafe.
<PAGE>
Schedule C
Acceptance Test Standards
The Acceptance Test Standards for the CFA Units are as follows:
1. Description of Microbiological Efficacy Test. The Microbiological
Efficacy Test will be determined by mutual agreement of BioSafe and ScotSafe.
2. Other Acceptance Test Standards. Other acceptance standards
include those standards required to satisfy the applicable local authorities at
each Site with respect to:
(i) environmental health;
(ii) health and safety;
(iii) the suitability of the CFA
Unit at the Site for use in treating
and disposing CIW;
(iv) any aspects of planning to
the extent that they are dependent on
sub-clauses (i) and (ii) above;
(v) the waste residue generated
by the CFA Unit at the Site being
microbiologically accepted for
landfill; and
(vi) such other standards as are
mutually agreed to by BioSafe and
ScotSafe in writing (collectively
"the Acceptance Tests").
<PAGE>
Schedule D
Royalties
The first installment of the Royalty payment for each CFA Unit
shall be due upon the commencement of the Acceptance Tests for such CFA Unit, as
described in Section 4.2 hereof. The amounts of the Royalty payments shall be
determined in accordance with the number of installations of CFA Units per
country within the Territory as set forth below. The Royalty payments described
below refer to and are repeated for each country within the Territory.
For each country in the Territory:
$200,000 for the first CFA Unit in that country, payable in
twenty-four equal consecutive monthly payments.
$200,000 each for the second and third CFA Units in that country,
payable in twelve equal consecutive monthly installments.
$100,000 for each subsequent CFA Unit in that country, payable in
twelve equal consecutive monthly installments.
Minimum Royalties
Calendar Year* Minimum Royalty
1998 $100,000
1999 $300,000
2000 $400,000
*A Minimum Royalty will not be in effect for calendar years after the year 2000.
<PAGE>
Schedule E
Current BioSafe Personnel Rates
Category/Title Daily Rate
President $2097
Director of Process Technology $932
Senior Engineer $700
Engineer $526
Engineering Associate $468
Process Technician $351
Rates shown above are in U.S. Dollars and are typical billing rates for CY 1996
subject to change based on actual personnel and inflation. BioSafe will charge
the actual rate for personnel engaged in the work at our then current multiplier
for overheads. The daily rate includes all overheads and fees including profit
at 15%. All expenses incurred in the conduct of the work including travel,
lodging and meals, are billed as direct costs.
<PAGE>
