UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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
BIOSAFE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Nevada 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)
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
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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 or any
amendment to this Form 10-K. ___
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
PAGE
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PART I 1
Item 1. Business 1
Item 2. Properties 13
Item 3. LegalProceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II 16
Item 5. Market For Registrant's Common Equity and Related Stockholder
Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 26
PART III 26
Item 10. Directors and Executive Officers 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV 26
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 26
Signautres 30
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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 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.
PART I
Item 1. Business
BioSafe International, Inc. (the "Company" or "BioSafe") 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 BioSafe as
"landfill remodeling", and landfill operation. BioSafe 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, BioSafe 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, BioSafe 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".
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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 BioSafe 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
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 other matters, 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.
BioSafe 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, BioSafe is developing the
following potential projects:
The Company and the Town of South Hadley, Massachusetts have entered
into a contract that provides for BioSafe 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 BioSafe to operate and remodel an
existing 10-acre landfill in Buckland. The Company and the Town of
Buckland are currently reviewing available options as far as
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."
BioSafe is a Nevada corporation with its principal executive offices
at 10 Fawcett Street, Cambridge, Massachusetts 02138. Its telephone number is
(617) 497-4500.
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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.
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".
On March 27, 1996, Dr. Richard H. 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
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
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
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of these operators are considering alternatives such as privatization and or the
sale or merger of their operations. According to financial analysts reports on
the solid waste industry, only about one-third of the industry is currently
managed by publicly-owned 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 which
must provide for the disposal of household, industrial and commercial trash.
National and state policies have imposed increased constraints on solid waste
disposal, creating a need for creative and effective approaches to the
engineering problems that are involved. Of particular importance to BioSafe's
landfill remodeling business are policies being implemented by the U.S.
Environmental Protection Agency ("US 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 3000 operating
landfills across the U.S. In 1988, there were more than 8000. 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 the different stages of solid waste
disposal and management. Materials handling is useful because of the large
volume of the materials involved in most waste streams and the specialized
handling that may be required in order 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 the economic context, and to
develop an effective strategy for dealing with those materials. If this can be
accomplished successfully, BioSafe 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.
BioSafe Technology and Strategy
Prior to March 27, 1996, BioSafe 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. BioSafe has developed
technology in two important areas of waste processing, materials handling and
size reduction. These technologies are central to BioSafe's landfill remodeling
process, which enables existing landfill materials to be handled efficiently in
a continuous process.
As previously discussed, BioSafe 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 Company's operations are more centrally located as compared to its
competitors with operations extending out longer distances from disposal sites.
The key elements of the Company's strategy are to:
1) identify a landfill in or near an urban metropolitan
center that meets the Company's criteria for landfill remodeling or acquisition
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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
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 BioSafe'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 employed 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 BioSafe'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
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
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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 BioSafe 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
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 other matters, 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 the projects under contract and
operation in Fairhaven, Massachusetts and Moretown, Vermont, BioSafe 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 BioSafe 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 BioSafe 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 as far as proceeding with this project.
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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 BioSafe's continuous feed 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, BioSafe
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 BioSafe 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 disposal and management industry present 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. BioSafe 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 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. Based on
this experience, the Company believes it has developed a significant competitive
advantage future competition. There has 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. BioSafe is not
aware of any major company involved in either landfill mining or remodeling at
this time. BioSafe 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.
BioSafe 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 BioSafe'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 EPA and various other federal, state and
local environmental, transportation, 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
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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 carried out 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, it is necessary to 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
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 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 tons per day, 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 will also require, where threshold test levels are present, that
methane gas generated at landfills be controlled in a manner that will 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 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.
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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.
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.
9
<PAGE>
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.
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,
10
<PAGE>
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
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.
Employees
As of March 26, 1997, BioSafe had approximately 27 full time
employees. BioSafe believes its future success will depend in part on its
continued ability to recruit and retain highly qualified technical and
managerial personnel.
BioSafe's employees are not subject to any collective bargaining
agreement. BioSafe considers its relations with its employees to be good.
Item 2. Properties
In addition to the leases and fee interests relating to certain of
BioSafe's landfills described under "Business--Landfill Remodeling," the Company
leases its corporate headquarters which is located at 10 Fawcett Street,
Cambridge, Massachusetts. BioSafe occupies approximately 6000 square feet at the
Cambridge location under the terms of a lease expiring in December 1998, with an
annual rent of approximately $70,000. The lessor is unaffiliated with BioSafe.
BioSafe believes that its present offices and facilities are adequate
for its current needs, and that suitable additional or substitute space will be
available to accommodate further physical expansion of BioSafe's operations.
BioSafe does not lease or own any other real property.
Item 3. Legal Proceedings
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 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 in its full amount and
entered judgment against Rosen for $780,160 plus interest. 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.
11
<PAGE>
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 opposition to 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 BioSafe and the
Town, dismissing the MEPA claims in their entirety.
Plaintiffs' common law claims for nuisance, trespass and strict
liability are based principally on alleged 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.
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
12
<PAGE>
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 delivered 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 4 complaints with the
Massachusetts Commission Against Discrimination, principally as the result of
actions of the Company's ex-operator of the Fairhaven landfill, Gary Rodgers.
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.
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 was adjourned until April 18,
1997.
13
<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 "BSFE" 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
(1) As adjusted to reflect a 1 for 73.083 reverse stock split effected
on March 29, 1995
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
In November 1996, the company issued 145,455 shares of the company's
$.001 par value common stock at a price of $1.37 in payment of certain trade
payables to Landtech, Inc. The issuance of common stock was made in reliance
on the exemption aontained in Section 506 of Regulation D promulgated under the
Securities Act of 1933, as amended.
14
<PAGE>
Item 6. Selected Financial Data
<TABLE>
BIOSAFE 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 (2) 1994 (3) 1993 (3) 1992 (3)
------------ ------------ ------------ ------------ ------------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues
Landfill revenues ( 1 ) $ 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 ) (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 ( 4 ):
Income (loss) from continu$ng operations $ (0.82) (0.58) 0.03 0.04 0.00
Discontinued operations ( 2 ) (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 (defici$) $ (1,849) 3,292 597 (403) (1,730)
</TABLE>
15
<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."
BioSafe 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 BioSafe as "landfill remodeling", and landfill operation. BioSafe
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, BioSafe 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, BioSafe 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".
16
<PAGE>
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Financial Position
BioSafe 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 $670,000.
Results of Operations
Landfill revenues for the year ended December 31, 1996 consisted of
$1,496,000 received from operation of the Fairhaven landfill project and from
the Moretown Landfill project which commenced operations on October 7, 1996.
Through the first quarter of 1995, substantially all of BioSafe's
revenue had been attributable to the sale and licensing of BioSafe'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. 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 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.
17
<PAGE>
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.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Financial Position
BioSafe 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 t he 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, BioSafe terminated the BioMedical Waste Systems,
Inc. ("BioMed") technology license for BioSafe's patented continuous feed
autoclave ("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 outstanding accounts 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 BioSafe's
revenue had been attributable to the sale and licensing of BioSafe'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.
18
<PAGE>
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 BioSafe'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, BioSafe or its customers
may be required to obtain additional operating permits or approvals. There can
be no assurance that BioSafe 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.
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 BioSafe has conducted significant testing of methods and processes
19
<PAGE>
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, BioSafe 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 BioSafe 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. BioSafe had an accumulated operating deficit at December 31, 1996
of $23,217,000. Prospects for future profitability are heavily dependent on the
success of BioSafe's landfill remodeling and operation projects, and its ability
to build an integrated solid waste management company. There can be no assurance
that BioSafe will generate sufficient revenue to be profitable or, if
profitable, to maintain profitability in future years.
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. BioSafe 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. BioSafe'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.
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.
BioSafe'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 BioSafe 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 BioSafe's processes or design around any processes on which
BioSafe has or may obtain patents. In addition, it is possible that third
parties may have or acquire licenses for other technology that BioSafe may use
or desire to use, so that BioSafe may need to acquire licenses to, or to contest
the validity of, such patents of third parties relating to BioSafe's technology.
There can be no assurance that any license required under such patents would be
made available to BioSafe on acceptable terms, if at all, or that BioSafe would
prevail in any such context. Moreover, BioSafe could incur substantial costs in
defending itself in suits brought against BioSafe or in bringing suits against
other parties related to patent matters.
In addition to patent protection, BioSafe 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 BioSafe
will be effective to protect BioSafe's technology against unauthorized use by
others.
20
<PAGE>
Liquidity and Capital Resources
To date, BioSafe 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 $26,000,000 through
private placements of equity securities and the issuance of long-term debt.
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 $11 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 BioSafe 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
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 other matters, 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
21
<PAGE>
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
current landfill projects, in addition to amounts already invested as of
December 31, 1996, will be approximately $10 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
project. 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
BioSafe does not believe its operations have been materially affected
by inflation.
22
<PAGE>
Item 8. Financial Statements and Supplementary Data
BIOSAFE 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-7
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-8 to F-14
Notes to Consolidated Financial Statements F-15 to F-41
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
23
<PAGE>
Independent Auditors' Report
The Board of Directors
BioSafe International, Inc.:
We have audited the accompanying consolidated balance sheets of BioSafe
International, Inc. (a Nevada 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 BioSafe
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 BioSafe
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>
BIOSAFE 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>
F-2
<PAGE>
<TABLE>
BIOSAFE 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>
F-3
<PAGE>
<TABLE>
BIOSAFE 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>
F-4
<PAGE>
<TABLE>
BIOSAFE 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 in loss in affiliate 96,144 -- -- 96,144
Minority interest (12,655) 13,016 -- 361
Allowance for doubtful accounts - non -trade -- 219,645 -- 219,645
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 873,051 129,163 78,005 1,221,769
Income and franchise taxes payable (75,535) (22,470) (4,495) --
Deferred income -- -- -- (500,000)
------------- ------------- ------------- -------------
Net cash used by continuing operations (3,351,764) (1,393,015) (209,461) (6,795,325)
Net cash used by discontinued operations (560,377) (1,689,906) -- (2,250,283)
------------- ------------- ------------- -------------
Net cash used by operating activities (3,912,141) (3,082,921) (209,461) (9,045,608)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Assets held for sale 127,500 (287,219) -- (159,719)
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) (10,267,236) (1,588,033) (19,848,555)
------------- ------------- ------------- -------------
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 6,090,473 8,970,998 841,229 16,442,129
Redemption of preferred stock -- -- (300,000) (300,000)
Preferred stock dividends -- (9,500) (107,834) (117,334)
------------- ------------- ------------- -------------
Net cash provided by financing activities 6,581,072 18,416,328 1,965,168 29,158,939
------------- ------------- ------------- -------------
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>
F-5
<PAGE>
BIOSAFE 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 Note 8.
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 deb
and $27,425 of accrued interest for 1,569,960 shares of common stock.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
and for the period from April 23, 1990 (inception)
through December 31, 1996
<CAPTION>
Deficit
accumulated
Additional during the Stockholders'
Preferred stock Common Stock paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
--------------------------- --------------------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 23, 1990, issuance of
common stock -- $ -- 666,750 $ 6,668 93,332 -- 100,000
Net loss -- -- -- -- -- (988,442) (988,442)
------------- ------------- ------------- ------------- ------------- ------------- --------------
Balance, December 31, 1990 -- -- 666,750 6,668 93,332 (988,442) (888,442)
Issuance of common stock,
at no value, for investment
considerations and
consulting services -- -- 270,750 2,707 (2,707) --
Net loss -- -- -- -- -- (842,502) (842,502)
------------- ------------- ------------- ------------- ------------- ------------- --------------
Balance, December 31, 1991 -- -- 937,500 9,375 90,625 (1,830,944) (1,730,944)
Issuance of common stock,
at no value, for investment
considerations and
consulting services -- -- 1,075,125 10,751 (10,751) -- --
Net loss -- -- -- -- -- 1,159 1,159
------------- ------------- ------------- ------------- ------------- ------------- --------------
Balance, December 31, 1992 -- -- 2,012,625 20,126 79,874 (1,829,785) (1,729,785)
Issuance of common stock,
at no value, for investment
considerations and
consulting services -- -- 62,310 623 (623) -- --
Issuance of common stock
at $1.50 per share (before
adjustment for the 1.75-to-1
stock split) -- -- 280,000 2,800 385,099 -- 387,899
Issuance of preferred stock 7,750 775,000 -- -- -- -- 775,000
Net income -- -- -- -- -- 163,557 163,557
------------- ------------- ------------- ------------- ------------- ------------- --------------
Balance, December 31, 1993 7,750 775,000 2,354,935 23,549 464,350 (1,666,228) (403,329)
</TABLE>
F-7
<PAGE>
<TABLE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
and for the period from April 23, 1990 (inception)
through December 31, 1996
<CAPTION>
Deficit
accumulated
Additional during the Stockholders'
Preferred stock Common Stock paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
--------------------------- --------------------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
at $4.00 per share (before
adjustment for the 1.75-
to-1 stock split -- -- 256,250 2,563 838,666 -- 841,229
Issuance of common stock at
$4.00 per share (before
adjustment for the 1.75-
to-1 stock split), in
exchange for debt -- -- 61,488 615 245,337 -- 245,952
Issuance of common stock at
an assigned value of $4.00
per share (before adjustment
for the 1.75-to-1 stock split),
for investment considerations
and consulting services -- -- 20,000 200 79,800 -- 80,000
Issuance of 122,719 Series A
Warrants to purchase
common stock at $2.43
per share -- -- -- -- -- --
Issuance of 43,750 Warrants
to purchase common stock
at $2.29 per share -- -- -- -- -- --
Redemption of preferred
stock (3,000) (300,000) -- -- -- -- (300,000)
Preferred stock dividends -- -- -- -- (107,834) -- (107,834)
Net income -- -- -- -- -- 241,422 241,422
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1994 4,750 475,000 2,692,673 26,927 1,520,319 (1,424,806) 597,440
Issuance of common stock
through March 29, 1995 -- -- 82,700 827 320,673 -- 321,500
Preferred stock dividends -- -- -- -- (9,500) -- (9,500)
Issuance of common stock due
to 1.75-to-1 Stock Split -- -- 2,081,542 20,815 (20,815) -- --
Issuance of common stock at
$2.00 per share, for
conversion of preferred
stock on March 29, 1995 (4,750) (475,000) 237,500 2,375 472,625 -- --
</TABLE>
F-8
<PAGE>
<TABLE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
and for the period from April 23, 1990 (inception)
through December 31, 1996
<CAPTION>
Deficit
accumulated
Additional during the Stockholders'
Preferred stock Common Stock paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
--------------------------- --------------------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
$2.00 per share, in exchange
for debt and accrued interest
on March 29, 1995 -- -- 558,578 5,586 1,111,570 -- 1,117,156
Issuance of common stock at
$2.00 per share, through
Private Placement on
March 29,1995 -- -- 2,000,000 20,000 3,980,000 -- 4,000,000
Effect of change in par value
from $0.01 to $0.001 -- -- -- (68,877) 68,877 -- --
Capitalization of BioSafe
International, Inc. -- -- 300,000 300 31,230 (31,530) --
Issuance of common stock at
$2.00 per share, for
investment banking services -- -- 200,000 200 (200) -- --
Issuance of common stock at
$2.00 per share, net of 25%
discount due to restrictions on
sale or transfer of stock, for
prepaid consulting services -- -- 890,000 890 1,343,010 -- 1,343,900
Issuance of common stock at
$2.00 per share, through
private placement in
April, 1995 -- -- 2,510,000 2,510 5,020,000 -- 5,022,510
Expenses incurred in
connection with the
issuance of common stock
and merger in March and
April, 1995 -- -- -- -- (1,295,047) -- (1,295,047)
Issuance of 550,000
Series C Warrants to
purchase stock at
$2.00 per share -- -- -- -- -- -- --
Issuance of 2,805,000 Series D
Warrants to purchase common
stock at $4.75 per share -- -- -- -- -- -- --
Issuance of 500,000 Series E
Warrants to purchase common
stock at $3.50 per share -- -- -- -- -- -- --
Issuance of 720,000 merger-related
Placement Agent Warrants to
purchase common stock at
$2.30 per share -- -- -- -- -- -- --
Issuance of 114,625 Warrants to
purchase common stock at
$2.29 per share -- -- -- -- -- --
</TABLE>
F-9
<PAGE>
<TABLE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
and for the period from April 23, 1990 (inception)
through December 31, 1996
<CAPTION>
Deficit
accumulated
Additional during the Stockholders'
Preferred stock Common Stock paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
--------------------------- --------------------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of 50,000 Warrants to
purchase common stock at
$3.50 per share -- -- -- -- -- -- --
Exercise of Series A Warrants
to purchase 109,594 shares of
common stock at $2.43 per
share -- -- 109,594 109 266,047 -- 266,156
Exercise of Series D Warrants
to purchase 5,625 shares of
common stock at $4.75 per
share -- -- 5,625 6 26,713 -- 26,719
Exercise of Series E Warrants
to purchase 1,126 shares of
common stock at $3.50 per
share -- -- 1,126 1 3,940 -- 3,941
Exercise of Warrants to purchase
2,000 shares of common stock
at $2.29 per share -- -- 2,000 2 4,578 -- 4,580
Exercise of merger-related
Placement Agent Warrants to
purchase 15,000 shares of
common stock at
$2.30 per share -- -- 15,000 15 34,485 -- 34,500
Issuance of 10,000 shares and
10,000 shares of common
stock at $8.00 and $4.25 per
share, respectively, for
consulting services -- -- 20,000 20 122,480 -- 122,500
Expenses incurred in connection
with the securities registration
statement on Form S-1 -- -- -- -- (393,775) -- (393,775)
Issuance of 125,000 Warrants
to purchase common stock
at $2.89 per share -- -- -- -- -- -- --
</TABLE>
F-10
<PAGE>
<TABLE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
and for the period from April 23, 1990 (inception)
through December 31, 1996
<CAPTION>
Deficit
accumulated
Additional during the Stockholders'
Preferred stock Common Stock paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
--------------------------- --------------------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series F Warrants
to purchase a number of
shares of common stock
equal to the number of
shares of common stock
issuable upon conversion
of the convertible debentures
(or, in the case of the first 200
units, 150% of such number
of shares), at the lesser of a
price equal to 75% of the
20-day average bid price of the
common stock immediately
prior to the date nine months
following the issuance of the
convertible debentures or
$9.00 per share -- -- -- -- -- -- --
Issuance of 701,563 convertible
debenture-related Placement
Agent Warrants to purchase
common stock at $10.00
per share -- -- -- -- -- -- --
Net loss for the year ended --
December 31, 1995 -- -- -- -- -- (7,870,979) (7,870,979)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1995 -- -- 11,706,338 11,706 12,607,210 (9,327,315) 3,291,601
Exercise of Warrants to purchase
8,640 shares of common stock
at $2.29 per share -- -- 8,640 9 19,777 -- 19,786
Exercise of merger-related
Placement Agent Warrants to
purchase 8,775 shares of
common stock at
$2.30 per share -- -- 8,775 9 20,174 -- 20,183
Exercise of merger-related
Placement Agent Warrants to
purchase 32,220 shares of
common stock at
$2.30 per share -- -- 32,220 32 74,074 -- 74,106
Exercise of Options to purchase
3,281 shares of common stock
at $2.00 per share -- -- 3,281 3 6,559 -- 6,562
</TABLE>
F-11
<PAGE>
<TABLE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
and for the period from April 23, 1990 (inception)
through December 31, 1996
<CAPTION>
Deficit
accumulated
Additional during the Stockholders'
Preferred stock Common Stock paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
--------------------------- --------------------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
$1.94 per share, through
private placement in
June, 1996 -- -- 3,304,744 3,305 6,407,895 -- 6,411,200
Expenses incurred in
connection with the
private placement in
June, 1996 -- -- -- -- (651,926) -- (651,926)
Issuance of 350,000 warrents to
purchase common stock at $3.50
per share in exchange for cancellation
of 701,563 convertable debenture
-related placement agent warrents
issued in 1995 to purchase common
stock at $10.00 per share -- -- -- -- -- -- --
Exercise of Options to purchase
3,281 shares of common stock
at $2.00 per share -- -- 3,281 3 6,559 -- 6,562
Issuance of common stock at
$2.25 per share, net of 50%
discount due to restrictions on
sale, for director's fee -- -- 10,000 10 11,240 -- 11,250
Conversion of convertible
debentures, plus
accrued interest at a
conversion price of $1.8328 -- -- 1,569,960 1,570 2,875,855 -- 2,877,425
Reclassification of deferred financing
costs related to convertible
debentures converted to
common stock -- -- -- -- (235,888) -- (235,888)
Exercise of Series C Warrants .
to purchase 2,000 shares of
common stock at $2.00 per
share -- -- 2,000 2 3,998 -- 4,000
Issuance of common stock at
$1.50 per share, net of 50%
discount due to restrictions on -- -- 7,875 8 5,898 -- 5,906
sale, for director's fee
</TABLE>
F-12
<PAGE>
<TABLE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
and for the period from April 23, 1990 (inception)
through December 31, 1996
<CAPTION>
Deficit
accumulated
Additional during the Stockholders'
Preferred stock Common Stock paid-in development equity
Shares Amount Shares Amount capital stage (deficit)
--------------------------- --------------------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
$1.37 per share, in exchange
for debt in November 1996 -- -- 145,455 145 199,855 -- 200,000
Net loss for the year ended
December 31, 1996 -- -- -- -- (13,889,772) (13,889,772)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996 -- -- 16,802,569 16,802 21,351,280 (23,217,087) (1,849,005)
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
(1) Business Combination and Nature of Operations
BioSafe International, Inc. (a Nevada 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 these
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 projects,
or that any such development can be accomplished without excessive
cost or delay.
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
(2) Summary of Significant Accounting Policies
Basis for Presentation
The accompanying 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.
Landfill Revenue Recognition
The Company'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.
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
maintenance and operating costs directly related to landfill
operations. Also included in 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.
F-14
<PAGE>
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 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.
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.
F-15
<PAGE>
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, BioSafe became a C corporation for Federal and
state income tax purposes. Previously, BioSafe had elected Subchapter
S status.
BioSafe 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.
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 approximates 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.
F-16
<PAGE>
(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 $ -
============ ============
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 BioSafe'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, BioSafe
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 BioSafe 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, BioSafe 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 BioSafe 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
F-17
<PAGE>
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, 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 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 Charge
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.
Assets Held for Sale and 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.
F-18
<PAGE>
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.
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, and 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 consolided
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 BioSafe
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>
(7) Property and Equipment
Property and equipment are stated at cost and consist of the following;
December 31,
1996 1995
--------------------------
Construction in progress - landfills owned $ 7,937,307 $ 5,152,750
Construction in progress - landfills operated - 3,774,659
Future landfill development projects 427,357 269,381
Equipment used at landfills 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 BioSafe 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 other matters resulting in the current uncertainty of
the long-term economical 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 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."
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.
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.
F-20
<PAGE>
In October of 1996 the Company signed a host town agreement with the
town of Moretown, VT which requires the Company to pay a host town
fee of $2.00 per ton plus an annual CPI increase.
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.
(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
============= ============
F-21
<PAGE>
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 2,181,739 1,360,560
------------ ------------
2,237,989 1,416,810
Accumulated amortization (202,714) (58,966)
------------ ------------
2,035,275 $1,357,844
============ ============
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.
F-22
<PAGE>
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.
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.
F-23
<PAGE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
(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
=========== ===========
(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
=======================================
F-24
<PAGE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
A reconciliation between federal income tax expense at the statutory
rate and the Company's federal tax expense 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.
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 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.
F-25
<PAGE>
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.
(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.
<PAGE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
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 Superfund
National Priority Lists 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 with the exception of
certain litigation brought against the Company related to the
Fairhaven Landfill, 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.
F-26
<PAGE>
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 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 21, 1997 the Middlesex
Superior Court in Cambridge, Massachusetts confirmed the
arbitration award and entered the judgment against Rosen on
February 25, 1997. 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 allege 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 BioSafe 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-27
<PAGE>
BIOSAFE 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
a 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 4 complaints with the Massachusetts
Commission Against Discrimination, principally as the result of
actions of the Company's ex-operator of the Fairhaven landfill, Gary
Rodgers. 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.
(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.
F-28
<PAGE>
(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, BioSafe 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, BioSafe 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, BioSafe 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.
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.
f-29
<PAGE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
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.
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 approxiamately $5.9 million. The purchasers were all non
U.S. persons and were primarily existing institutional BioSafe
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 regitration.
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 BioSafe 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.
F-30
<PAGE>
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) $ (7,870,999)
- pro forma (14,334,772) (8,303,479)
Net loss per share - as reported $ (0.98) $ (0.82)
- Pro forma $ (1.01) $ (0.86)
Pro forma 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.
Changes in options and option shares under the plan during the respective
years were as follows:
1996 1995
--------------- ---------------
Weighted Weighted
avg. avg.
exercise Number exercise Number
price per of price per of
share Shares share 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
========= =========
F-31
<PAGE>
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, BioSafe 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.
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 Weighted
avg. avg.
exercise Number exercise Number
price per of price per of
share Shares share 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
1996 40,000 3.91 156,400
1996 13,334 2.56 34,135
--------- -----------
97,084 $ 278,035
========= ===========
F-32
<PAGE>
(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.
<PAGE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
(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.
On on 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, and is guranteed by the Company.
F-33
<PAGE>
BIOSAFE INTERNATIONAL, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers
Incorporated herein by reference to the Company's definitive proxy
statement with respect to its Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
Item 11. Executive Compensation
Incorporated herein by reference to the Company's definitive proxy
statement with respect to its Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the Company's definitive proxy
statement with respect to its Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the Company's definitive proxy
statement with respect to its Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days after the end of the
fiscal year covered by this Annual Report on Form 10-K.
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 International, Inc., 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.)
24
<PAGE>
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.)
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)
25
<PAGE>
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 Registratio
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. 10.10 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.)
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.
26
<PAGE>
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.
27
<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.
BIOSAFE INTERNATIONAL, INC.
---------------------------
Date: -------------------- By: --------------------------------
Philip Strauss
Chairman, Chief Executive
Officer and President
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.
Date: -------------------- By: --------------------------------
Philip Strauss
Chairman, Chief Executive
Officer and President
(Principal Executive Officer)
Date: -------------------- By: --------------------------------
Robert Rivkin
Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and
Accounting Officer)
Date: -------------------- By: --------------------------------
Richard Golob, Director
Date: -------------------- By: --------------------------------
Jay Matulich, Director
Date: -------------------- By: --------------------------------
William Philipbar, Director
Date: -------------------- By: --------------------------------
DAniel J. Shannon, Director
Date: -------------------- By: --------------------------------
Dr. Barry Simmons, Director
Date: -------------------- By: --------------------------------
Bill G. Taylor, Director
28
<PAGE>
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:
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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.
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"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
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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.
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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.
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(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
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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.
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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.
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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
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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>
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]
<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>
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.
325855.c5
<PAGE>
AGREEMENT
This Agreement, made and entered into as of the 8th day of May, 1996
("Agreement"), by and between BioSafe International, Inc., a Nevada corporation
("Company"), and William B. Philipbar ("Indemnitee"):
WHEREAS, highly competent persons justifiably are reluctant to serve
publicly-held corporations as directors unless they are provided with adequate
protection through insurance and adequate indemnification against inordinate
risks of claims and actions against them arising out of their service to and
activities on behalf of the corporation; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
directors and officers liability insurance to protect persons serving the
Company and its subsidiaries from certain liabilities. Although the furnishing
of such insurance has been a customary and widespread practice among United
States-based corporations and other business enterprises, the Company believes
that, given current market conditions and trends, such insurance may be
available to it in the future only at higher premiums and with more exclusions.
At the same time, directors, officers, and other persons in service to
corporations and other business enterprises are frequently subjected to
expensive and time-consuming litigation relating to, among other things, matters
that traditionally would have been brought only against the corporation or
business enterprise itself; and
WHEREAS, directors and officers liability insurance, even when in
effect, is not always sufficient in and of itself to provide adequate
indemnification to directors and officers; and
WHEREAS, the expense and burden of defending against claims made
against directors and officers may be so prohibitive as to render it practically
impossible or unfairly burdensome for directors and officers to wholly or even
partially fund the defense of such claims even if the director or officer is
wholly innocent of any wrongdoing and acted properly and prudently in his or her
service to and activities on behalf of the corporation, thereby making mandatory
advancement of expenses in such litigation an essential element of
indemnification; and
WHEREAS, highly competent persons justifiably are reluctant to serve
as directors and officers without assurance that adequate indemnification,
including advancement of expenses, will continue to be available in the event of
a change in control of the corporation; and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining
qualified persons; and
<PAGE>
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining qualified persons is detrimental to the best interests
of the Company's stockholders and the Company should act to assure such
qualified persons that there will be increased certainty of protection in the
future; and
WHEREAS, the Company's Articles of Incorporation, as amended, (the
"Articles") permit the Company to indemnify its directors to the fullest extent
permitted by law and to make other indemnification arrangements and agreements;
and
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of the Company's Articles or by-laws or any change in the
ownership of the Company or the composition of the Board), which indemnification
is intended to supplement that which is afforded by the Company's Articles and
by-laws and, to the extent insurance is available, the coverage of Indemnitee
under the Company's directors and officers liability insurance policy; and
WHEREAS, it is reasonable, prudent and necessary for the Company to
obligate itself contractually to indemnify its directors to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, to continue to serve and to
take on additional service for or on behalf of the Company on the condition that
Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. In consideration of the Company's
covenants and commitments hereunder, Indemnitee agrees to serve or to continue
to serve as a director of the Company. Notwithstanding the foregoing, this
Agreement shall not impose any obligation on Indemnitee or the Company to
continue Indemnitee's service to the Company beyond any period otherwise
required by law or by other agreements or commitments of the parties, if any.
The foregoing notwithstanding, this Agreement shall continue in force after
Indemnitee has ceased to serve as a director of the Company.
Section 2. Indemnification - General. The Company shall advance
Expenses (as hereinafter defined) to and indemnify Indemnitee as provided in
this Agreement and (subject to the provisions of this Agreement) to the fullest
extent permitted by applicable law in effect on the Effective Date (as
hereinafter defined) and to such greater extent as applicable law may thereafter
from time to time permit. In the event that a change in applicable law after the
Effective Date permits such broader indemnification, this Agreement shall be
deemed to be amended to such extent.
Section 3. Proceedings Other Than Proceedings by or in the Right of
the Company. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of Indemnitee's Corporate Status (as
<PAGE>
hereinafter defined), Indemnitee is, or is threatened to be made, a party to or
participant in any threatened, pending or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by Indemnitee or on Indemnitee's behalf in connection with such Proceeding or
any claim, issue or matter therein, if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal Proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of Indemnitee's Corporate Status, Indemnitee is, or is threatened
to be made, a party to or participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against
Expenses and amounts paid in settlement actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection with such Proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company. Notwithstanding the
foregoing, no indemnification shall be made against such Expenses in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable to the Company or against amounts paid in
settlement to the Company, if applicable law prohibits such indemnification;
provided, however, that, if applicable law so permits, indemnification against
Expenses and/or amounts paid in settlement to the Company shall nevertheless be
made by the Company in such event if and only to the extent that the court in
which such Proceeding was brought or any other court of competent jurisdiction
determines upon application such indemnification is proper.
Section 5. Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is successful, on the merits or otherwise, in (a)
defending any Proceeding brought against Indemnitee by reason of Indemnitee's
Corporate Status or (b) prosecuting any Proceeding described in the second
sentence of Section 14 hereof, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection therewith. If Indemnitee is not wholly successful in any
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in any such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by Indemnitee or on Indemnitee's behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section 5 and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee
<PAGE>
shall be indemnified against all Expenses actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding in which Indemnitee is involved by reason of Indemnitee's
Corporate Status within ten days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses so advanced if it is ultimately
determined by a court of competent jurisdiction that Indemnitee is not entitled
to be indemnified against such Expenses. Such undertaking shall be an unlimited
general obligation of Indemnitee, shall be accepted by the Company without
regard to the financial ability of Indemnitee to make repayment, and in no event
shall be required to be secured.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
a. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board in
writing that Indemnitee has requested indemnification.
b. Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 8(a)above, a
determination, if required by applicable law, with respect to Indemnitee's
entitlement thereto shall be made in the specific case:
(i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a
written opinion to the Board, a copy of which shall be delivered to
Indemnitee (unless Indemnitee shall request that such determination
be made by a majority vote of the Disinterested Directors (as
hereinafter defined) even though less than a quorum of the Board or
by the stockholders, in which case by the person or persons or in the
manner provided for in clause (ii) or (iii) of this Section 8(b));
(ii) if a Change of Control shall not have occurred or if
Indemnitee shall make the request referred to in clause (i) above,
(A) by a majority vote of the Disinterested Directors even though
less than a quorum of the Board, or (B) if there are no such
Disinterested Directors or if such Disinterested Directors so direct,
by Independent Counsel in a written opinion to the Board, a copy of
which shall be delivered to Indemnitee, or (C) by the stockholders of
the Company; or
(iii) as provided in Section 9(b) of this Agreement;
<PAGE>
and, if it is so determined that Indemnitee is entitled to indemnification,
payment to Indemnitee shall be made within ten (10) days after such
determination. Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, and shall provide to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Expenses incurred by Indemnitee in so cooperating with the person, persons or
entity making such determination shall be borne by the Company (irrespective of
the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
c. In the event that, pursuant to Section 8(b)
hereof, the determination of entitlement to indemnification is to be made by
Independent Counsel, the Independent Counsel shall be selected as provided in
this Section 8(c). If a Change of Control shall not have occurred, the
Independent Counsel shall be selected by the Board, and the Company shall
give written notice to Indemnitee advising Indemnitee of the identity of the
Independent Counsel so selected. If a Change of Control shall have occurred, the
Independent Counsel shall be selected by Indemnitee and Indemnitee shall give
written notice to the Company advising it of the identity of the Independent
Counsel so selected (unless Indemnitee shall request that such selection be made
by the Board, in which event the preceding sentence shall apply). In either
event, Indemnitee or the Company, as the case may be, may, within 7 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection.
Such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 17 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court of competent jurisdiction has determined that such
objection is without merit. If a determination of entitlement to indemnification
is to be made by Independent Counsel and, 20 days after submission by Indemnitee
of a written request for indemnification pursuant to Section 8(a) hereof, no
Independent Counsel shall have been selected and not objected to, either the
Company or Indemnitee may petition a court of competent jurisdiction for
resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by such court or by such
other person as such court shall designate, and the person with respect to whom
an objection is so resolved or the person so appointed shall act as Independent
Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable
fees and expenses of Independent Counsel incurred by such Independent Counsel in
connection with determining entitlement to indemnification pursuant to Section
8(b) hereof. In addition, the Company shall pay all reasonable Expenses incurred
by Indemnitee in connection with the procedures of this Section 8(c) (regardless
of the manner in which such Independent Counsel was selected or appointed and
irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom. Upon the due commencement of any judicial
<PAGE>
proceeding or arbitration pursuant to Section 10(a)(iii) of this Agreement,
Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
Section 9. Presumption and Effect of Certain Proceedings.
a. If a Change of Control shall have occurred, in
making a determination with respect to entitlement to indemnification hereunder,
the person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
b. If the person, persons or entity empowered or
selected under Section 8 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within 60 days
after receipt by the Company of Indemnitee's request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i)
a misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statements not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided,however, that such 60-day period
may be extended for a reasonable time, not to exceed an additional 30 days, if
the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating of documentation and/or information relating
thereto and gives notice to Indemnitee thereof; and provided, further, that the
foregoing provisions of this Section 9(b) shall not apply if (i) the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and (A) within 15
days after receipt by the Company of the request for such determination the
Board has resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) the
determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 8(b) of this Agreement.
c. The termination of any Proceeding or of any
claim, issue or matter therein, by judgment, order, settlement or conviction,
or upon a plea of nolo contendere or its equivalent, shall not (except as
otherwise expressly provided in this Agreement) of itself adversely affect the
right of Indemnitee to indemnification or create a presumption that Indemnitee
did not act in good faith and in a manner which Indemnitee reasonably believed
to be in or not opposed to the best interests of the Company or, with respect
to any criminal Proceeding, that Indemnitee had reasonable cause to believe that
Indemnitee's conduct was unlawful.
<PAGE>
Section 10. Remedies of Indemnitee.
a. In the event that:
(i) a determination is made pursuant to Section 8 of
this Agreement that Indemnitee is not entitled to indemnification
under this Agreement;
(ii) advancement of Expenses pursuant to Section 7
of this Agreement is not made on a timely basis;
(iii) a determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) of this
Agreement and such determination shall not have been made and
delivered in a written opinion within 90 days after receipt by the
Company of Indemnitee's request for indemnification;
(iv) payment of indemnification pursuant to Section 5,
Section 6, the last sentence of Section 8(b) or the penultimate
sentence of Section 8(c) is not made within ten (10) days after
receipt by the Company of a written request therefor; or
(v) payment of indemnification pursuant to Section 3 or
Section 4 of this Agreement is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to
indemnification pursuant to Section 8 of this Agreement or such
determination is deemed to have been made pursuant to Section 9(b) of
this Agreement;
Indemnitee shall be entitled to an adjudication in a court of competent
jurisdiction of Indemnitee's entitlement to such advancement of Expenses or
indemnification. Alternatively, Indemnitee, at Indemnitee's option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 10(a); provided, however, that the foregoing
clause shall not apply in respect of a proceeding brought by Indemnitee to
enforce Indemnitee's rights under Section 5 of this Agreement. The Company shall
not oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
b. In the event that a determination shall have been
made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10, the
Company shall have the burden of proving that Indemnitee is not entitled to
advancement of Expenses or indemnification, as the case may be.
<PAGE>
c. If a determination that Indemnitee is entitled to
indemnification shall have been made or shall have been deemed to have been made
pursuant to Section 8 or Section 9 of this Agreement, the Company shall be bound
by such determination in any judicial proceeding or arbitration commenced
pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statements not materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under applicable
law.
d. The Company shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to this Section 10
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.
e. In the event that Indemnitee, pursuant to this
Section 10, seeks a judicial adjudication of or an award in arbitration to
enforce Indemnitee's rights under, or to recover damages for breach of, this
Agreement, Indemnitee shall be entitled to recover from the Company, and shall
be indemnified by the Company against, any and all expenses (of the types
described in the definition of Expenses in Section 17 of this Agreement)
actually and reasonably incurred by Indemnitee in such judicial adjudication
or arbitration, but only if and to the extent Indemnitee prevails therein. If it
shall be determined in such judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the advancement of Expenses or
indemnification sought, the expenses incurred by Indemnitee in connection with
such judicial adjudication or arbitration shall be appropriately
prorated.
Section 11. Non-Exclusivity; Insurance; Subrogation.
a. The rights of indemnification and to receive
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may at any time be entitled under
applicable law, the Company's Articles or by-laws, any agreement, any vote of
stockholders or resolution of directors, or otherwise.
b. To the extent that the Company maintains an
insurance policy or policies providing liability insurance for directors,
officers, employees, agents or fiduciaries of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person serves at the request of the Company,
Indemnitee shall be covered by such policy or policies in accordance with its or
their terms to the maximum extent of the coverage available for any such
director, officer, employee or agent under such policy or policies.
c. In the event of any payment to Indemnitee under
this Agreement, the Company shall be subrogated to the extent of such payment
to all of the rights of recovery of Indemnitee, who, at the written request of
the Company, shall take all reasonable action necessary to secure such rights,
including the execution of such documents as are necessary to enable the Company
to bring suit to enforce such rights.
<PAGE>
d. The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder or
for which advancement is provided hereunder if and to the extent that Indemnitee
has otherwise actually received such amounts from another source under an
insurance policy, contract, agreement or otherwise.
e. The Company's obligation hereunder to advance
Expenses to or indemnify Indemnitee as a result of Indemnitee's service at the
request of the Company as a director, officer, employee or agent of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise shall be reduced by any amount Indemnitee actually collects as
advancement of Expenses or indemnification from such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Section 12. Duration of Agreement; Successors. This Agreement shall
be effective as of the Effective Date and shall continue until and terminate
upon the later of (a) the date that is 10 years after the date that Indemnitee
shall have ceased to serve as a director, or (b) the date of the final
termination (including all appeals) of all pending Proceedings in respect of
which Indemnitee may be entitled to advancement of Expenses or indemnification
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10
of this Agreement relating thereto. This Agreement shall be binding upon the
Company and its successors and assigns (including any transferee of all or a
substantial portion of the business, stock and/or assets of the Company and any
direct or indirect successor by merger or consolidation or otherwise by
operation of law ) and shall insure to the benefit of Indemnitee and
Indemnitee's heirs, executors, personal representatives and administrators. This
Agreement shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
Section 13. Severability. If any provision of this Agreement shall be
held by a court of competent jurisdiction to be invalid, illegal or
unenforceable for any reason whatsoever, (a) the validity, legality and
enforceability of the remaining provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby, (b) such invalid, illegal or unenforceable provision shall be deemed
reformed to the extent necessary to conform to applicable law and to give
maximum effect to the intent of the parties hereto, and (c) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or
unenforceable.
Section 14. Exception to Right to Advancement of Expenses and
Indemnification. Notwithstanding any other provision of this Agreement (but
<PAGE>
without limiting the operation of Section 10(e) and subject to the next
sentence), and except as otherwise prohibited by law or by the Company's
Articles or by-laws, Indemnitee shall not be entitled to advancement of Expenses
or indemnification under this Agreement with respect to any Proceeding, or any
claim therein, brought or made by Indemnitee against the Company unless such
Proceeding, or claim therein, shall have been approved in writing in advance of
the filing of such Proceeding, or claim therein, by or at the direction of the
Board. Notwithstanding the preceding sentence, Indemnitee shall be entitled to
advancement of Expenses and indemnification under this Agreement with respect to
any Proceeding, or any claim therein, brought or made by Indemnitee against the
Company to recover and receive any amounts or benefits due to Indemnitee
pursuant to (a) the Company's Articles or by-laws, (b) any agreement,
arrangement or understanding between Indemnitee and the Company, or (c) any
agreement, arrangement or understanding between the Company and any third party
for Indemnitee's benefit to the extent Indemnitee is successful therein. The
limitation contained in the first sentence of this Section 14 shall not apply to
counterclaims or affirmative defenses asserted by Indemnitee in an action
brought against Indemnitee.
Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
<PAGE>
Section 17. Definitions. For purposes of this Agreement:
a. "Change in Control" means a change in control of
the Company occurring after the Effective Date of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether
or not the Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if after the Effective Date (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest, (ii) the Company is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the Board
thereafter, or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (including for this
purpose any new director whose election or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
b. "Corporate Status" describes the status of a
person who is or was a director, officer, employee or agent of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the request of the
Company.
c. "Disinterested Director" means a director of the
Company who is not and was not a party to the
Proceeding in respect of which indemnification
is sought by Indemnitee.
d. "Effective Date" means May 8, 1996.
e. "Expenses" shall include all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of
expert witnesses, private investigators and professional advisors (including,
without limitation, accountants and investment bankers), travel expenses,
duplicating costs, printing and binding costs, costs of preparation of
demonstrative evidence and other courtroom presentation aids and devices, costs
incurred in connection with document review, organization, imaging and
computerization, telephone charges, postage, delivery service fees, and all
other disbursements, costs or expenses of the type customarily incurred in
connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or otherwise participating
in, a Proceeding.
<PAGE>
f. "Independent Counsel" means a law firm, or a member
of a law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent (i) the
Company or Indemnitee in any matter material toeither such party, or (ii) any
other party to the Proceeding giving rise to aclaim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or Indemnitee in an action to determine Indemnitee's rights
under this Agreement.
g. "Proceeding" includes any action, suit,
arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding, whether civil, criminal,
administrative or investigative, except one initiated by Indemnitee pursuant to
Section 10 of this Agreement to enforce Indemnitee's rights under this
Agreement.
Section 18. Modification and Waiver. Except as specifically provided
in Section 2 of this Agreement with respect to changes in applicable law, no
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by both of the parties hereto. No waiver of any provision of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver. No amendment, alteration or termination of this Agreement or
any provision hereof shall be effective as to Indemnitee with respect to any
action taken or omitted by Indemnitee in Indemnitee's Corporate Status prior to
such amendment, alteration or termination.
Section 19. Notice by Indemnitee. Indemnitee agrees to notify the
Company in writing promptly upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may result in advancement of Expenses or
indemnification hereunder; provided, however, that the failure to give any such
notice shall not disqualify Indemnitee from the right to receive advancements of
Expenses or to be indemnified hereunder unless the Company's ability to defend
in such Proceeding is materially and adversely prejudiced.
Section 20. Notices in General. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if (a) delivered by hand and receipted for by the party to whom
such notice or other communication shall have been directed, (b) transmitted by
facsimile and receipt is acknowledged, or (c) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed:
If to Indemnitee, to: Mr. William B. Philipbar
75 Whale Bone Landing
South Hampton, NY 11963
<PAGE>
If to the Company to: BioSafe International, Inc.
Fresh Pond Square
10 Fawcett Street
Cambridge, MA 02138
Attention: President
or such other address as may have been furnished in the manner provided in this
Section 20 to Indemnitee by the Company or to the Company by Indemnitee, as the
case may be.
Section 21. Contribution. If the indemnification provided for in this
Agreement is unavailable to Indemnitee for any reason whatsoever, the Company,
in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee to the fullest extent permissible under applicable law, whether for
judgments, fines, penalties, excise taxes, amounts paid or to be paid in
settlement and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed fair
and reasonable in light of all of the circumstances of such Proceeding in order
to reflect (a) the relative benefits received by the Company and Indemnitee as a
result of the events and transactions giving rise to such Proceeding, and (b)
the relative fault of the Company (and its directors, officers, employees and
agents) and Indemnitee in connection with such events and transactions.
Section 22. Governing Law; Submission to Jurisdiction; Appointment of
Agent for Service of Process. This Agreement and the legal relations among the
parties shall be governed by, and construed and enforced in accordance with, the
laws of the State of Nevada, without regard to its conflict of laws rules.
Except with respect to any arbitration commenced by Indemnitee pursuant to
Section 10(a) of this Agreement, each of the Company and Indemnitee hereby
irrevocably and unconditionally (a) agrees that any action or proceeding arising
out of or in connection with this Agreement shall be brought only in the state
or federal courts in the State of Nevada and not in any other state or federal
court in the United States of America or any court in any other country, (b)
consents to submit to the exclusive jurisdiction of the state or federal courts
in the State of Nevada for purposes of any action or proceeding arising out of
or in connection with this Agreement, irrevocably appoints, to the extent such
party is not a resident of the State of Nevada, CT Corporation System as its
agent in the State of Nevada as such party's agent for acceptance of legal
process in connection with any such action or proceeding against such party,
with the same legal force and validity as if served upon such party personally
within the State of Nevada, (d) waives any objection to the laying of venue of
any such action or proceeding in the state or federal courts in the State of
Nevada, and (e) waives, and agrees not to plead or to make, any claim that any
such action or proceeding brought in the state or federal courts in the State of
Nevada has been brought in an improper or otherwise inconvenience forum.
Section 23. Representations and Warranties of the Company. The
Company hereby represents and warrants to Indemnitee that (a) the Company has
all necessary power and authority to enter into, and be bound by the terms of,
this Agreement, and the execution, delivery and performance of the undertakings
contemplated by this Agreement have been duly authorized by the Company, and (b)
this Agreement, when executed and delivered by the Company in accordance with
the provisions hereof, shall be a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement of
creditors' rights generally.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
ATTEST: BIOSAFE INTERNATIONAL, INC.
By: -------------------------- By: ------------------------
Robert Rivkin Philip Strauss, President
INDEMNITEE
William B. Philibar
293030.c1
<PAGE>
AGREEMENT
This Agreement, made and entered into as of the 8th day of May, 1996
("Agreement"), by and between BioSafe International, Inc., a Nevada corporation
("Company"), and Richard S. Golob ("Indemnitee"):
WHEREAS, highly competent persons justifiably are reluctant to serve
publicly-held corporations as directors unless they are provided with adequate
protection through insurance and adequate indemnification against inordinate
risks of claims and actions against them arising out of their service to and
activities on behalf of the corporation; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that, in order to attract and retain qualified individuals, the
Company will attempt to maintain on an ongoing basis, at its sole expense,
directors and officers liability insurance to protect persons serving the
Company and its subsidiaries from certain liabilities. Although the furnishing
of such insurance has been a customary and widespread practice among United
States-based corporations and other business enterprises, the Company believes
that, given current market conditions and trends, such insurance may be
available to it in the future only at higher premiums and with more exclusions.
At the same time, directors, officers, and other persons in service to
corporations and other business enterprises are frequently subjected to
expensive and time-consuming litigation relating to, among other things, matters
that traditionally would have been brought only against the corporation or
business enterprise itself; and
WHEREAS, directors and officers liability insurance, even when in
effect, is not always sufficient in and of itself to provide adequate
indemnification to directors and officers; and
WHEREAS, the expense and burden of defending against claims made
against directors and officers may be so prohibitive as to render it practically
impossible or unfairly burdensome for directors and officers to wholly or even
partially fund the defense of such claims even if the director or officer is
wholly innocent of any wrongdoing and acted properly and prudently in his or her
service to and activities on behalf of the corporation, thereby making mandatory
advancement of expenses in such litigation an essential element of
indemnification; and
WHEREAS, highly competent persons justifiably are reluctant to serve
as directors and officers without assurance that adequate indemnification,
including advancement of expenses, will continue to be available in the event of
a change in control of the corporation; and
WHEREAS, the uncertainties relating to such insurance and to
indemnification have increased the difficulty of attracting and retaining
qualified persons; and
<PAGE>
WHEREAS, the Board has determined that the increased difficulty in
attracting and retaining qualified persons is detrimental to the best interests
of the Company's stockholders and the Company should act to assure such
qualified persons that there will be increased certainty of protection in the
future; and
WHEREAS, the Company's Articles of Incorporation, as amended, (the
"Articles") permit the Company to indemnify its directors to the fullest extent
permitted by law and to make other indemnification arrangements and agreements;
and
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of the Company's Articles or by-laws or any change in the
ownership of the Company or the composition of the Board), which indemnification
is intended to supplement that which is afforded by the Company's Articles and
by-laws and, to the extent insurance is available, the coverage of Indemnitee
under the Company's directors and officers liability insurance policy; and
WHEREAS, it is reasonable, prudent and necessary for the Company to
obligate itself contractually to indemnify its directors to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, to continue to serve and to
take on additional service for or on behalf of the Company on the condition that
Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. In consideration of the Company's
covenants and commitments hereunder, Indemnitee agrees to serve or to continue
to serve as a director of the Company. Notwithstanding the foregoing, this
Agreement shall not impose any obligation on Indemnitee or the Company to
continue Indemnitee's service to the Company beyond any period otherwise
required by law or by other agreements or commitments of the parties, if any.
The foregoing notwithstanding, this Agreement shall continue in force after
Indemnitee has ceased to serve as a director of the Company.
Section 2. Indemnification - General. The Company shall advance
Expenses (as hereinafter defined) to and indemnify Indemnitee as provided in
this Agreement and (subject to the provisions of this Agreement) to the fullest
extent permitted by applicable law in effect on the Effective Date (as
hereinafter defined) and to such greater extent as applicable law may thereafter
from time to time permit. In the event that a change in applicable law after the
Effective Date permits such broader indemnification, this Agreement shall be
deemed to be amended to such extent.
Section 3. Proceedings Other Than Proceedings by or in the Right of
the Company. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 3 if, by reason of Indemnitee's Corporate Status (as
<PAGE>
hereinafter defined), Indemnitee is, or is threatened to be made, a party to or
participant in any threatened, pending or completed Proceeding (as hereinafter
defined), other than a Proceeding by or in the right of the Company. Pursuant to
this Section 3, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by Indemnitee or on Indemnitee's behalf in connection with such Proceeding or
any claim, issue or matter therein, if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal Proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 4
if, by reason of Indemnitee's Corporate Status, Indemnitee is, or is threatened
to be made, a party to or participant in any threatened, pending or completed
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against
Expenses and amounts paid in settlement actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection with such Proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in or not opposed to the best interests of the Company. Notwithstanding the
foregoing, no indemnification shall be made against such Expenses in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable to the Company or against amounts paid in
settlement to the Company, if applicable law prohibits such indemnification;
provided, however, that, if applicable law so permits, indemnification against
Expenses and/or amounts paid in settlement to the Company shall nevertheless be
made by the Company in such event if and only to the extent that the court in
which such Proceeding was brought or any other court of competent jurisdiction
determines upon application such indemnification is proper.
Section 5. Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is successful, on the merits or otherwise, in (a)
defending any Proceeding brought against Indemnitee by reason of Indemnitee's
Corporate Status or (b) prosecuting any Proceeding described in the second
sentence of Section 14 hereof, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection therewith. If Indemnitee is not wholly successful in any
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in any such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by Indemnitee or on Indemnitee's behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section 5 and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee
<PAGE>
shall be indemnified against all Expenses actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding in which Indemnitee is involved by reason of Indemnitee's
Corporate Status within ten days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses so advanced if it is ultimately
determined by a court of competent jurisdiction that Indemnitee is not entitled
to be indemnified against such Expenses. Such undertaking shall be an unlimited
general obligation of Indemnitee, shall be accepted by the Company without
regard to the financial ability of Indemnitee to make repayment, and in no event
shall be required to be secured.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
a. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as isreasonably available to
Indemnitee and is reasonably necessary to determinewhether and to what extent
Indemnitee is entitled to indemnification. TheSecretary of the Company shall,
promptly upon receipt of such a request forindemnification, advise the Board in
writing that Indemnitee has requestedindemnification.
b. Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 8(a) above, a
determination, if required by applicable law, with respect to Indemnitee's
entitlement thereto shall be made in the specific case:
(i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a
written opinion to the Board, a copy of which shall be delivered to
Indemnitee (unless Indemnitee shall request that such determination
be made by a majority vote of the Disinterested Directors (as
hereinafter defined) even though less than a quorum of the Board or
by the stockholders, in which case by the person or persons or in the
manner provided for in clause (ii) or (iii) of this Section 8(b));
(ii) if a Change of Control shall not have occurred or if
Indemnitee shall make the request referred to in clause (i) above,
(A) by a majority vote of the Disinterested Directors even though
less than a quorum of the Board, or (B) if there are no such
Disinterested Directors or if such Disinterested Directors so direct,
by Independent Counsel in a written opinion to the Board, a copy of
which shall be delivered to Indemnitee, or (C) by the stockholders of
the Company; or
(iii) as provided in Section 9(b) of this Agreement;
<PAGE>
and, if it is so determined that Indemnitee is entitled to indemnification,
payment to Indemnitee shall be made within ten (10) days after such
determination. Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, and shall provide to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Expenses incurred by Indemnitee in so cooperating with the person, persons or
entity making such determination shall be borne by the Company (irrespective of
the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
c. In the event that, pursuant to Section 8(b)
hereof, the determination of entitlement to indemnification is to be made by
Independent Counsel, the Independent Counsel shall be selected as provided in
this Section 8(c). If a Change of Control shall not have occurred, the
Independent Counsel shall be selected by the Board, and the Company shall
give written notice to Indemnitee advising Indemnitee of the identity of the
Independent Counsel so selected. If a Change of Control shall have occurred, the
Independent Counsel shall be selected by Indemnitee and Indemnitee shall give
written notice to the Company advising it of the identity of the Independent
Counsel so selected (unless Indemnitee shall request that such selection be made
by the Board, in which event the preceding sentence shall apply). In either
event, Indemnitee or the Company, as the case may be, may, within 7 days after
such written notice of selection shall have been given, deliver to the Company
or to Indemnitee, as the case may be, a written objection to such selection.
Such objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as defined
in Section 17 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
made, the Independent Counsel so selected may not serve as Independent Counsel
unless and until a court of competent jurisdiction has determined that such
objection is without merit. If a determination of entitlement to indemnification
is to be made by Independent Counsel and, 20 days after submission by Indemnitee
of a written request for indemnification pursuant to Section 8(a) hereof, no
Independent Counsel shall have been selected and not objected to, either the
Company or Indemnitee may petition a court of competent jurisdiction for
resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by such court or by such
other person as such court shall designate, and the person with respect to whom
an objection is so resolved or the person so appointed shall act as Independent
Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable
fees and expenses of Independent Counsel incurred by such Independent Counsel in
connection with determining entitlement to indemnification pursuant to Section
8(b) hereof. In addition, the Company shall pay all reasonable Expenses incurred
by Indemnitee in connection with the procedures of this Section 8(c) (regardless
of the manner in which such Independent Counsel was selected or appointed and
irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom. Upon the due commencement of any judicial
<PAGE>
proceeding or arbitration pursuant to Section 10(a)(iii) of this Agreement,
Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
Section 9. Presumption and Effect of Certain Proceedings.
a. If a Change of Control shall have occurred, in
making a determination with respect to entitlement to indemnification hereunder,
the person or persons or entity making suchdetermination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 8(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
b. If the person, persons or entity empowered or
selected under Section 8 of this Agreement to determine whether Indemnitee is
entitled to indemnification shall not have made a determination within 60 days
after receipt by the Company of Indemnitee's request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material
fact necessary to make Indemnitee's statements not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 60-day
period may be extended for a reasonable time, not to exceed an additional 30
days, if the person, persons or entity making the determination with respect
to entitlement to indemnification in good faith requires such additional time
for the obtaining or evaluating of documentation and/or information relating
thereto and gives notice to Indemnitee thereof; and provided, further, that the
foregoing provisions of this Section 9(b) shall not apply if (i) the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and (A) within 15
days after receipt by the Company of the request for such determination the
Board has resolved to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) the
determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 8(b) of this Agreement.
c. The termination of any Proceeding or of any
claim, issue or matter therein, by judgment, order, settlement or conviction,
or upon a plea of nolo contendere or its equivalent, shall not (except as
otherwise expressly provided in this Agreement) of itself adversely affect the
right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful.
<PAGE>
Section 10. Remedies of Indemnitee.
a. In the event that:
(i) a determination is made pursuant to Section 8 of
this Agreement that Indemnitee is not entitled to
indemnification under this Agreement;
(ii) advancement of Expenses pursuant to Section 7
of this Agreement is not made on a timely basis;
(iii) a determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b)
of this Agreement and such determination shall not have
been made and delivered in a written opinion within 90
days after receipt by the Company of Indemnitee's request
for indemnification;
(iv) payment of indemnification pursuant to Section 5,
Section 6, the last sentence of Section 8(b) or the
penultimate sentence of Section 8(c) is not made within ten
(10) days after receipt by the Company of a written request
therefor; or
(v) payment of indemnification pursuant to Section 3 or
Section 4 of this Agreement is not made within ten (10)
days after a determination has been made that Indemnitee
is entitled to indemnification pursuant to Section 8 of
this Agreement or such determination is deemed to have been
made pursuant to Section 9(b) of this Agreement;
Indemnitee shall be entitled to an adjudication in a court of competent
jurisdiction of Indemnitee's entitlement to such advancement of Expenses or
indemnification. Alternatively, Indemnitee, at Indemnitee's option, may seek an
award in arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. Indemnitee shall commence such
proceeding seeking an adjudication or an award in arbitration within 180 days
following the date on which Indemnitee first has the right to commence such
proceeding pursuant to this Section 10(a); provided, however, that the foregoing
clause shall not apply in respect of a proceeding brought by Indemnitee to
enforce Indemnitee's rights under Section 5 of this Agreement. The Company shall
not oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
b. In the event that a determination shall have been
made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10, the
Company shall have the burden of proving that Indemnitee is not entitled to
advancement of Expenses or indemnification, as the case may be.
<PAGE>
c. If a determination that Indemnitee is entitled to
indemnification shall have been made or shall have been deemed to have been made
pursuant to Section 8 or Section 9 of this Agreement, the Company shall be bound
by such determination in any judicial proceeding or arbitration commenced
pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a
material fact, or an omission of a material fact necessary to make Indemnitee's
statements not materially misleading, in connection with therequest for
indemnification, or (ii) a prohibition of such indemnification under
applicable law.
d. The Company shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to this Section 10
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court orbefore any such
arbitrator that the Company is bound by all the provisions of this Agreement.
e. In the event that Indemnitee, pursuant to this
Section 10, seeks a judicial adjudication of or an award in arbitration to
enforce Indemnitee's rights under, or to recover damages for breach of, this
Agreement, Indemnitee shall be entitled to recover from the Company, and shall
be indemnified by the Company against, any and all expenses (of the types
described in the definition of Expenses in Section 17 of this Agreement)
actually and reasonably incurred by Indemnitee in such judicial adjudication or
arbitration, but only if and to the extent Indemnitee prevails therein. If it
shall be determined in such judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the advancement of Expenses or
indemnification sought, the expenses incurred by Indemnitee in connection with
such judicial adjudication or arbitration shall be appropriately prorated.
Section 11. Non-Exclusivity; Insurance; Subrogation.
a. The rights of indemnification and to receive
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may at any time be entitled under
applicable law, the Company's Articles or by-laws, any agreement, any vote of
stockholders or resolution of directors, or otherwise.
b. The Company currently maintains an insurance
policy providing liability insurance for directors, officers, employees, agents
or fiduciaries of the Company or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Company. The Company will
continue to maintain such an insurance policy in an amount and with a scope
determined by the Board so long as the Board determines that it is in the best
interest of the Company to do so. To the extent that the Company maintains such
an insurance policy, the Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee or agent under such policy or
policies.
c. In the event of any payment to Indemnitee under
this Agreement, the Company shall be subrogated to the extent of such payment to
all of the rights of recovery of Indemnitee, who, at the written request of the
Company, shall take all reasonable action necessary
<PAGE>
to secure such rights, including the execution of such documents as are
necessary to enable the Company to bring suit to enforce such rights.
d. The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder or
for which advancement is provided hereunder if and to the extent that Indemnitee
has otherwise actually received such amounts from another source under an
insurance policy, contract, agreement or otherwise.
e. The Company's obligation hereunder to advance
Expenses to or indemnify Indemnitee as a result of Indemnitee's service at the
request of the Company as a director, officer, employee or agent of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise shall be reduced by any amount Indemnitee actually collects as
advancement of Expenses or indemnification from such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Section 12. Duration of Agreement; Successors. This Agreement shall
be effective as of the Effective Date and shall continue until and terminate
upon the later of (a) the date that is 10 years after the date that Indemnitee
shall have ceased to serve as a director, or (b) the date of the final
termination (including all appeals) of all pending Proceedings in respect of
which Indemnitee may be entitled to advancement of Expenses or indemnification
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 10
of this Agreement relating thereto. This Agreement shall be binding upon the
Company and its successors and assigns (including any transferee of all or a
substantial portion of the business, stock and/or assets of the Company and any
direct or indirect successor by merger or consolidation or otherwise by
operation of law ) and shall insure to the benefit of Indemnitee and
Indemnitee's heirs, executors, personal representatives and administrators. This
Agreement shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
Section 13. Severability. If any provision of this Agreement shall be
held by a court of competent jurisdiction to be invalid, illegal or
unenforceable for any reason whatsoever, (a) the validity, legality and
enforceability of the remaining provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby, (b) such invalid, illegal or unenforceable provision shall be deemed
reformed to the extent necessary to conform to applicable law and to give
maximum effect to the intent of the parties hereto, and (c) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
<PAGE>
Section 14. Exception to Right to Advancement of Expenses and
Indemnification. Notwithstanding any other provision of this Agreement (but
without limiting the operation of Section 10(e) and subject to the next
sentence), and except as otherwise prohibited by law or by the Company's
Articles or by-laws, Indemnitee shall not be entitled to advancement of Expenses
or indemnification under this Agreement with respect to any Proceeding, or any
claim therein, brought or made by Indemnitee against the Company unless such
Proceeding, or claim therein, shall have been approved in writing in advance of
the filing of such Proceeding, or claim therein, by or at the direction of the
Board. Notwithstanding the preceding sentence, Indemnitee shall be entitled to
advancement of Expenses and indemnification under this Agreement with respect to
any Proceeding, or any claim therein, brought or made by Indemnitee against the
Company to recover and receive any amounts or benefits due to Indemnitee
pursuant to (a) the Company's Articles or by-laws, (b) any agreement,
arrangement or understanding between Indemnitee and the Company, or (c) any
agreement, arrangement or understanding between the Company and any third party
for Indemnitee's benefit to the extent Indemnitee is successful therein. The
limitation contained in the first sentence of this Section 14 shall not apply to
counterclaims or affirmative defenses asserted by Indemnitee in an action
brought against Indemnitee.
Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
<PAGE>
Section 17. Definitions. For purposes of this Agreement:
a. "Change in Control" means a change in control of
the Company occurring after the Effective Date of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether
or not the Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if after the Effective Date (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest, (ii) the Company is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the Board
thereafter, or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (including for this
purpose any new director whose election or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
b. "Corporate Status" describes the status of a
person who is or was a director, officer, employee or agent of the Company or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the request of the
Company.
c. "Disinterested Director" means a director of the
Company who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
d. "Effective Date" means May 8, 1996.
e. "Expenses" shall include all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of expert
witnesses, private investigators and professional advisors (including,
without limitation, accountants and investment bankers), travel expenses,
duplicating costs, printing and binding costs, costs of preparation of
demonstrative evidence and other courtroom presentation aids and devices, costs
incurred in connection with document review, organization, imaging and
computerization, telephone charges, postage, delivery service fees, and all
other disbursements, costs or expenses of the type customarily incurred in
connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, or otherwise participating
in, a Proceeding.
<PAGE>
f. "Independent Counsel" means a law firm, or a
member of a law firm, that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been, retained to represent
(i) the Company or Indemnitee in any matter material to either such party, or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's rights under this Agreement.
g. "Proceeding" includes any action, suit,
arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding, whether civil, criminal,
administrative or investigative, except one initiated by Indemnitee pursuant to
Section 10 of this Agreement to enforce Indemnitee's rights under this
Agreement.
Section 18. Modification and Waiver. Except as specifically provided
in Section 2 of this Agreement with respect to changes in applicable law, no
supplement, modification or amendment of this Agreement shall be binding unless
executed in writing by both of the parties hereto. No waiver of any provision of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver. No amendment, alteration or termination of this Agreement or
any provision hereof shall be effective as to Indemnitee with respect to any
action taken or omitted by Indemnitee in Indemnitee's Corporate Status prior to
such amendment, alteration or termination.
Section 19. Notice by Indemnitee. Indemnitee agrees to notify the
Company in writing promptly upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may result in advancement of Expenses or
indemnification hereunder; provided, however, that the failure to give any such
notice shall not disqualify Indemnitee from the right to receive advancements of
Expenses or to be indemnified hereunder unless the Company's ability to defend
in such Proceeding is materially and adversely prejudiced.
Section 20. Notices in General. All notices, requests, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if (a) delivered by hand and receipted for by the party to whom
such notice or other communication shall have been directed, (b) transmitted by
facsimile and receipt is acknowledged, or (c) mailed by certified or registered
mail with postage prepaid, on the third business day after the date on which it
is so mailed:
If to Indemnitee, to: Mr. Richard Golob
World Information Systems
P.O. Box 535
Cambridge, MA 02238
<PAGE>
If to the Company to: BioSafe International, Inc.
Fresh Pond Square
10 Fawcett Street
Cambridge, MA 02138
Attention: President
or such other address as may have been furnished in the manner provided in this
Section 20 to Indemnitee by the Company or to the Company by Indemnitee, as the
case may be.
Section 21. Contribution. If the indemnification provided for in this
Agreement is unavailable to Indemnitee for any reason whatsoever, the Company,
in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by
Indemnitee to the fullest extent permissible under applicable law, whether for
judgments, fines, penalties, excise taxes, amounts paid or to be paid in
settlement and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed fair
and reasonable in light of all of the circumstances of such Proceeding in order
to reflect (a) the relative benefits received by the Company and Indemnitee as a
result of the events and transactions giving rise to such Proceeding, and (b)
the relative fault of the Company (and its directors, officers, employees and
agents) and Indemnitee in connection with such events and transactions.
Section 22. Governing Law; Submission to Jurisdiction; Appointment of
Agent for Service of Process. This Agreement and the legal relations among the
parties shall be governed by, and construed and enforced in accordance with, the
laws of the State of Nevada, without regard to its conflict of laws rules.
Except with respect to any arbitration commenced by Indemnitee pursuant to
Section 10(a) of this Agreement, each of the Company and Indemnitee hereby
irrevocably and unconditionally (a) agrees that any action or proceeding arising
out of or in connection with this Agreement shall be brought only in the state
or federal courts in the Commonwealth of Massachusetts and not in any other
state or federal court in the United States of America or any court in any other
country, (b) consents to submit to the exclusive jurisdiction of the state or
federal courts in the Commonwealth of Massachusetts for purposes of any action
or proceeding arising out of or in connection with this Agreement, irrevocably
appoints, to the extent such party is not a resident of the Commonwealth of
Massachusetts, CT Corporation System as its agent in the Commonwealth of
Massachusetts as such party's agent for acceptance of legal process in
connection with any such action or proceeding against such party, with the same
legal force and validity as if served upon such party personally within the
Commonwealth of Massachusetts, (d) waives any objection to the laying of venue
of any such action or proceeding in the state or federal courts in the
Commonwealth of Massachusetts, and (e) waives, and agrees not to plead or to
make, any claim that any such action or proceeding brought in the state or
federal courts in the Commonwealth of Massachusetts has been brought in an
improper or otherwise inconvenient forum.
Section 23. Representations and Warranties of the Company. The
Company hereby represents and warrants to Indemnitee that (a) the Company has
all necessary power and authority to enter into, and be bound by the terms of,
this Agreement, and the execution, delivery and performance of the undertakings
contemplated by this Agreement have been duly authorized by the Company, and (b)
this Agreement, when executed and delivered by the Company in accordance with
the provisions hereof, shall be a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement of
creditors' rights generally.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
ATTEST: BIOSAFE INTERNATIONAL, INC.
By: ---------------------- By: -------------------------
Robert Rivkin Philip Strauss, President
INDEMNITEE
Richard S. Golob
293036.c2
<PAGE>
BioSafe International, Inc.
10 Fawcett Street
Cambridge, MA 02138
Exhibit 21.1
Schedule of Subsidiaries
As of December 31, 1996
Name and Address of Member EIN Tax Period
- - --------------------------------------------- ------------ ------------
Size Control, Inc. 36-4027808 1996
10 Fawcett Street, Cambridge, MA 02138
BioSafe Materials, Inc. Applied for 1996
Same as above
Major Sports Fantasies, Inc. 04-0306318 1996
Same as above
BioSafe Medical Waste Technology, Inc. Applied for 1996
Same as above
BioSafe Harbor Technology, Inc. 04-3301436 1996
Same as above
BioSafe Management Services, Inc. 04-3274439 1996
Same as above
BioSafe, Inc. 04-3086959 1996
Same as above
BioSafe Landfill Technology, Inc. 04 -3301438 1996
Same as above
BioSafe Fairhaven, Inc. 04-3301442 1996
Same as above
BioSafe South Hadley, Inc. 04-3301438 1996
Same as above
BioSafe Buckland, Inc. 04-3301441 1996
Same as above
BioSafe Pennsylvania, Inc. 04-3301445 1996
Same as above
Waste Professionals of VT, Inc. 03-0347845 1996
Same as above
Waitsville Transfer Stations, Inc. 04-3292469 1996
Same as above
BioSafe Mid-Atlantic, Inc. 04-3301448 1996
(formerly known as BioSafe North Adams, Inc.)
10 Fawcett Street, Cambridge, MA 02138
BioSafe New York, Inc. 04-3301449 1996
(formerly known as BioSafe Nantucket, Inc.)
Same as above
BioSafe New Jersey, Inc. 04-3301450 1996
(formerly known as BioSafe Derry, Inc.)
Same as above
BioSafe Maryland, Inc. 04-3301447 1996
(formerly known as BioSafe Tewksbury, Inc.)
Same as above
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<NAME> Biosafe International Inc.
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<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 264,776
<SECURITIES> 0
<RECEIVABLES> 1,183,677
<ALLOWANCES> 25,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,197,453
<PP&E> 12,161,170
<DEPRECIATION> 455,458
<TOTAL-ASSETS> 16,858,090
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0
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<TOTAL-LIABILITY-AND-EQUITY> 16,858,090
<SALES> 1,495,606
<TOTAL-REVENUES> 1,495,606
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<TOTAL-COSTS> 7,942,413
<OTHER-EXPENSES> 199,193
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,182,118
<INCOME-PRETAX> (11,664,920)
<INCOME-TAX> (23,456)
<INCOME-CONTINUING> (11,641,464)
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