SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1997
Commission file number 0-25998
WASTE SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4203626
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
(Address of principal executive offices) (zip code)
(781) 862-3000 Phone
(781) 862-2929 Fax
(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, $.01 par value per share
Series F Warrants
Placement Agent Warrants
________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K X
As of March 24, 1998, the market value of the voting stock of the
Registrant held by non-affiliates of the Registrant was $66,854,700
The number of shares of the Registrant's common stock, par value
$.01 per share, outstanding as of March 24, 1998 was 3,911,181.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K.
Portions of the Registration Statement on Form S-1 of Waste Systems
International, Inc.(formerly BioSafe International, Inc.), (No. 33-93966) are
incorporated by reference into Part IV of this Form
10-K.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters
to a Vote of Security Holders 9
PART II
Item 5. Market For Registrant's Common Equity and
Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 47
PART III
Item 10. Directors and Executive Officers 47
Item 11. Executive Compensation 47
Item 12. Security Ownership of Certain Beneficial
Owners and Management 47
Item 13. Certain Relationships and Related
Transactions 47
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 48
Signatures 50
<PAGE>
Note Regarding Forward Looking Statements:
This Annual Report on Form 10-K contains forward-looking statements concerning
among other things, the Company's expected future revenues, operations and
expenditures and estimates of the potential markets for the Company's services.
Such statements made by the Company fall within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All such forward-looking statements are
necessarily only estimates of future results and the actual results achieved by
the Company may differ materially from these projections due to a number of
factors as 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
The Company
Waste Systems International, Inc. (referred to herein as the "Company"
or "WSI") is a regional integrated non-hazardous solid waste management company
that provides solid waste collection, recycling, transfer and disposal services
to commercial and residential customers.
The Company currently owns and operates a solid waste landfill in
Moretown, Vermont, three transfer stations and collection operations which
operate as an integrated solid waste operation, serving over 4,400 commercial
and residential customers in the Burlington, St. Albans, St. Johnsbury and
Barre-Montpelier, Vermont areas.
The Company currently has two additional landfill projects at different
stages of development. In November 1997, WSI signed a definitive agreement to
acquire a 700-acre, 3 million cubic yard permitted municipal solid waste
landfill in Hopewell, Pennsylvania. This transaction is expected to close by the
end of May, 1998. Additionally, the Company entered into a contract to operate
and remodel an existing 30-acre municipal landfill in South Hadley,
Massachusetts. On March 16, 1998 the Company filed its draft environmental
impact report with the Massachusetts Department of Environmental Protection
("MDEP") and anticipates receiving all of its required MDEP permits during the
second or third quarter of 1998, which would allow WSI to begin accepting solid
waste at the first 6-acre lined cell by the first or second quarter of 1999. The
South Hadley landfill project is currently expected to have approximately 2
million cubic yards of new capacity for future disposal.
On March 23, 1998, the Company signed a definitive agreement to acquire
Horvath Sanitation, Inc., d/b/a Eagle Waste ("Eagle"), which is based in
Altoona, Pennsylvania. This transaction is also expected to close by the end of
May 1998. Eagle has approximately $8 million in annual revenue and collects
approximately 200 tons per day of solid waste. Eagle's operations will be
integrated with the Hopewell, Pennsylvania landfill acquisition discussed above.
Ultimately, WSI intends to create integrated solid waste management operations
in the geographical areas surrounding each of its landfills.
WSI's objective is to expand the current geographic scope of its
operations and to become one of the leading providers of non-hazardous solid
waste management services in each market that it serves. The Company's primary
growth strategy is to acquire landfills in or near urban metropolitan areas, and
to secure dedicated waste streams for such landfills by acquisition or
development of collection operations and transfer stations. The internalization
of waste streams is a major component of the Company's strategy. The Company
believes that significant opportunities exist to expand its operations in each
of its current and targeted markets.
1
<PAGE>
Industry Overview
Based on published industry information, the solid waste management
industry generated approximately $36 billion in revenue during 1997 and is
expected to grow to $40 billion by the year 2000. Of the $36 billion,
approximately 43% is controlled by public companies with the remaining split
almost equally between 6,000 small private operators and municipal governments.
The solid waste management industry is generally experiencing
significant consolidation and integration. The Company believes that the
consolidation and integration is a result of the following factors, among
others: (i) increasingly stringent environmental regulations which have resulted
in an increased need for substantial capital requirements to remain compliant
with such regulations; (ii) the inability of many smaller operators to achieve
the economies of scale necessary to compete with larger providers; (iii) the
competitive and economic benefits of providing integrated collection, recycling,
transfer and disposal services; and (iv) the privatization of solid waste assets
and services by municipalities. Although significant consolidation within the
solid waste management industry has occurred, the Company believes the industry
remains highly fragmented and that a substantial number of potential acquisition
opportunities remain.
Strategy and Acquisition Program
WSI is pursuing an acquisition strategy to achieve its objective of
becoming a leading provider of integrated solid waste management services in
each of the markets it serves. The key elements of its strategy are: (i)
identify landfills near urban metropolitan centers that are economically
feasible for acquisition; (ii) develop an integrated solid waste management
operation which provides collection, recycling, transfer and disposal services
to increase and control waste streams to its landfills; (iii) consolidate and
expand its operations around each of its landfills through "tuck-in"
acquisitions; (iv) improve existing and acquired operations through
internalization of the waste stream, thus increasing operating efficiencies and
improving capacity utilization; and (v) internal growth.
The following table sets forth acquisitions completed by the Company
through February 1998:
<TABLE>
<CAPTION>
<C> <C> <C> <C>
Acquisition Month Acquired Principal Business Location Market Area
Moretown Landfill July 1995 Landfill Moretown, VT Vermont
The Hartigan Company January 1997 Solid waste collection Stowe, VT Central Vermont
CSWD Transfer Station October 1997 Transfer Station Burlington, VT N.W.
VT.
Doyle Disposal January 1998 Solid waste collection Barre, VT Central Vermont
Perkins Disposal January 1998 Solid waste collection St. Johnsbury, VT N. E. Vermont
Rapid Rubbish Solid waste collection/
Removal , Inc. February 1998 Transfer Station St. Johnsbury, VT N. E. Vermont
Greenia Trucking February 1998 Solid waste collection St. Albans, VT N. W. Vermont
</TABLE>
In addition, the Company has signed certain agreements for the acquisition or
operation of landfills and collection companies described under "Integrated
Solid Waste Management Operations - Hopewell, Pennsylvania" and "--South Hadley,
Massachusetts." There can be no assurance that the Company will continue to be
successful in executing its acquisition strategy. See Management's Discussion
and Analysis of Financial Condition and Results of Operations - Certain Factors
Affecting Future Operating Results - "Ability to Identify, Acquire and Integrate
Acquisition Targets")
2
<PAGE>
Integrated Solid Waste Management Operations
The Company believes that it can successfully create integrated solid
waste management operations by acquiring or developing disposal capacity and
subsequently integrating them with strategically located collection operations
and transfer stations. The Company's strategy, if successful would ensure a
steady and growing long-term waste stream to its landfills. The Company's
current integrated solid waste management operations are as follows:
Moretown, Vermont. The Company established its first integrated solid
waste management operations in the geographical area surrounding its landfill in
Moretown, Vermont. In addition to the landfill in Moretown, Vermont, the Company
currently owns and/or operates three transfer stations and collection operations
serving over 4,400 commercial and residential customers in the Burlington, St.
Albans, St. Johnsbury and Barre-Montpelier, Vermont areas. The first cell ("Cell
1") at the Company's landfill is currently operating at approximately 300-350
tons per day ("TPD") with remaining estimated permitted capacity as of December
31, 1997 of approximately 215,000 cubic yards. A permit application was filed
with the Vermont Agency of Natural Resources for the development of a second
cell ("Cell 2") on April 3, 1997. On March 11, 1998, WSI received its draft
certification for Cell 2 from the Vermont Agency of Natural Resources. The
Company expects to receive all of the permits required for Cell 2 by the end of
the second quarter of 1998 although no assurances can be given that all required
permits will be issued in accordance with the Company's expected schedule. When
all of the permits are granted, the Company will begin construction on Cell 2
which will increase the permitted landfill capacity by an estimated 1.3 million
cubic yards. For the year ended December 31, 1997, approximately 24%
of the waste received at its Moretown, Vermont landfill was collected by the
Company's hauling operations or received at the Company's transfer stations.
Also, 100% of the waste collected by the Company was disposed of at its
Moretown, Vermont landfill.
Hopewell, Pennsylvania. In November 1997, WSI signed a definitive
agreement to acquire the 700-acre, 3 million cubic yard permitted municipal
solid waste landfill in Hopewell, Pennsylvania. The purchase price of
approximately $6.0 million will be paid primarily by the assumption of
debt on the facility. The existing landfill consists of five permitted cells,
one of which is currently operating. The Hopewell project represents a new
market for the Company, in which it intends to build a network of adjoining
collection operations and transfer stations within the central Pennsylvania
region. The Company has also identified additional room for expansion at the
landfill. This transaction is expected to close by the end of May, 1998.
On March 23, 1998, the Company signed a definitive agreement to acquire
Horvath Sanitation, Inc., d/b/a Eagle Waste ("Eagle"), which is based in
Altoona, Pennsylvania. Eagle has approximately $8 million in annual revenue and
collects approximately 200 tons per day of solid waste. Eagle's operations will
be integrated with the Hopewell, Pennsylvania landfill as discussed above.
The Company has also identified additional tuck-in opportunities for acquisition
of collection companies and transfer stations in the area, which would help
ensure WSI a stable, long-term waste stream to the landfill.
South Hadley, Massachusetts. WSI and the Town of South Hadley,
Massachusetts have entered into a contract as of August 22, 1995, whereby the
Company will operate and remodel (see "Landfill Remodeling" below) the town's
30-acre municipal solid waste landfill. The Town of South Hadley will retain
full ownership of the landfill while the Company operates and remodels the
facility. In March 1997,the Company received a landfill disruption permit from
the MDEP which enabled WSI to begin engineering work and feasibility studies at
the South Hadley landfill. On March 16, 1998 the Company filed its draft
environmental impact report with the MDEP and anticipates receiving all of its
operating and construction permits during the second or third quarter of 1998,
which would allow WSI to begin accepting solid waste at the first 6-acre lined
cell during the first or second quarter of 1999. The South Hadley landfill
project is currently expected to have approximately 2 million cubic yards of new
capacity for future disposal.
3
<PAGE>
Landfill Remodeling
Municipal waste at landfills typically contains a large amount of low
density, bulky material. The Company believes that by processing and recycling a
percentage of this material, it is possible to recapture approximately 40-80% of
the landfill's original permitted disposal capacity. The remodeling process
begins with the excavation of the landfill and processing of existing solid
waste. The landfill is then lined in accordance with current environmental
standards, and the remaining processed solid waste is returned to the new lined
landfill. At this point, the site is considered operational and is ready to
receive additional solid waste from outside sources.
The benefits of landfill remodeling are: (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 existing waste creating substantial new waste capacity; and (c)
the high cost of closing down a landfill in compliance with current
environmental regulations can be deferred and the future closure costs can be
financed through the utilization of the new waste capacity.
Medical Waste Technology
WSI currently maintains ownership of an infectious medical waste
disposal technology, known as the continuous flow auger ("CFA") process, which
is the subject of a U.S. patent and a pending European Community patent
application. This process is fully developed and requires no further capital
funding. The Company's activities in this area have been limited to licensing of
the technology and related engineering consulting services to licensees. A
previous world-wide licensing arrangement with BioMedical Waste Systems, Inc.
("BioMed") was terminated as to most jurisdictions as a result of BioMed's
failure to make contractual minimum payments. In February 1996, WSI entered into
an exclusive licensing arrangement for the United Kingdom and Ireland with
ScotSafe Limited ("ScotSafe"), which was expanded to cover all of Europe in
November 1996. This arrangement was terminated in late 1997 as a result of
ScotSafe's failure to pay royalties due. Subsequent to the termination, ScotSafe
was placed into receivership and its assets were purchased by Eurocare
Environmental Services, Ltd. ("Eurocare") in December 1997. Eurocare is
currently operating the three facilities the Company constructed for ScotSafe
without a licensing agreement. The Company petitioned Scottish Courts for an
interim interdict, which would have required Eurocare to cease operations until
proper licensing of the CFA process was obtained from WSI. The Company's
petition to the Court was denied since the Company currently does not hold a
European patent on the CFA process. However, since the Company does have a
European patent application pending, the Scottish courts have required that
Eurocare track all waste processed at the plants and to remove some of the
recommended modifications to the standard CFA process which were recommended by
WSI while under agreement with ScotSafe. Although no assurances can be given,
the Company expects to be granted its European patents during 1998, at which
time, the Company will act vigorously to protect its rights to the CFA
technology against Eurocare and seek substantial damages. Otherwise, the Company
has no licenses or other revenue-paying arrangements with respect to the CFA
technology, and is reassessing its business plans in this respect.
Competition
The solid waste management industry is highly competitive and very
fragmented and requires substantial labor and capital resources. Competition
exists for collection, recycling, transfer and disposal services. The markets in
which the Company competes or is likely to compete in are usually served by one
or more of the large national, regional or local solid waste companies who may
have greater financial, marketing or technical resources than WSI and may be
able to achieve greater economies of scale than the Company.
The Company also competes with counties, municipalities and operators
of alternative disposal facilities that operate their own waste collection and
disposal facilities. The availability of user fees, charges or tax revenues and
the availability of tax-exempt financing may provide a competitive advantage to
the public sector. Additionally, alternative disposal facilities such as
recycling and incineration may reduce the demand for the disposal of solid waste
in landfills.
The Company competes for waste collection and disposal business on the
basis of quality of operation, price and geographical location. From time to
time, competitors may reduce the price of their services in an effort to expand
or maintain market share or to win competitively bid contracts.
Competition also exists within the industry for acquisition targets
where the Company will usually compete with publicly owned national or regional
solid waste management companies.
4
<PAGE>
Government Regulation
The Company and its customers are subject to extensive and evolving
environmental laws and regulations that have been enacted in response to
technological advances and increased concern over environmental issues. These
regulations are administered by the U.S. EPA and various other federal, state
and local environmental, transportation and health and safety agencies. The
Company believes that such laws and regulations have the effect of enhancing the
potential market in which the Company operates by allowing the Company to offer
economical solutions for regulatory problems to its customers and acquisition
candidates. 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 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 authorities and ad hoc 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 landfill operations 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. In connection with the
Company's preliminary development of landfill projects, the Company will expend
considerable time, effort and resources in complying with the governmental
review and permitting process necessary to develop or 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
non-hazardous. 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 non-hazardous. Wastes classified as hazardous under RCRA are
subject to much stricter regulation than wastes classified as non-hazardous, and
businesses that deal with hazardous waste are subject to regulatory obligations
in addition to those imposed on handlers of non-hazardous waste.
Among the wastes that are specifically designated as non-hazardous
waste are household waste and "special" waste, including items such as petroleum
contaminated soils, asbestos, foundry sand, shredder fluff and most
non-hazardous industrial waste products.
The EPA regulations issued under Subtitle C of RCRA impose a
comprehensive "cradle to grave" system for tracking the generation,
transportation, treatment, storage and disposal of hazardous wastes. The
Subtitle C Regulations impose obligations on generators, transporters and
disposers of hazardous waste, and require permits that are costly to obtain and
maintain for sites where such material is treated, stored or disposed. Subtitle
C requirements include detailed operating, inspection, training and emergency
preparedness and response standards, as well as requirements for manifesting,
record keeping and reporting, corrective action, facility closure, post-closure
and financial responsibility. Most states have promulgated regulations modeled
on some or all of the Subtitle C provisions issued by the EPA. Some state
regulations impose different, additional obligations.
5
<PAGE>
The Company is not involved with transportation or disposal of
hazardous substances (as defined in CERCLA) in concentrations or volumes that
would classify those materials as hazardous wastes.
In October 1991, the U.S. EPA adopted new regulations pursuant to
Subtitle D of RCRA (the "Subtitle D Regulations"). These new regulations became
generally effective in October 1993 (except for certain MSW landfills accepting
less than 100 TPD, as to which the effective date was April 9, 1994, and new
financial assurance requirements, which became 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
landfills 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 control leachate for
treatment prior to disposal. Groundwater wells must also be installed at
virtually all landfills to monitor groundwater quality. The regulations also
require, where threshold test levels are present, that methane gas generated at
landfills be controlled in a manner that protects human health and the
environment. Each state is required to revise its landfill regulations to meet
these requirements or such requirements, will be automatically imposed upon it
by the U.S. EPA. Each state is also required to adopt and implement a permit
program or other appropriate system to ensure that landfills within the state
comply with the Subtitle D criteria. Many states have already adopted
regulations or programs as stringent as or more stringent than the Subtitle D
Regulations, which were first proposed in August 1988.
The Federal Water Pollution Control Act of 1972 (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 and transfer stations are discharged into streams, rivers or other
surface waters 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 to discharge its effluent to
municipal wastewater treatment facilities. The Company believes that its
facilities are in compliance in all material respects with Clean Water Act
requirements.
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, 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.
6
<PAGE>
The Clean Air Act. The Clean Air Act provides for regulation, through
state implementation of federal requirements, of the emission of air pollutants
from certain landfills based upon the date of the landfill construction and
volume per year of emissions of regulated pollutants. The EPA has recently
promulgated new source performance standards regulating air emissions of certain
regulated pollutants (methane and non-methane organic compounds) from municipal
solid waste landfills. The EPA may also issue regulations controlling the
emissions of particular regulated air pollutants from municipal solid waste
landfills. Landfills located in areas with air pollution problems may be subject
to even more extensive air pollution controls and emission limitations. In
addition, the EPA has issued standards regulating the removal, handling and
disposal of asbestos-containing materials.
Each of the federal statutes described above contains provisions
authorizing, under certain circumstances, the bringing of lawsuits by private
citizens to enforce the provisions of the statutes.
The Hazardous Materials Transportation Act. The transportation of
hazardous waste is regulated both by the EPA pursuant to RCRA and by the federal
Department of Transportation ("DOT") pursuant to the Hazardous Materials
Transportation Act ("HMTA"). Pursuant to the HMTA, DOT has enacted regulations
governing the transport of hazardous waste. These regulations govern, among
other things, packaging of the hazardous waste during transport, labeling and
marking requirements, and reporting of and response to spills of hazardous waste
during transport. In addition, under both the HMTA and RCRA, transporters of
hazardous waste must comply with manifest and record keeping requirements, which
are designed to ensure that a shipment of hazardous waste is properly identified
and can be tracked from its point of generation to point of disposal at a
permitted hazardous waste treatment, storage or disposal facility.
The Occupational Safety and Health Act of 1970 ("OSHA"). OSHA
authorizes the Occupational Safety and Health Administration to promulgate
occupational safety and health standards. Various of those promulgated
standards, including standards for notices of hazards, safety in excavation, and
the handling of asbestos, may apply to certain of the Company's operations. OSHA
regulations set forth requirements for the training of employees handling, or
who may be exposed in the workplace to, concentrations of asbestos-containing
materials that exceed specified action levels. The OSHA regulations also set
standards for employee protection, including medical surveillance, the use of
respirators, protective clothing and decontamination units, during asbestos
demolition, removal or encapsulation as well as its storage, transportation and
disposal. In addition, OSHA specifies a maximum permissible exposure level for
airborne asbestos in the workplace. The company has no direct involvement in
asbestos removal or abatement projects.
State and Local Regulation. Each state in which the Company now
operates or may operate in the future has laws and regulations governing the
generation, storage, treatment, handling, transportation and disposal of solid
and hazardous waste, water and air pollution and, in most cases, the citing,
design, operation, maintenance, closure and post-closure maintenance of
landfills and transfer stations. In addition, many states have adopted
"Superfund" statutes comparable to, and in some cases more stringent than,
CERCLA. These statutes impose requirements for investigation and cleanup of
contaminated sites and liability for costs and damages associated with such
sites, and some provide for the imposition of liens on property owned by
responsible parties. Furthermore, many municipalities also have ordinances,
local laws and regulations affecting Company operations. These include zoning
and health measures that limit solid waste management activities to specified
sites or activities, flow control provisions that direct the delivery of solid
wastes to specific facilities, laws that grant the right to establish franchises
for collection services and then put out for bid for the right to provide
collection services, and bans or other restrictions on the movement of solid
wastes into a municipality.
Certain permits and approvals may limit the types of waste that may be
accepted at a landfill or the quantity of waste that may be accepted at a
landfill during a given time period. In addition, certain permits and approvals,
as well as certain state and local regulations, may limit a landfill to
accepting waste that originates from specified geographic areas or seek to
restrict the importation of out-of-state waste or otherwise discriminate against
out-of-state waste. Generally, restrictions on the importation of out-of-state
waste have not withstood judicial challenge. However, proposed federal
legislation would allow individual states to prohibit the disposal of
out-of-state waste or to limit the amount of out-of-state waste that could be
imported for disposal and would require states, under certain circumstances, to
reduce the amounts of waste exported to other states. If this or similar
legislation is enacted, states in which the Company operates landfills could act
to limit or prohibit the importation of out-of-state waste. Such state actions
could adversely affect landfills within those states that receive a significant
portion of waste originating from out-of-state.
7
<PAGE>
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. In 1994, the United States Supreme Court held unconstitutional,
and therefore invalid, a local ordinance that sought to impose flow controls on
taking waste out of the locality. However, certain state and local jurisdictions
continue to seek to enforce such restrictions and, in certain cases, the Company
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 federal, state and local
level to mandate and encourage waste reduction at the source and waste recycling
and to prohibit the disposal of certain types of solid wastes, such as yard
wastes, in landfills. The enactment of regulations reducing the volume and types
of wastes available for transport to and disposal in landfills could affect the
Company's ability to operate its facilities at their full capacity.
The Company believes that it is in compliance with federal, state and
local regulations based on the Company's internal review process which has not
identified any non compliance and the Company has not received any verbal or
written notification from any governmental agency to the contrary.
Employees of the Registrant
As of December 31, 1997, WSI had 35 full time employees. As a result of
the acquisitions executed subsequent to year-end, the Company had 60 full time
employees as of March 24, 1998 and, based on acquisitions under definitive
agreements as of March 23, 1998, the Company expects the number of full time
employees to grow to approximately 175 by June 30, 1998. WSI believes its future
success will depend in part on its continued ability to recruit and retain
highly qualified technical and managerial personnel.
WSI's employees are not subject to any collective bargaining agreement.
WSI considers its relations with its employees to be good.
Item 2. Properties
The Company owns and operates landfills, transfer stations and
other facilities described under Item I - Business "Integrated Solid Waste
Management Operations". In addition, the Company leases its corporate
headquarters, located at 420 Bedford Street, Suite 300, Lexington,
Massachusetts. WSI currently occupies approximately 11,000 square feet at the
Lexington location under the terms of a lease expiring in March 2003, with
annual rent of approximately $200,000.
Item 3. Legal Proceedings
Richard Rosen. In July 1996, the Company commenced arbitration
proceedings against Richard Rosen ("Rosen"), former Chairman, Chief Executive
Officer and President of the Company, seeking to recover amounts, excluding
interest and litigation costs, 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 of the Board appointed to
investigate Rosen's financial dealings with the Company, in consultation with
independent counsel retained 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 and entered judgment
against Rosen, which is now non-appealable, in an amount of approximately
$833,000. The Company is currently pursuing discovery against Rosen through this
forum to identify assets that Rosen may have available to satisfy the
outstanding judgment. In August of 1996, the Company secured a preliminary
injunction in Middlesex Superior Court with respect to any future sales of the
Company's stock by Rosen. The Company has filed a Motion in such action asking
the Court to issue a broader form of permanent injunction in the case. On
September 8, 1997 the Company commenced a supplementary process action in
Cambridge District Court to collect on such judgment, including seeking
foreclosure on all shares of the Company's stock owned by Rosen. On March 5,
1998 the judge granted the Company's motion and the Company is in the process of
obtaining all the shares held by Rosen. No assurance can be given that the
Company will be able to collect the entire balance of any amounts awarded in
arbitration including interest and litigation costs. The Company is carrying on
its December 31, 1997 balance sheet an amount of $300,000 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. The Company expects
to have received in the aggregate a minimum of approximately $300,000 from Rosen
in cash or stock by March 31, 1998.
8
<PAGE>
On March 27, 1997, Rosen commenced an action against the Company in
Middlesex County (Massachusetts) Superior Court, seeking an award of damages
resulting from the Company's alleged breach of a Memorandum of Understanding
entered into between the Company and Rosen in connection with the termination of
Rosen's employment with the Company, in which Rosen had been granted an option
to purchase certain assets of the Company not related to its core business. The
Company believes this claim to be frivolous and is vigorously defending this
action.
Marguerite Piret. In October 1997 in the Middlesex Superior Court, the
Company commenced an action against Marguerite A. Piret, a former director of
the Company and the wife of Rosen, seeking damages against Ms. Piret for
breaches of her fiduciary duty as a former director of the Company. The case is
in the discovery stage and no trial date has been set. If the Company is
successful in its claims, the Company may recover direct and consequential
damages from Ms. Piret.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held a special meeting in lieu of its annual meeting of
stockholders on October 24, 1997 (the "1997 Annual Meeting"). The record date
for the meeting was September 10, 1997. As of such record date, the total number
of shares of Common Stock eligible to vote at the 1997 Annual Meeting was
18,195,904, representing a like number of votes, and the total number of shares
of Series A Preferred Stock eligible to vote at the 1997 Annual Meeting was
95,880, representing a number of votes equivalent to 34,090,638 shares of Common
Stock, for an aggregate of 52,256,542 votes eligible to be cast on each
proposal.
Proposal 1: Election of Directors: The Board of Directors nominated
seven individuals to serve as Directors of the Company, including four who are
required to be elected by class vote of the Preferred Stock. The stockholders
voted to elect Jay Matulich, Robert Rivkin and Philip Strauss to serve as
directors of the Company. There were 38,629,202 votes cast for, 35,125 votes
against and 213,660 abstaining from the election of Jay Matulich. There were
38,627,944 votes cast for, 36,383 votes cast against and 213,660 abstaining from
the election of Robert Rivkin. There were 38,625,802 votes cast for, 38,525
votes cast against and 213,660 abstaining from the election of Philip Strauss.
David J. Breazzano, Charles Johnston, Judy K. Mencher and William B. Philipbar
were elected by class vote of the Preferred Stock to serve as Directors of the
Company.
Proposal 2: Approval of Corporate Re-organization: A vote was also
held to change the Company's state of incorporation to Delaware from Nevada
through a merger of the Company into a wholly-owned subsidiary, and all effects
thereof, including (a) the conversion of the outstanding Company securities of
the surviving corporation, (b) certain amendments to the Corporation' s Articles
of Incorporation and By-laws (c) an increase in the Company's authorized common
stock, $.01 par value per share (the "Common Stock"), from 20,000,000 shares to
30,000,000, and (d) the change in the Company's name from "BioSafe
International, Inc." to "Waste Systems International, Inc.". There were
31,237,007 votes cast for, 195,855 votes cast against, 215,510 votes eligible
abstaining and 7,229,615 votes eligible not voted.
Proposal 3: Approval of Amendments to Company's 1995 Stock Option and
Incentive Plan, as amended: A vote was also held to approve an amendment to the
Company's 1995 Stock Option and Incentive Plan to increase the number of shares
of the Company's Common Stock reserved for issuance thereunder from 300,000
shares to 1,700,000. There were 37,574,419 votes cast for, 441,633 votes cast
against, 634,918 votes eligible abstaining and 227,017 votes eligible not voted.
9
<PAGE>
Proposal 4: Approval of Amendments to Company's 1995 Stock Option
Plan for Non-Employee Directors, as amended: A vote was also held to approve an
amendment to the Company's 1995 Stock Option Plan for Non-Employee Directors to
provide for the grant to each newly-elected non-employee director of an option
to purchase 4,000 shares of the Company's Common Stock upon such election. There
were 37,691,958 votes cast for, 348,209 votes cast against, 696,608 votes
eligible abstaining and 141,212 votes eligible not voted.
Proposal 5: Ratification of KPMG Peat Marwick LLP as Independent
Auditors: The stockholders also voted to ratify the Directors: selection of KPMG
Peat Marwick, LLP as the Company's independent auditors for the fiscal year
ended December 31, 1997. There were 38,666,557 votes cast for, 26,100 votes cast
against, 99,525 votes eligible abstaining and 85,805 votes eligible not voted.
The Company held a special meeting of stockholders on February 13,
1998. The record date for the meeting was December 30, 1997. As of such record
date, the total number of shares of Common Stock eligible to vote at such
special meeting of stockholders was 19,467,074, representing a like number of
votes, and the total number of shares Series A Preferred Stock eligible to vote
at such special meeting of stockholders was 92,580, representing a number of
votes equivalent to 32,917,306 shares of Common Stock, for an aggregate of
52,384,380 votes eligible to be cast on each proposal.
Proposal 1: Approval of 1-for-5 Reverse Stock Split: The stockholders
of the Company approved a one-for-five reverse stock split. There were
40,166,667 votes cast for, 353,274 votes cast against, 61,005 votes eligible
abstaining and 11,803,434 votes eligible not voted. No fractional shares will be
issued in connection with the reverse stock split, and stockholders will receive
cash in payment for any fractional shares otherwise issuable
10
<PAGE>
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is currently quoted on the NASDAQ Small-Cap
Market under the symbol "WSII". The following table sets forth the high and low
bid information of the common stock for the periods indicated and restated to
reflect a one-for five reverse stock split effective February 13, 1998.
1997 High Low
First quarter ended March 31, 1997 $2.80 $1.55
Second quarter ended June 30, 1997 2.35 1.25
Third quarter ended September 30, 1997 3.15 1.40
Fourth quarter ended December 31, 1997 5.00 2.80
1996
First quarter ended March 31, 1996 $15.60 $13.10
Second quarter ended June 30, 1996 11.25 15.90
Third quarter ended September 30, 1996 7.50 6.55
Fourth quarter ended December 31, 1996 3.75 2.80
On March 24, 1998, the reported last sale price of the common stock on
the NASDAQ Small-Cap Market was $6.00per share, and there were 357 holders of
record of common stock.
The Company has never paid dividends on its Common Stock and has no
present intention to pay dividends. The Company's intention is to retain future
anticipated earnings to finance the expansion of its business.
The Company has outstanding $9,257,807 of principal amount Series A
Convertible Preferred Stock, par value $0.001 per share ("Series A Preferred
Stock"), which was issued in a private placement on June 26, 1997, bears an 8.0%
annual cumulative dividend, and is convertible into common stock at a conversion
price of $1.40625 per share of common stock, which conversion price may be reset
to a lower conversion price upon the occurrence of certain events. The dividend
is payable in cash or in additional shares of preferred stock at the Company's
option and is subject to increase to a 14% annual rate on/or after June 26,
2000. The Series A Preferred Stock is also redeemable (a) at the Company's
option for Common Stock, if the Company's average closing Common Stock price for
any 20 consecutive trading days occurring after June 26, 1998 equals or exceeds
$2.8125 and (b) at the Company's option for cash equal to the redemption price
as set forth in the Certificate of Designation of the Series A Preferred Stock,
if any Series A Preferred Stock is outstanding on June 26, 2002, in each case
subject to certain trading requirements. Cumulative dividends on the Series A
Preferred Stock as of December 31, 1997, which have not been declared or paid,
are approximately $395,000. The purchasers of the Series A Preferred Stock were
granted registration rights covering the underlying Common Stock into which such
preferred stock is convertible, and a registration statement for the resale of
such common stock has been filed with the Commission but is not yet effective.
The Company also has outstanding $4,048,750 of principal amount Series
B Convertible Preferred Stock, par value $0.001 per share ("Series B Preferred
Stock"), which was issued on December 31, 1997 in a private placement in
exchange for outstanding convertible notes of the Company, bears a 6.0% annual
cumulative dividend, and is convertible into common stock at a conversion price
of $6.25 per share of common stock. The dividend is payable in cash or in
additional shares of Series B Preferred Stock at the Company's option. The
Series B Preferred Stock is also redeemable (a) at the Company's option for
Common Stock, if the Company's average closing Common Stock price for 20
consecutive trading days equals or exceeds $6.25 and (b) at the Company's option
for cash equal to the redemption price as set forth in the Certificate of
Designation of the Series B Preferred Stock, if any Series B Preferred Stock is
outstanding on October 6, 2000. Cumulative dividends on the Series B Preferred
Stock as of December 31, 1997, which have not been declared or paid, are
approximately $1,000. The purchasers of the Series B Preferred Stock were
granted registration rights covering the underlying Common Stock into which such
preferred stock is convertible.
11
<PAGE>
===========================================================
Item 6. Selected Consolidated Financial and Operating Data
===========================================================
<TABLE>
Waste Systems International, Inc. and Subsidiaries
Selected Financial Data
(in thousands except for outstanding shares and earnings per share data)
Fiscal Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $3,458 $1,496 $1,344 $0 $0
------- ------- ------ ------ -------
Cost of operations:
Operating expenses 1,719 921 766
- -
Depreciation and amortization 692 370 72
- -
Write-off of landfill
development costs 1,495 6,652 - - -
------- ------- ------ ------ -------
Total cost of operations 3,906 7,943 838 - -
------- ------- ------ ------ -------
Gross profit (loss) (448) (6,447) 506 - -
Selling, general and
administrative expenses 2,138 2,443 3,286 1,485 936
Amortization of prepaid
consulting fees - 834 501 - -
Restructuring 596 1,741 - - -
------- ------- ------ ------ --------
Loss from operations (3,182) (11,465) (3,281) (1,485) (936)
------- ------- ------ ------ -------
Other income (expense):
Royalty and other income
(expense), net (521) 923 865 1,850 1,300
Interest income 172 178 289 14 27
Interest expense and
financing costs (1,355) (1,182) (471) (166) (125)
Equity in loss of affiliate - (96) - - -
Gain on sale of assets - - - 223 -
Write-off of accounts and
notes receivable (568) - (2,975) - -
Loss on investment in
marketable securities - - (91) (9) -
Write-off of assets - (22) - - -
Total other income ------- ------- ------ ------ -------
(expense) (2,272) (199) (2,383) 1,912 1,202
------- ------- ------ ------ -------
Income (loss) before income
taxes, minority
interest, discontinued
operations and
extraordinary item (5,454) (11,664) (5,664) 427 266
Federal and state income tax
expense (benefit) 6 (23) (110) 185 103
------- ------- ------ ------ -------
Income (loss) before
minority interest
discontinued
operations and
extraordinary item (5,460) (11,641) (5,554) 242 163
Minority interest 5 (12) 13
------- ------- ------ ------ -------
continuing operations (5,455) (11,629) (5,567) 242 163
Discontinued operations - (2,261) (2,303)
------- ------- ------ ------ -------
extraordinary item (5,455) (13,890) (7,870) 242 163
Extraordinary item - loss on
extinguishment of debt (134) - - - -
Net income (loss) (5,589) (13,890) (7,870) 242 163
Preferred stock dividend 10 108
- - -
Net income (loss)
available for ------- ------- ------ ------ ------
common shareholders ($5,589) ($13,890) ($7,880) $134 $163
======= ======= ======= ====== ======
Earnings (loss) per share:
Income (loss) from ($1.51) ($4.10) ($2.88) $0.15 $0.22
continuing operations
Discontinued operations 0.00 (0.80) (1.19) 0.00 0.00
Extraordinary item (0.04) 0.00 0.00 0.00 0.00
------- ------- ------ ------ ------
Earnings (loss) per share ($1.55) ($4.90) ($4.08) $0.15 $0.22
======= ======= ====== ====== ======
Weighted average number of shares
used in computation of earnings
(loss) per share 3,612,623 2,834,841 1,932,809 899,727 729,181
12
<PAGE>
Item 6. Selected Consolidated Financial and Operating Data -
(Continued)
Waste Systems International, Inc. and Subsidiaries
Selected Financial Data
(in thousands except for outstanding shares and earnings per share data)
Fiscal Year Ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1997 1996 1995 1994 1993
EBIDTA (1) ($190) ($1,516) ($2,592) ($1,476) ($903)
Capital expenditures $998 $6,599 $9,749 $807 $138
Cash flow from operating activities ($4,581) ($3,912) ($3,083) ($209) ($567)
Cash flow from investing activities $706 ($7,641) ($10,267) ($1,588) ($138)
Cash flow from financing activities $6,575 $6,581 $18,416 $1,965 $639
Balance Sheet Data (at period end):
Cash and cash equivalents $2,964 $265 $5,237 $171 $3
Working capital 1,532 (4,508) 2,393 659 (88)
Total assets 18,560 16,858 23,508 4,369 1,289
Long-term debt, less current 7,201 9,450 12,266 1,263 505
maturities
Total stockholder's equity 5,972 (1,849) 3,292 597 (403)
(deficit)
</TABLE>
(1) EBITDA is defined as operating income from continuing operations excluding
one-time charges for write-off of landfill development costs and
restructuring charges, plus depreciation and amortization, which includes
depreciation and amortization included in selling, general and
administrative expenses. EBITDA does not represent, and
should not be considered as an alternative to net income or cash flows from
operating activities, each as determined in accordance with generally
accepted accounting principles ("GAAP"). Moreover, EBITDA does not
necessarily indicate whether cash flow will be sufficient for such items as
working capital or capital expenditures, or to react to changes in the
Company's industry or to the economy in general. The Company believes that
EBITDA is a measure commonly used by lenders and certain investors to
evaluate a company's performance in the solid waste industry. The Company
also believes that EBITDA data may help to understand the Company's
performance because such data may reflect the Company's ability to generate
cash flows, which is an indicator of its ability to satisfy its debt
service, capital expenditures and working capital requirements. Because
EBITDA is not calculated by all companies and analysts in the same fashion,
the EBITDA measures presented by the Company may not be comparable to the
similarly-titled measures reported by other companies. Therefore, in
evaluating EBITDA data, investors should consider, among other factors: the
non-GAAP nature of EBITDA; actual cash flows; the actual availability of
funds for debt service, capital expenditures and working capital; and the
comparability of the Company's EBITDA data to similarly-titled measures
reported by other companies.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Note Regarding Forward Looking Statements:
This Annual Report on Form 10-K contains forward-looking statements concerning
among other things, the Company's expected future revenues, operations and
expenditures and estimates of the potential markets for the Company's services.
Such statements made by the Company fall within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All such forward-looking statements are
necessarily only estimates of future results and the actual results achieved by
the Company may differ materially from these projections due to a number of
factors as 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.
Introduction
Waste Systems International, Inc. (referred to herein as the "Company"
or "WSI") is a regional integrated non-hazardous solid waste management company
that provides solid waste collection, recycling, transfer and disposal services
to commercial and residential customers.
The Company currently owns and operates a solid waste landfill in
Moretown, Vermont, three transfer stations and collection operations which
currently operate as an integrated solid waste operation, serving over 4,400
commercial and residential customers in the Burlington, St. Albans, St.
Johnsbury and Barre-Montpelier, Vermont areas.
The Company currently has two additional landfill projects at different
stages of development. In November 1997, WSI signed a definitive agreement to
acquire a 700-acre, 3 million cubic yard permitted municipal solid waste
landfill in Hopewell, Pennsylvania. This transaction is expected to close by the
end of May, 1998. Additionally, the Company entered into a contract to operate
and remodel an existing 30-acre municipal landfill in South Hadley,
Massachusetts. On March 16, 1998 the Company filed its draft environmental
impact report with the MDEP and anticipates receiving all of its required MDEP
permits during the first or second quarter of 1998, which would allow WSI to
begin accepting solid waste at the first 6-acre lined cell during the second or
third quarter of 1999. The South Hadley landfill project is currently expected
to have approximately 2 million cubic yards of new capacity for future disposal.
On March 23, 1998, the Company signed a definitive agreement to acquire
Horvath Sanitation, Inc., D/B/A Eagle Waste ("Eagle"), which is based in
Altoona, Pennsylvania. This transaction is also expected to close by the end of
May 1998. Eagle has approximately $8 million in annual revenue and collects
approximately 200 tons per day of solid waste. Eagle's operations will be
integrated with the Hopewell, Pennsylvania landfill acquisition discussed above.
Ultimately, WSI intends to create integrated solid waste management operations
in the geographical areas surrounding each of its landfills.
WSI's objective is to expand the current geographic scope of its
operations and to become one of the leading providers of non-hazardous solid
waste management services in each market that it serves. The Company's primary
growth strategy is to acquire landfills in or near urban metropolitan areas, and
to secure dedicated waste streams for such landfills by acquisition or
development of collection operations and transfer stations. The internalization
of waste streams is a major component of the Company's strategy. The Company
believes that significant opportunities exist to expand its operations in each
of its current and targeted markets.
14
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Results of Operations
Revenues. Revenues for the year ended December 31, 1997 increased
$1,962,000 to $3,458,000 from $1,496,000 in 1996. The increase of 131% was due
primarily to increased waste volume accepted at the Company's Moretown, Vermont
landfill, in its first full year of operation, the acquisition on October 6,
1997 of the CSWD transfer station located in Burlington, VT and the internal
growth of the Company's collection operations. All 1997 revenues were
generated from the Company's Vermont operation as compared to 1996, where
approximately $1,157,000 or 77% was generated from the Company's operations at
the Fairhaven landfill. See Note 6 to the Consolidated Financial Statements
presented in Item 8.
Operating expenses. Operating expenses for 1997 were approximately
$1,718,000 as compared to $921,000 for 1996. The increase of $797,000 was
primarily due to the growth of the Company's Vermont operations. During 1997,
the Company's Vermont operations expanded as a result of the Company's purchase
of a collection company and the CSWD transfer station. (See Item 1 Business -
"Integrated Solid Waste Management Operations")
Depreciation and amortization. Depreciation and amortization expense
was $692,000 and $370,000 for the years-ended 1997 and 1996, respectively. The
increase of 87% was due primarily to the growth in the operation at the Company'
Vermont landfill which resulted in increased amortization of capitalized
landfill costs and to a substantial increase in capital equipment used in the
Company's other Vermont operations.
Write- off of landfill development projects. Write-off of landfill
development costs were $1,495,000 and $6,652,000 for the years-ended 1997 and
1996, respectively. The write-off of landfill development costs are related to
the Fairhaven landfill project. See Note 6 to the Consolidated Financial
Statements presented in Item 8. On February 24, 1998, the Company entered into a
termination agreement with the Town of Fairhaven that required the Company to
perform a certain amount of construction and closure work at the landfill. The
estimated costs to terminate this project have been reserved for by the Company
as of December 31, 1997 and are included in accrued expenses on the December 31,
1997 balance sheet. See Notes 6 and 8 to the Consolidated Financial Statements
presented in Item 8. .
Gross margins, excluding the write-off of landfill development costs
and restructuring charges for 1997 and 1996 were 30.3% and 13.7%, respectively.
The increase was primarily due to increased efficiencies at the Company's
Vermont operations as discussed above.
Selling, general and administrative expenses. Selling, general and
administrative expenses for 1997 were approximately $2,138,000, a decrease of
12.5% from 1996. The decrease was due to the restructuring undertaken in March
of 1996 and to the cessation of operations at the Fairhaven landfill. The
decrease was partially offset by increases in selling, general and
administrative expenses at the Company's Vermont operations and general
corporate expenses due the building of an infrastructure necessary to support
increases in acquisition, operating and administrative activities.
Restructuring. Restructuring charges for 1997 and 1996 were $596,000
and $1,742,000, respectively, which consisted of costs incurred for employee
severance, non-cancelable lease commitments, professional fees and litigation
costs. The restructuring has resulted in annual savings of approximately $4
million. See Note 4 to the Consolidated Financial Statements presented in Item
8.
Royalty and other income (expense). Royalty and other income (expense)
decreased approximately $1,444,000 in 1997 to ($521,000) from $923,000 in 1996.
The decrease in 1997 was due to the termination of the Company's licensing
agreement with ScotSafe. See Note 3 to the Consolidated Financial Statements
presented in Item 8.
Interest expense. Interest expense for 1997 was approximately
$1,355,000 (net of capitalized interest of $24,000) as compared to approximately
$1,182,000 (net of capitalized interest of $42,000) for 1996. The increase
resulted primarily from additional indebtedness incurred in connection with
acquisitions and capital expenditures at the Company's Vermont operations.
15
<PAGE>
Write-off of accounts and notes receivable. During the fourth quarter
of 1997, the Company wrote-off an uncollectible receivable due from ScotSafe of
approximately $570,000. See Note 3 to the Consolidated Financial Statements
presented in Item 8.
Financial Position
WSI had approximately $3.0 million in cash as of December 31, 1997.
This represented an increase of approximately $2.7 million from December 31,
1996. Working capital as of December 31, 1997, was approximately $1,532,000, an
increase of approximately $6.0 million over December 31, 1996. This increase was
primarily due to the proceeds from the January 1997 Regulation "D" private
placement of common stock, the proceeds from the March 1997 Howard Bank term
loan, the increased level of operations at the Company's Vermont operations, and
the proceeds from the June 1997 Regulation "D" private placement of preferred
stock. See Notes 6, 7, 12 and 13 to the Consolidated Financial Statements
presented in Item 8.
At December 31, 1997, the Company had approximately $945,000 in net
trade accounts receivable related to waste collection and disposal services
as compared to approximately $331,000 at December 31, 1996. The increase is
primarily due to increased levels of operation at the Company's Vermont
operation. Approximately 94% or $888,000 of such receivables is considered
current or within 90 days due. The Company has estimated an allowance for
doubtful accounts of approximately $46,000, which is considered sufficient to
cover estimated future bad debts.
During the year ended December 31, 1997, the Company devoted
substantial resources to various project development and related activities.
Additions to property and equipment of $3,283,359were made during the year ended
December 31, 1997, which primarily consisted of property and equipment for the
Company's Vermont operations.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Results of Operations
Revenues. Revenues for the year ended December 31, 1996 and 1995 were
approximately $1,496,000 and $1,344,000. Revenues for 1996 were derived from
operations at the Fairhaven landfill, and from the Moretown landfill which
commenced operations on October 6, 1996. Revenues for 1995 were entirely from
operations at the Fairhaven landfill.
Operating Expenses. Operating expenses for 1996 were $921,000 as
compared to $766,000 in 1995. The increase of $155,000 primarily consisted of
operating costs associated with the Moretown, Vermont landfill which commenced
operations on October 6, 1996.
Depreciation and amortization. Depreciation and amortization expense
was $370,000 and $72,000 for 1997 and 1996, respectively. The increase of
$299,000 is primarily due to the additional property and equipment acquired for
use at the Fairhaven and Vermont landfill.
Write-off of landfill costs. In 1996, the Company wrote-off its capital
investment in the Fairhaven landfill project of approximately $6.7 million due
to the uncertain economic viability of the project. See Notes 6 and 8 to the
Consolidated Financial Statements presented in Item 8.
Selling, general and administrative. 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.
16
<PAGE>
Amortization of prepaid consulting fees 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 year ended December 31, 1996. 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.
Restructuring. 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 developing an integrated solid waste management operation. See Note 4 to the
Consolidated Financial Statements presented in Item 8. As a result , the Company
recorded restructuring charges of $1,742,000, which included accruals for
employee severance, non-cancelable lease commitments, professional fees and
litigation costs.
Royalty and other income (expense), net. Through the first quarter of
1995, substantially all of WSI's revenue had been attributable to the sale and
licensing of WSI's medical waste treatment technologies to BioMedical Waste
Systems, Inc. ("BioMed"). On August 31, 1995, the Company terminated its
agreement with BioMed in most territories as a result of BioMed's failure to
make required payments to the Company as required by the licensing agreement.
In February 1996, the Company entered into a licensing and services
agreement with ScotSafe Limited ("ScotSafe"), a Glasgow, Scotland company for
the exclusive rights to use the Company's continuous feed auger medical waste
processing technology in the British Isles and Ireland. The Company earned
royalties and consulting fees of approximately $1,000,000 during the year ended
December 31, 1996 from the completion of three medical waste treatment
facilities by ScotSafe during this period. See Note 3 to the Consolidated
Financial Statements presented in Item 8.
Interest expense. The increase of $710,000 in interest expense to
$1,182,000 in 1996 from $472,000 in 1995 was primarily the result of the
Company's November 1995 Regulation S offering of $11.2 million in subordinated
convertible debt, which bears interest at 10%. See Note 7 to the Consolidated
Financial Statements presented in Item 8.
Liquidity and Capital Resources
The Company's business is capital intensive. The Company's capital
requirements, which are substantial, include acquisitions, property and
equipment purchases and capital expenditures for landfill cell construction,
landfill development and landfill closure activities. Principally due to these
factors, the Company may incur working capital deficits. The Company plans to
meet its capital needs through various financing sources, including internally
generated funds and debt, including bank financing, and equity securities.
To date, WSI has financed its activities primarily through the issuance
of debt and equity securities, including convertible subordinated notes.
See Notes 7, 12 and 13 to the Consolidated Financial Statements presented in
Item 8. The Company has raised, from inception through December 31, 1997,
cumulative net proceeds of approximately $34.3 million through private
placements of equity securities and the issuance of long-term debt. If the
Company is successful in raising additional capital, WSI intends to aggressively
pursue and develop an integrated solid waste management company. There can
be no assurance that additional debt or equity financing will be available,
or available on terms acceptable to the Company. Failure of the Company to
obtain required financing in the short term could have a material adverse
effect on the Company's financial condition and operation.
Net cash used by operating activities for 1997 and 1996 was $4.6
million and $3.9 million, respectively. The use of $4.6 million in 1997
consisted of the substantial completion of the restructuring and related
liabilities, the termination of the Fairhaven landfill project and the growth of
the Company's Vermont operations. See Notes 4, 6 and 8 to the Consolidated
Financial Statements presented in Item 8.
Net cash provided (used) by investing activities for 1997 and 1996 was
$706,000 and ($7.7) million, respectively. The net cash provided by investing
activities in 1997 of $706,000 was primarily due to the reduction in collateral
requirements on the Vermont landfill closure and post-closure performance bond
of approximately $1.0 million and the proceeds from the sale of the Fairhaven
equipment for approximately $800,000, offset by additional capital expenditures
for the Company's Vermont operations. The net cash used by investing activities
in 1996 was primarily the result of the Company's investment in the Moretown,
Vermont and Fairhaven, Massachusetts landfills.
17
<PAGE>
The Company's capital expenditures and capital needs for acquisitions
have increased significantly, reflecting the Company's rapid growth by
acquisition and development of revenue producing assets and will increase
further as the Company continues to complete acquisitions. Capital
expenditures for 1998 are currently expected to be approximately $6
million with respect to the businesses that the Company owned at December 31,
1997, compared to total capital expenditures of $1 million in 1997 and $6.6
million in 1996. Additionally, total capital expenditures are expected to
further increase in 1998 due to acquisitions. The decrease of $5.6 million
in 1997 capital expenditures from 1996 capital expenditures relating to
businesses owned by the Company as of December 31,1 997 is primarily due
to the completion of construction of Cell 1 at the Moretown landfill and
construction costs at the Fairhaven, Massachusetts landfill.
Net cash provided by financing activities for 1997 and 1996 was
approximately $6.8 million and $6.6 million, respectively. The 1997 proceeds
were primarily due to the Company's June of 1997 Regulation "D" private
placement of Series A Convertible Preferred Stock which raised net proceeds of
approximately $7.6 million. The 1996 proceeds were primarily due to the
Company's June of 1996 Regulation S offering of common stock which raised
approximately $6.6 million.
At December 31, 1997, the Company had approximately $5.4 million of
long-term and short-term debt, $2.7 million in capital leases and equipment
notes payable. In addition, on February 12, 1998, the Company closed a $5
million bridge loan. See Note 15 to the Consolidated Financial Statements
presented in Item 8..
Certain Factors Affecting Future Operating Results
History of Losses. During the fiscal years ending December 31, 1997,
1996 and 1995, the Company suffered net losses (including non-recurring charges)
of approximately ($5,589,000), ($13,890,000) and ($7,880,000) respectively, on
revenues of $3,458,000, $1,496,000, and $1,344,000 respectively. Prospects for
future profitability are heavily dependent upon the success of the Company's
acquisition strategy and in its ability to continue to build integrated solid
waste management operations. There can be no assurance that WSI will generate
sufficient revenue to be profitable or, if profitable, to maintain profitability
in future years
Uncertain Ability to Finance the Company's Growth. The Company has
limited liquidity in relation to its short-term capital commitments and
operating cash requirements. Additionally, WSI will require substantial funds to
complete and bring to commercial viability all of its currently planned
projects. The Company also anticipates that any future business acquisitions
will be financed through cash from operations, borrowings under its bank line of
credit, the issuance of the Company's common stock or seller financing, or
additional equity or debt financings. Therefore, WSI's ability to satisfy its
capital commitments and operating requirements are dependent on a number of
pending or future financing activities, none of which are assured 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.
Dependence on Management. The Company's future success is highly
dependent upon the services of its executive officers, particularly, Philip
Strauss, Chairman, Chief Executive Officer and President of the Company, and
Robert Rivkin, Vice President, Chief Financial Officer, Treasurer and Secretary
of the Company. The loss of the services of Mr. Strauss or Mr. Rivkin could have
a material adverse effect on the Company's business, financial condition and
results of operations. WSI does not currently maintain key man insurance on any
of its personnel.
The Company's future success is also highly dependent upon its
continuing ability to identify, hire, train and motivate highly qualified
personnel. WSI faces competition for hiring such personnel from other companies,
government entities and other organizations. There can be no assurances that WSI
will be successful in attracting and retaining qualified personnel as required
for its projected operations. The inability to attract and retain qualified
personnel could have a material adverse effect upon the Company's business,
financial condition and results of operations.
18
<PAGE>
Ability to Manage Growth. The Company's objective is to contiue to grow
by expanding its services in markets where it can be one of the largest and most
profitable fully-integrated solid waste management companies. Accordingly, the
Company may experience periods of significant rapid growth. Such growth, if it
were to occur, could place a significant strain on the Company's management and
its operational, financial and other resources. Any failure to expand its
operational, and financial systems and controls or to recruit appropriate
personnel in an efficient manner at a pace consistent with such growth could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Ability to Identify, Acquire and Integrate Acquisition Targets. The
future success of the Company is highly dependent upon the Company's continued
ability to successfully identify, acquire and integrate additional solid waste
collection, recycling, transfer and disposal businesses. As competition for
acquisition candidates increases within the solid waste management industry, the
availability of suitable candidates at terms favorable to the Company decreases.
The Company competes for acquisition candidates with larger, more established
companies that may have significantly greater capital resources, which can
further decrease the availability of suitable acquisition candidates. There can
be no assurance that the Company will be able to identify suitable acquisition
candidates and if available, will be able to obtain necessary financings at a
price or on terms and conditions favorable to the Company, or to successfully
integrate the acquisitions with current operations.
The Company believes that a significant factor in its ability to
consumate acquisitions will be the attractiveness of the Company's common stock
as consideration for potential acquisition targets. This attractiveness may, in
large part, be dependent upon the relative market price and capital appreciation
prospects of the Company's equity securities as compared to its competitors. If
the market price of the Company's common stock were to decline, the Company's
acquistion program could be materially adversely affected.
Competition. The solid waste management industry is highly competitive,
very fragmented and requires substantial labor and capital resources.
Competition exists for collection, recycling, transfer and disposal services,
and acquisition targets.The markets the Company competes or is likely to compete
in are usually served by one or more of the large national, regional or local
solid waste companies who may have accumulated substantial goodwill and or have
greater financial, marketing or technical resources than WSI. The Company also
competes with counties, municipalities and operators of alternative disposal
facilities that operate their own waste collection and disposal facilities. The
availability of user fees, charges or tax revenues and the availability of
tax-exempt financing may provide a competitive advantage to the public sector.
Additionally, alternative disposal facilities such as recycling and incineration
may reduce the demand for the disposal of solid waste in landfills. Competition
for waste collection and disposal business is based on the quality of operation,
price and geographical location. From time to time, competitors may reduce the
price of their services in an effort to expand or maintain market share or to
win competitively bid contracts. There can be no assurance that the Company will
be able to successfully bid such contracts or compete with the larger and better
capitalized companies.
Limitations on Landfill Permitting and Expansion. The Company's
operations depend on its ability to expand the landfills it owns or operates and
develop new landfill sites. There can be no assurances that the Company will be
successful in obtaining new landfill sites or expanding the permitted capacity
of its landfill. The process of obtaining required permits and
approvals to operate and expand landfills and transfer stations has become
increasingly difficult and expensive. The process can take several years and
involves hearings and compliance with zoning, environmental and other
requirements. There can be no assurance that the Company will be successful in
obtaining and maintaining required permits. Even when granted, final permits to
expand are often not approved until the remaining capacity of the landfill is
very low. In the event the Company exhausts its permitted capcaity at its
landfill, the Company's ability to expand internally will be limited and the
Company will be required to cap and close the landfill. In addition, the Company
could be forced to dispose of its waste at landfills operated by its
competitors. The additional costs could have a material adverse effect on the
Company's business.
Geographic Concentration of Operations. The Company has initially
established integrated solid waste management operations in Vermont, and is
developing integrated solid waste management operations in Central Pennsylvania
and Western Massachusetts. Since the Company's current primary source of
revenues will be concentrated in these geographic locations, the Company's
business, financial condition and results of operations can be materially
effected by, but not limited to, the following: (i) downturns in the local
economy, (ii) severely harsh weather conditions, and (iii) state regulations.
Additionally, the growing competition within the local economies for waste
streams may make it increasingly difficult to expand within these regions. There
can be no assurance that the Company will be able to continue to increase the
waste stream to its landfills, or be able to expand its geographic markets to
lessen the effects of adverse events that may occur in these region.
19
<PAGE>
Seasonality. The Company's revenues and results of operations tend to
vary seasonally. The winter months of the fourth and first quarters of the
calendar year tend to yield lower revenues than those experienced in the warmer
months of the second and third quarters. The primary reasons for lower revenues
in the winter months include, but are not limited to: (i) harsh winter weather
conditions which can interfere with collection and transportation; (ii)
construction and demolition activities which generate landfill waste are
primarily performed in the warmer seasons; and (iii) the volume of waste in the
region is generally lower in comparison to that which occurs in warmer months.
The Company believes that the seasonality of the revenue stream will not have a
material adverse effect on the Company's business, financial condition and
results of operations on an annualized basis.
Environmental and Government Regulations. The Company and its customers
operate in a highly regulated environment, and in general the Company's landfill
projects will be required to have federal, state and/or local government permits
and approvals (see "Business-Government Regulation."). Any of these permits or
approvals may be subject to denial, revocation or modification under various
circumstances. In addition, if new environmental legislation or regulations are
enacted or existing legislation or regulations are amended or are interpreted or
enforced differently, WSI or its customers may be required to obtain additional
operating permits or approvals. There can be no assurance that WSI will meet all
of the applicable regulatory requirements. Any delay in obtaining required
permits or approvals will tend to cause delays in the Company's ability to
obtain bond or other project financing, resulting in increases in the Company's
needs to invest working capital in projects prior to obtaining more permanent
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 the cancellation of any landfill projects, may
have a materially adverse effect on the Company's financial condition and
results of operations.
Potential Environmental Liability and Adverse Effect of Environmental
Regulation. WSI's business exposes it to the risk that it will be held liable if
harmful substances escape into the environment and cause damages or injuries as
a result of its operating activities. Moreover, federal, state and local
environmental legislation and regulations require substantial expenditures and
impose significant liabilities for noncompliance. See "Business--Government
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.
Performance or Surety Bonds and Letters of Credit. The Company may be
required to post a performance or surety bond, or letter of credit to ensure
proper closure and post-closure monitoring and maintenance at its landfills and
transfer stations. Failure to obtain performance or surety bonds, or letters of
credit in sufficient amounts or at acceptable rates may have a material adverse
impact on the Company's business, financial condition and results of operations.
Limits on Insurance. The Company has obtained environmental impairment
liability insurance covering claims for sudden or gradual onset of environmental
damage. If the Company were to incur a 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.
20
<PAGE>
Adequacy of Accruals for Closure and Post-Closure Costs. The Company
has material financial obligations relating to closure and post-closure costs of
its existing landfills and any landfill it may purchase or operate in the
future. The Company estimates and accrues closure and post-closure costs based
on engineering estimates of airspace usage and remaining airspace capacity.
There can be no assurances that the Company's financial obligations for closure
and post-closure costs will not exceed the amount accrued, and that this may
have a material adverse effect on the Company's business, financial condition
and results of operations.
Capital Expenditures. The Company capitalizes, in accordance with
generally accepted accounting principles, certain expenditures and advances
relating to acquisitions, pending acquisitions and landfill projects. The
Company's policy is to expense in the current period, all unamortized capital
expenditures and advances relating to any operation that is permanently shut
down or any acquisition that will not be consummated and any landfill project
that is terminated. Thus, the Company may be required to incur a charge against
earnings in future periods that could have a material adverse effect on the
Company's business, financial conditions and results of operations.
Inflation
WSI does not believe its operations have been materially affected by
inflation.
21
<PAGE>
Item 8. Financial Statements and Supplementary Data
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page No.
Report of Independent Accountants 23
Consolidated Balance Sheets at
December 31, 1997 and 1996 24-25
Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and 1995 26
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 27-28
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1997, 1996 and 1995 29-31
Notes to Consolidated Financial Statements 32-46
22
<PAGE>
Report of Independent Accountants
The Board of Directors
Waste Systems International, Inc.:
We have audited the accompanying consolidated balance sheets of Waste Systems
International, Inc. (a Delaware Corporation) and subsidiaries as of December 31,
1997 and 1996, 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, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Waste Systems
International, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1997, in conformity with
generally accepted accounting principles.
The consolidated financial statements have been prepared assuming that Waste
Systems International, Inc. will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company must raise
substantial additional capital and must achieve a level of revenues adequate to
support the Company's cost structure, which raises substantial doubt about its
ability to continue as a going concern. The financial statements do not include
adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 26, 1998
23
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, December 31,
Assets 1997 1996
------ ------------ ------------
Current assets:
Cash and cash equivalents $ 2,964,274 $ 264,776
Accounts and notes receivable, net (Note 3) 944,793 1,158,677
Assets held for sale (Notes 4 and 6) 125,000 275,000
Prepaid expenses
and other current assets (Note 5) 1,241,092 499,000
------------ ------------
Total current assets 5,275,159 2,197,453
Accounts and notes receivable (Note 3) - 451,169
Restricted cash and securities 254,000 1,210,017
Property and equipment, net (Note 6) 12,487,183 11,705,712
Deferred financing costs, net 362,174 664,105
Other assets (Note 5) 181,738 629,634
------------ ------------
Total assets $ 18,560,254 $ 16,858,090
See accompanying notes to consolidated financial statements.
24
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, December 31,
Liabilities and Stockholders' Equity (Deficit) 1997 1996
- ---------------------------------------------- ------------ -------------
Current liabilities:
Current portion of long-term debt
and notes payable (Note 7) $ 843,831 $ 2,165,378
Accounts payable 353,937 1,529,076
Accrued expenses (Notes 6, 8 and 11) 1,766,386 1,225,715
Restructuring and current liabilities
related to discontinued operations (Note 4) 778,609 1,785,097
------------ -------------
Total current liabilities 3,742,763 6,705,266
Long-term debt and notes payable (Note 7) 7,201,262 9,450,373
Landfill closure and post-closure
costs (Notes 10 and 11) 1,644,000 1,520,000
------------ -------------
Total liabilities 12,588,025 17,675,639
------------ -------------
Commitments and Contingencies (Note 11)
Minority interest (Notes 12 and 13) - 1,031,456
------------ -------------
Stockholders' equity (deficit): (Notes 12, 13, 14 and 15)
Common stock, $.01 par value. Authorized
30,000,000 shares; 3,893,415 and 3,360,514
shares issued and outstanding at
December 31, 1997 and 1996, respectively 38,934 33,605
Preferred stock, $.001 par value. Authorized
1,000,000 shares:
Series A Convertible Preferred Stock;
200,000 designated, 92,580 and 0 issued
and outstanding at December 31, 1997
and 1996, resepctively 9,257,807 -
Series B Convertible Preferred Stock;
100,000 designated, 40,488 and 0 issued
and outstanding at December 31, 1997
and 1996, respectively 4,048,750 -
Additional paid-in capital 21,432,437 21,334,447
Accumulated deficit (28,805,699) (23,217,087)
------------ -------------
Total stockholders' equity (deficit) 5,972,229 (1,849,005)
------------ -------------
Total liabilities and stockholders'
equity (deficit) $ 18,560,254 $ 16,858,090
============ ============
See accompanying notes to consolidated financial statements.
25
<PAGE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
Revenues
3,457,692 1,495,606 1,344,397
------------ ------------ ------------
Cost of operations:
Operating expenses 1,718,214 920,553 766,012
Depreciation and amortization 692,224 369,785 71,649
Write-off of landfill development
costs (Note 6) 1,495,388 6,652,075 -
------------ ------------ ------------
Total cost of operations 3,905,826 7,942,413 837,661
------------ ------------ ------------
Gross profit (loss) (448,134) (6,446,807) 506,736
Selling, general and administrative
expenses 2,138,180 2,442,816 3,286,680
Amortization of prepaid consulting fees - 834,375 500,625
Restructuring (Note 4) 596,426 1,741,729 -
------------ ------------ ------------
Loss from operations (3,182,740) (11,465,727) (3,280,569)
------------ ------------ ------------
Other income (expense):
Royalty and other income
(expense), net (Note 3) (520,846) 922,703 865,220
Interest income 172,363 178,224 289,145
Interest expense and financing
costs (1,354,614) (1,182,118) (471,763)
Equity in loss of affiliate - (96,144) -
Write-off of accounts and notes
receivable (Note 3) (568,217) - (2,975,001)
Loss on investment in marketable
securities - - (90,625)
Write-off of assets - (21,858) -
------------ ------------ ------------
Total other income (expense) (2,271,314) (199,193) (2,383,024)
------------ ------------ ------------
Loss before income taxes,
minority interest,
discontinued operations
and extraordinary item (5,454,054) (11,664,920) (5,663,593)
Federal and state income
tax expense (benefit) (Note 9) 5,622 (23,456) (109,465)
------------ ------------ ------------
Loss before minority interest,
discontinued operations
and extraordinary item (5,459,676) (11,641,464) (5,554,128)
Minority interest (Note 12) 4,971 (12,655) 13,016
------------ ------------ ------------
Loss from continuing
operations (5,454,705) (11,628,809) (5,567,144)
Discontinued operations (Note 4) - (2,260,963) (2,303,835)
------------ ------------ ------------
Loss before extraordinary
item (5,454,705) (13,889,772) (7,870,979)
Extraordinary item - Loss on
extinguishment of debt (133,907) - -
------------ ------------ ------------
Net loss (5,588,612) (13,889,772) (7,870,979)
Preferred stock dividends - - 9,500
------------ ------------ ------------
Net loss available for
common shareholders (5,588,612) (13,889,772) (7,880,479)
============ ============ ============
Net loss per share:
Income (loss) from
continuing operations (1.51) (4.10) (2.88)
Extraordinary item (0.04) - -
Discontinued operations - (0.80) (1.19)
------------ ------------ ------------
Net loss per share (1.55) (4.90) (4.08)
============ ============ ============
Weighted average number of shares
used in computation of net
income (loss) per share 3,612,623 2,834,841 1,932,809
See accompanying notes to consolidated financial statements.
26
<PAGE>
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
Year ended December 31,
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,588,612) $ (13,889,772) $ (7,870,979)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 900,549 1,556,380 689,186
Write-off of landfill development costs 1,495,388 6,652,075 -
Equity on loss in affiliate - 96,144 -
Write-off of accounts and notes receivable 568,217 - 2,975,001
Loss on investment in marketable securities - - 90,625
Write-off of assets - 21,858 -
Minority interest 4,971 (12,655) 13,016
Discontinued operations - 2,260,963 2,303,835
Extraordinary item - loss on extinguishment of debt 133,907 - -
Deferred income taxes - - (185,000)
Allowance for doubtful accounts - non -trade - - 219,645
Allowance for doubtful accounts - trade 23,333 10,000 12,500
Issuance of common stock for services 44,854 17,157 303,300
Changes in assets and liabilities:
Accounts and notes receivable 73,503 375,519 (1,695,436)
Prepaid expenses and other current assets (242,092) 16,558 (512,653)
Accounts payable (1,175,139) (1,253,507) 2,157,252
Accrued expenses 62,463 853,051 129,163
Accrued landfill closure & post-closure costs 124,000 20,000 -
Income and franchise taxes payable - (75,535) (22,470)
----------- ------------ ------------
Net cash used by continuing operations (3,574,658) (3,351,764) (1,393,015)
Net cash used by discontinued operations (1,006,448) (560,377) (1,689,906)
----------- ------------ ------------
Net cash used by operating activities (4,581,146) (3,912,141) (3,082,921)
Cash flows from investing activities:
Assets held for sale - 127,500 (287,219)
Restricted cash and securities 956,017 (1,022,517) (187,500)
Investment in affiliate - (86,115) (10,029)
Landfills (307,552) (5,199,493) (8,699,803)
Landfill development projects (263,868) (467,855) (324,752)
Machinery and equipment (114,330) (914,600) (724,822)
Rolling stock (122,905) - -
Containers (189,109) (16,716) -
Proceeds on the sale of equipment 800,000 - -
Patents - (35,261) (20,795)
Other assets (52,127) (26,162) (12,316)
----------- ------------ ------------
Net cash provided (used) by investing activities 706,126 (7,641,219) (10,267,236)
----------- ------------ ------------
Cash flows from financing activities:
Deferred financing and registration costs (56,098) (86,074) (1,216,480)
Net borrowings and advances
from stockholders and related parties - (114,575) (662,072)
Repayments of notes payable and long-term debt (2,445,476) (426,734) (1,000,984)
Borrowings from notes payable and long-term debt 1,143,861 1,117,982 568,271
Issuance of subordinated notes payable - - 11,225,000
Repayments of subordinated notes payable - - (490,000)
Minority interest (4,971) - 1,031,095
Proceeds from issuance of common stock 686,724 6,090,473 8,970,998
Proceeds from issuance of Series A preferred stock 7,250,478 - -
Proceeds from issuance of Series B preferred stock - - -
Preferred stock dividends - - (9,500)
----------- ------------ ------------
Net cash provided by financing activities 6,574,518 6,581,072 18,416,328
----------- ------------ ------------
Increase (decrease) in cash 2,699,498 (4,972,288) 5,066,171
Cash, beginning of period 264,776 5,237,064 170,893
----------- ------------ ------------
Cash, end of period $ 2,964,274 $ 264,776 $ 5,237,064
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
27
<PAGE>
Supplemental disclosures of cash flow information:
During the years ended December 31, 1997, 1996 and 1995, cash paid for
interest was $1,493,221, $1,201,864, and $221,458, respectively.
Supplemental disclosures of noncash activities:
In June 1997, the Company issued Series A Preferred Stock valued at
$850,000 in exchange for the remaining 20% minority interest in the
Moretown, Vermont landfill.
In June 1997, the Company issued Series A Preferred Stock valued at $44,854
in exchange for consulting services.
In June 1997, the Company wrote down assets to their net realizable value
of $863,428 related to the Fairhaven landfill project. This was charged
against the restructuring and current liabilities accrual.
In June 1997, the Company issued Series A Preferred Stock at a value of
$700,000 and retired the FDIC loan of $511,093 and accrued interest of
$55,000. The pay off resulted in a realized loss on the early retirement of
debt of $133,907.
In October 1997, the Company converted 4,800 shares valued at $480,000,
of its Series A Preferred Stock into 341,334 shares of its Common Stock.
In December 1997, the Company converted $3,950,000, plus accrued interest,
of its 10% Convertible, Redeemable, Subordinated Notes due October 6, 2000
for 44,488 shares of its Series B Convertible Preferred Stock.
In 1997, 1996 and 1995, the Company acquired assets of @2,190,050,
$683,777 and $1,148,516, respectively under capital lease obligations.
In 1996, the Company exchanged $2,850,000 of convertible subordinated
debt and $27,425 of accrued interest for 313,992 shares of common stock.
See accompanying notes to consolidated financial statements.
28
<PAGE>
<TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
<CAPTION>
Preferred Stock Preferred Stock Additional Stockholders'
Series A Series B Common Stock paid-in Accumulated equity
Shares Amount Shares Amount Shares Amount capital deficit (deficit)
---------- ---------- ---------- ---------- --------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 - 475,000 4,750 475,000 538,535 5,385 1,541,861 (1,424,806) 597,440
Issuance of common stock
through March 29, 1995 - - - - 16,540 165 321,335 - 321,500
Preferred stock dividends - - - - - - (9,500) - (9,500)
Issuance of common stock due
to 1.75-to-1 Stock Split - - - - 416,308 4,163 (4,163) - -
Issuance of common stock at
$10.00 per share, for
conversion of preferred
stock on March 29, 1995 - (475,000) (4,750) (475,000) 47,500 475 474,525 - -
Issuance of common stock at
$10.00 per share, in exchange
for debt and accrued interest
on March 29, 1995 - - - - 111,716 1,117 1,116,039 - 1,117,156
Issuance of common stock at
$10.00 per share, through
Private Placement on
March 29,1995 - - - - 400,000 4,000 3,996,000 - 4,000,000
Capitalization of BioSafe
International, Inc. - - - - 60,000 600 30,930 (31,530) -
Issuance of common stock at
$10.00 per share, for
investment banking services - - - - 40,000 400 (400) - -
Issuance of common stock at
$10.00 per share, net of 25%
discount due to restrictions
on sale or transfer of stock,
for prepaid consulting services - - - - 178,000 1,780 1,342,120 - 1,343,900
Issuance of common stock at
$10.00 per share, through
private placement in
April, 1995 - - - - 502,000 5,020 5,017,490 - 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 110,000
Series C Warrants to
purchase stock at
$10.00 per share - - - - - - - - -
Issuance of 561,000 Series D
Warrants to purchase common
stock at $23.75 per share - - - - - - - - -
Issuance of 100,000 Series E
Warrants to purchase common
stock at $17.50 per share - - - - - - - - -
Issuance of 144,000 merger-related
Placement Agent Warrants to
purchase common stock at
$11.50 per share - - - - - - - - -
Issuance of 22,925 Warrants to
purchase common stock at
$11.45 per share - - - - - - - - -
Issuance of 10,000 Warrants to
purchase common stock at
$17.50 per share - - - - - - - - -
Exercise of Series A Warrants
to purchase 21,919 shares of
common stock at $12.15 per
share - - - - 21,919 219 265,937 - 266,156
Exercise of Series D Warrants
to purchase 1,125 shares of
common stock at $23.75 per
share - - - - 1,125 11 26,708 - 26,719
Exercise of Series E Warrants
to purchase 225 shares of
common stock at $17.50 per
share - - - - 225 2 3,939 - 3,941
Exercise of Warrants to purchase
400 shares of common stock
at $11.45 per share - - - - 400 4 4,576 - 4,580
Exercise of merger-related
Placement Agent Warrants to
purchase 3,000 shares of
common stock at
$11.50 per share - - - - 3,000 30 34,470 - 34,500
Issuance of 2,000 shares
and 2,000 shares of common
stock at $40.00 and $21.25 per
share, respectively, for
consulting services - - - - 4,000 40 122,460 - 122,500
Expenses incurred in connection
with the securities
registration statement
on Form S-1 - - - - - - (393,775) - (393,775)
Issuance of 25,000 Warrants
to purchase common stock
at $14.45 per share - - - - - - - - -
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 $45.00 per share - - - - - - - - -
Issuance of 140,313 convertible
debenture-related Placement
Agent Warrants to purchase
common stock at $50.00
per share - - - - - - - - -
Net loss for the year ended
December 31, 1995 - - - - - - - (7,870,979) (7,870,979)
---------- ---------- ---------- ---------- --------- ---------- ---------- ------------ ------------
Balance, December 31, 1995 - - - - 2,341,268 23,413 12,595,503 (9,327,315) 3,291,601
29
<PAGE>
Exercise of Warrants to purchase
1,728 shares of common stock
at $11.45 per share - - - - 1,728 17 19,769 - 19,786
Exercise of merger-related
Placement Agent Warrants to
purchase 1,755 shares of
common stock at
$11.50 per share - - - - 1,755 18 20,165 - 20,183
Exercise of merger-related
Placement Agent Warrants to
purchase 6,444 shares of
common stock at
$11.50 per share - - - - 6,444 64 74,042 - 74,106
Exercise of Options to purchase
656 shares of common stock
at $10.00 per share - - - - 656 7 6,555 - 6,562
Issuance of common stock at
$9.70 per share, through
private placement in
June, 1996 - - - - 660,949 6,609 6,404,591 - 6,411,200
Expenses incurred in
connection with the
private placement in
June, 1996 - - - - - - (651,926) - (651,926)
Issuance of 70,000 warrents to
purchase common stock at $17.50
per share in exchange for cancellation
of 140,313 convertible debenture
-related placement agent warrents
issued in 1995 to purchase common
stock at $50.00 per share - - - - - - - - -
Exercise of Options to purchase
656 shares of common stock
at $10.00 per share - - - - 656 7 6,555 - 6,562
Issuance of common stock at
$11.25 per share, net of 50%
discount due to restrictions on
sale, for director's fee - - - - 2,000 20 11,230 - 11,250
Conversion of convertible
debentures, plus
accrued interest at a
conversion price of $9.16 - - - - 313,992 3,140 2,874,285 - 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 400 shares of
common stock at $10.00 per
share - - - - 400 4 3,996 - 4,000
Issuance of common stock at
$7.50 per share, net of 50%
discount due to restrictions on
sale, for director's fee - - - - 1,575 16 5,890 - 5,906
Issuance of common stock at
$6.85 per share, in exchange
for debt in November 1996 - - - - 29,091 291 199,709 - 200,000
Net loss for the year ended
December 31, 1996 - - - - - - - (13,889,772) (13,889,772)
---------- ---------- ---------- ---------- --------- ---------- ---------- ------------ ------------
Balance, December 31, 1996 - - - - 3,360,514 33,605 21,334,477 (23,217,087) (1,849,005)
30
<PAGE>
Issuance of common stock at $2.50
per share, in connection with a
private placement, January 1997 - - - - 172,000 1,720 428,280 - 430,000
Issuance of Series A Convertible
Preferred Stock, 8% cumulative
annual dividend, convertible
into common stock at a price
of $1.406 per share,
June 1997 97,380 9,737,807 - - - - (892,475) - 8,845,332
Issuance of common stock at $3.75
per share, in connection with
the purchase of minority
interest in the Company's
collection operations in
Vermont, September 1997 - - - - 18,667 187 69,813 - 70,000
Exercise of Series E Warrants to
purchase 901 shares of common
stock at $17.50 per share,
November 1997 - - - - 901 9 15,755 - 15,764
Conversion of Series A Convertible
Preferred Stock for common
stock at $1.406 per share,
September and October 1997 (4,800) (480,000) - - 341,334 3,413 476,587 - -
Issuance of Series B Convertible
Preferred Stock, 6% cumulative
annual dividend, convertible
into common stock at a price
of $6.26 per share,
December 30, 1997 - - 40,488 4,048,750 - - - - 4,048,750
Net loss for the year ended
December 31, 1997 - - - - - - - (5,588,612) (5,588,612)
---------- ---------- ---------- ---------- --------- ---------- ---------- ------------ ------------
Balance, December 31, 1997 92,580 9,257,807 40,488 4,048,750 3,893,415 38,934 21,432,437 (28,805,699) 5,972,229
See accompanying notes to the consolidated financial statements
31
<PAGE>
</TABLE>
WASTE SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business and Nature of Operations
Waste Systems International, Inc. (the "Company" or "WSI"), is a
regional integrated non-hazardous solid waste management company that provides
collection, recycling, transfer and disposal services to commercial and
residential customers.
Prior to March 27, 1996, the Company had been actively developing
environmental 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 developing an
integrated solid waste management operation. See Note 4 for discussion of
non-recurring charges related to the restructuring and discontinued operations.
Since inception, the Company has devoted substantial resources to
various development projects and related activities. The Company has under
definitive agreement certain acquisitions (See Notes 6 and 15) and is
undertaking negotiations with a number of additional acquisitions, which 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.
Although the Company is producing revenue and cash flows from its Vermont
operations, additional financing will be necessary to satisfy existing and
pending commitments. The Company's alternatives under consideration in this
regard include the raising of additional equity or long-term debt and certain
prospects for bank financing. There can be no assurance that all or any of these
financing plans and expectations will be realized.
Note 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 represents 20% of WSI's Vermont operations through
June 30, 1997. On June 30, 1997, the Company purchased the 20% minority
interest. See Note 12.
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, and are valued at cost plus accrued
interest which approximates market, are considered to be cash equivalents.
Restricted Cash and Securities: Restricted cash and securities consist
principally of funds or securities deposited in connection with the future
financial obligation of landfill or transfer station closure and post-closure.
Amounts are principally invested in fixed income securities of U.S. governmental
and financial institutions. The Company considers its investments to be held to
maturity. Substantially all of these investments mature within one year. The
investments are valued at cost plus accrued interest, which approximates market.
Fair Value of Financial Instruments: Statement of Financial Accounting
Standards No. 102, "Disclosures About the Fair Value of Financial Instruments",
requires disclosure of information about the fair value of certain financial
instruments for which it is practicable to estimate that value. For purposes of
the following disclosure the fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between
willing parties other than in a forced sale or liquidation. Management has
determined that the carrying value of its financial assets and liabilities
approximates fair value at December 31, 1997.
32
<PAGE>
Property and Equipment: Property and equipment are stated at cost. The
cost of all maintenance and repairs are charged to operations as incurred.
Depreciation for financial reporting purposes is provided using the
straight-line method over the estimated useful lives of the assets as follows:
Buildings, facilities and improvements 10-30 years
Machinery and equipment 3-10 years
Rolling stock 3-10 years
Containers 5-10 years
Capitalization of landfill development costs begins upon determination
by the Company of the economic feasibility or extended useful life of each
landfill acquired as a result of comprehensive engineering and profitability
studies and with the signing of landfill management contracts for facilities
operated by the Company that are not owned. 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 and not amortized until all permits are
obtained and operations have commenced.
Interest is capitalized on landfill development 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 approximately $24,000, $42,000 and $82,000 were capitalized
during 1997, 1996 and 1995, respectively.
Landfill 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 materially 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 amortization 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.
Landfill Closure and Post-Closure Costs: The Company has a material
financial obligation relating to closure and post-closure activities for
landfills it owns or operates. Accordingly, the Company estimates and accrues
closure and post-closure costs on a unit-of-production basis over each
landfill's estimated remaining permitted airspace capacity. The accrual is based
on final capping of the site, site inspection, leachate management, methane gas
control and recovery, groundwater monitoring, and operation and maintenance
costs to be incurred during the period after the facility closes. The estimated
costs are expressed in current dollars and are not discounted to reflect timing
of future expenditures. The Company has accrued approximately $1.6 million and
$1.5 million for closure and post-closure costs at December 31, 1997 and 1996,
respectively. The engineering and accounting staff of the Company periodically
review its future obligation for closure and post-closure costs. If estimates of
the permitted air space capacity or the estimated costs of closure and
post-closure have changed, the Company revises the rates at which it accrues the
future costs.
The Company records reserves for landfill closure and post-closure
costs, 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.
33
<PAGE>
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: The Company uses the asset and liability method of
accounting for deferred income taxes.
Revenue Recognition: The Company's revenues are derived primarily
from its collection, recycling, transfer and disposal services. The Company
records revenues when the services are performed.
The Company recognizes royalty revenue from its medical waste
technology business based on the terms of the license agreement and for
consulting services when rendered.
Cost of Revenues: Cost of revenues includes direct labor, fuel,
equipment maintenance, insurance, depreciation and amortization of equipment and
landfill 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 revenues 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 Towns where landfills are operated under
management contracts, the Town is responsible for the closure and post-closure
costs related to the landfill.
Earnings Per Share: In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
(SFAS 128). SFAS 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. Earnings
per share amounts for all periods have been presented , and where appropriate,
restated to conform to the SFAS 128 requirements. Weighted average number of
common and common equivalent shares outstanding and earnings per common and
common equivalent shares have been restated to give effect to a one-for-five
reverse stock split effective February 18, 1998.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of: The Company adopted the provisions of SFAS No. 121, "Accounting for the
impairment of Long-Lived Assets to Be Disposed Of", on January 1, 1997. This
Statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption of this Statement
did not have a material impact on the Company's financial position, results of
operations, or liquidity in 1997.
Reclassifications: Certain amounts in prior year financial statements
have been reclassified to conform to their 1997 presentation.
34
<PAGE>
Note 3. Accounts and Notes Receivable
Accounts and notes receivable consist of the following:
December 31,
1997 1996
Trade $ 990,626 $ 353,862
ScotSafe Limited - 719,703
Other - 558,781
------------- -----------
990,626 1,632,346
Allowance for doubtful accounts (45,833) (22,500)
------------- -----------
944,793 1,609,846
Less current portion (944,793) (1,158,677)
------------- ------------
Long-term portion $ - $451,169
============= ============
Trade: Trade accounts receivable consists primarily of fees due
from third parties for collection, recycling, transfer and disposal services.
ScotSafe Limited: On February 9, 1996, the Company entered into a
licensing and royalty agreement with ScotSafe Limited (ScotSafe), a Glasgow,
Scotland based company, for the exclusive rights to use WSI's CFA medical waste
processing technology in the British Isles and Ireland. On November 6, 1996 the
Company and ScotSafe expanded their licensing agreement throughout Europe. The
initial licensing agreement contemplated that ScotSafe would establish as many
as nine CFA plants, each of which would result in additional licensing fees to
WSI. In accordance with the agreement, the Company would provide technical
assistance in connection with these facilities including facility design,
installation, testing and training. In addition to royalty payments for each
plant, ScotSafe agreed to pay WSI for consulting and other services, and would
reimburse the Company for its out-of-pocket expenses and disbursements in
connection with these services. During the forth quarter of 1997 the Company
terminated its licensing agreements with ScotSafe and wrote off the receivable
due from ScotSafe of approximately $570,000 because ScotSafe was in default for
failure to pay the Company royalties due under the terms of the agreement.
Subsequent to the termination, ScotSafe was placed into receivership and its
assets were purchased by Eurocare Environmental Services, Ltd. ("Eurocare") in
December 1997. Eurocare is currently operating the three facilities the Company
constructed for ScotSafe without a licensing agreement. The Company petitioned
Scottish Courts for an interim interdict, which would have required Eurocare to
cease operations until proper licensing of the CFA process was obtained from
WSI. The Company's petition to the Court was denied since the Company currently
does not hold a European patent on the CFA process. However, since the Company
does have a European patent application pending, the Scottish courts have
required that Eurocare track all waste processed at the plants and to remove
some of the recommended modifications to the standard CFA process which were
recommended by WSI while under agreement with ScotSafe. The Company expects to
be granted its European patents during 1998, at which time, the Company will act
vigorously to protect its rights to the CFA technology against Eurocare and seek
substantial damages. As of December 31, 1997 the Company has set up a reserve
for these litigation costs of $300,000. See Note 8.
35
<PAGE>
Note 4. Restructuring of Operations, Discontinued Operations and Assets Held
for Sale
On March 27, 1996, the Company announced its intention to take
meaningful action to conserve cash and working capital, including the
restructuring of the Company's operations to focus its resources and activities
on developing a fully integrated solid waste management company. Also on that
date, Richard H. Rosen ("Rosen") resigned from the offices of Chairman of the
Board of Directors, President, Chief Executive Officer, and Treasurer of the
Company and all of its subsidiaries and affiliates (See Note 5 - Due from Former
Employee). The Board of Directors named Philip Strauss, Chief Operating Officer,
to the additional positions of Chief Executive Officer, and President of the
Company, and on June 24, 1996 the Company also named Philip Strauss, Chairman of
the Board of Directors.
Restructuring of Operations: During the years ended December 31, 1997
and 1996, the Company recorded restructuring charges of $596,426 and $1,741,729,
respectively, for costs associated with management's plan to focus on the
development of an integrated solid waste management company. These costs
included accruals for employee severance, non-cancelable lease commitments,
professional fees and litigation costs. The restructuring plan has resulted in
annual savings of approximately $4.0 million. At December 31, 1997 and 1996, the
Company had reserves and liabilities associated with restructuring activities of
$778,609 and $1,414,625, respectively.
Discontinued Operations: On March 27, 1996, as part of the announced
restructuring, the Company ceased operations at its technology center in Woburn,
Massachusetts, and discharged all employees and consultants previously engaged
in developing technologies with potential application in activities including
the manufacture of useful materials from tires and other recycled materials,
contaminated soil cleanup and recycling, industrial sludge disposal, size
reduction equipment design and manufacture (the "Ancillary Technologies"), and
Major Sports Fantasies, Inc. ("MSF"), a business unrelated to the environmental
industry. No substantial revenues were received from the technology center
operations or MSF activities.
The expenses associated with operating the Ancillary Technologies and
MSF for all periods presented are reported in the accompanying consolidated
statements of operations and cash flows under discontinued operations. The
charge for discontinued operations relates primarily to losses from operations
and the costs associated with the termination of these operations. There were no
material asset sales from these operations and no interest costs or general
corporate overhead costs have been allocated to the discontinued operations. At
December 31, 1997 and 1996, the Company has reserves and liabilites associated
with discontinued operations of $0 and $370,472, respectively.
Assets Held for Sale: During the fourth quarter of 1995, the Company
recorded a non-recurring charge to 1995 earnings of $2,303,835 primarily related
to the write-down of the assets of the discontinued operations to their
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. The Company disposed of
the remaining assets held for sale from the discontinued operations during 1997.
As of December 31, 1997 the remaining asset held for sale represents property
owned in the area of the Fairhaven landfill project which the Company expects to
dispose of during 1998. See Note 6.
Note 5. Due From Former Employee
In July 1996, the Company commenced arbitration proceedings against Dr.
Richard Rosen (Rosen), former Chairman, Chief Executive Officer and Treasurer of
the Company, seeking to recover amounts, excluding interest and litigation
costs, 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 of the Board appointed to investigate Rosen's
financial dealings with the Company, in consultation with independent counsel
retained 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 and entered the
judgment against Rosen, which is now non-appealable, in an amount
of approximately $830,000. The Company is currently pursuing discovery against
Rosen through this forum to identify all of the assets that Rosen may have
available to satisfy the outstanding judgment. In August of 1996, the Company
secured a preliminary injunction in Middlesex Superior Court with respect to any
future sales of the Company's stock by Rosen. The Company has filed a Motion in
such action asking the Court to issue a broader form of permanent injunction in
the case. Finally, on September 8, 1997 the Company commenced a supplementary
process action in Cambridge District Court to collect on such judgment,
including seeking foreclosure of all shares of the Company's stock owned by
Rosen. On March 5, 1998, the judge granted the Company's supplementary action
and the Company is in the process of obtaining all the shares held by Rosen. No
assurance can be given that the Company will be able to collect the entire
balance of any amounts awarded in arbitration including interest and legal fees
which continue to accrue. The Company is carrying on its December 31, 1997
balance sheet an amount of approximately $300,000 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. The Company anticipates receiving a
minimum of $300,000 from Rosen in cash or stock by March 31, 1998. The amount
due from Rosen is classified in prepaid expenses and other current assets.
36
<PAGE>
Note 6. Property and Equipment
Property and equipment are stated at cost and consist of the following;
December 31,
1997 1996
Landfills $8,412,010 $ 8,015,606
Landfill development projects 691,225 427,357
Buildings, facilities and improvements 1,823,981 1,123,001
Machinery and equipment 1,513,720 2,656,789
Rolling stock 662,595 -
Containers 401,941 16,716
------------- -------------
13,505,472 12,239,469
Less accumulated depreciation and amortization (1,018,289) (533,757)
------------- -------------
Property and equipment, net $12,487,183 $ 11,705,712
=========== =============
Moretown, Vermont. The Company established its first integrated solid
waste management operations in the geographical area surrounding its landfill in
Moretown, Vermont. In addition to the landfill in Moretown, Vermont, the Company
currently owns and/or operates three transfer stations and collection operations
serving over 4,400 commercial and residential customers in the Burlington,
St. Albans, St. Johnsbury and Barre-Montpelier, Vermont areas. The first cell
("Cell 1") at the Company's landfill is currently operating at approximately
300-350 tons per day ("TPD") with remaining estimated permitted capacity as of
December 31, 1997 of approximately 215,000 cubic yards. A permit application was
filed with the Vermont Agency of Natural Resources for the development of a
second cell ("Cell 2") on April 3, 1997. On March 11, 1998 WSI received its
draft certification for Cell 2 from the Vermont Agency of Natural Resources. The
Company expects to receive all of the permits required for Cell 2 by the end of
the second quarter of 1998. When all of the permits are granted, the Company
will begin construction on Cell 2 which will increase the permitted landfill
capacity by an estimated additional 1.3 million cubic yards.
Hopewell, Pennsylvania. In November 1997, WSI signed a definitive
agreement to acquire the 700-acre, 3 million cubic yard permitted municipal
solid waste landfill in Hopewell, Pennsylvania. The purchase price of
approximately $6.0 million will be paid primarily by the assumption of debt on
the facility. The existing landfill consists of five permitted cells, one of
which is currently operating. The Hopewell project represents a new market for
the Company, in which it intends to build a network of adjoining collection
companies and transfer stations within the central Pennsylvania region. This
transaction is expected to close by the end of May 1998.
South Hadley, Massachusetts. WSI and the Town of South Hadley,
Massachusetts have entered into a contract whereby the Company will operate and
remodel the Town's 30-acre municipal solid waste landfill. The Town of South
Hadley will retain full ownership of the landfill while the Company operates and
remodels the facility. The Company received a landfill disruption permit from
the MDEP which enabled WSI to begin engineering work and feasibility studies at
the South Hadley landfill. On March 16, 1998 the Company filed its draft
environmental impact report with the MDEP and anticipates receiving all of its
operating and construction permits during the second or third quarter of 1998,
which would allow WSI to begin accepting solid waste at the first 6-acre lined
cell during the first or second quarter of 1999. The South Hadley landfill
project is currently expected to have in excess of 2 million cubic yards of new
capacity for future disposal.
37
<PAGE>
Fairhaven, Massachusetts. On July 24, 1994, WSI entered into a contract
with the Town of Fairhaven, Massachusetts to operate and remodel the Town's
existing 26-acre landfill. The Company began operating the landfill in June
1995, and commenced the operations after obtaining necessary remodeling permits
in October 1995. On November 8, 1995, an action was brought against various
parties including the Company relating to the remodeling permits issued at the
Fairhaven landfill, seeking among other things, to appeal the permits that had
been issued. On June 2, 1997, the judge ruled in the Company's favor. However,
based on the extensive delays associated with the litigation and the engineering
impacts of the delays associated with the litigation, which resulted in the
uncertainty of the long-term economic viability of the project, the Company
terminated the Fairhaven landfill project. On February 24, 1998, the Company
entered into a termination agreement with the Town of Fairhaven that required
the Company to perform a certain amount of construction and closure work at the
landfill. The estimated costs to terminate this project have been reserved for
and are included in accrued expenses at December 31,1997. See Note 8.
Write-off of landfill development costs in 1997 primarily represent the
Company's cost to liquidate the equipment which was used at the Fairhaven
landfill and the costs to physically close the landfill under the Company's
Termination Agreement with the Town of Fairhaven. The Company wrote-off its
capital investment in the project at December 31, 1996.
Note 7. Long-term Debt and Notes Payable
Long-term debt and notes payable consists of:
December 31,
1997 1996
Convertible subordinated debentures $ 4,425,000 $ 8,525,000
Capital leases and equipment notes payable 2,626,700 1,589,989
Howard Bank Term Loan 748,000 -
Mortgages 189,350 195,372
FDIC and Boston Private Bank - 661,826
Other notes payable 56,043 643,564
------------- -------------
8,045,093 11,615,751
Less current portion 843,831 2,165,378
------------- -------------
Long-term portion $ 7,201,262 $ 9,450,373
============= =============
Scheduled maturities of long-term debt and notes payable, excluding
capital leases are as follows:
Payments due in the year ending December 31,
1998 $ 398,679
1999 343,309
2000 4,509,052
2001 8,870
2002 9,772
Thereafter: 148,711
---------------
$ 5,418,393
38
<PAGE>
Convertible Subordinated Debt: 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 $12.20. The Notes mature on September 30, 2000, and bear
interest at 10%, payable quarterly. The Notes are convertible into Common Stock
at $9.20 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 $50.00 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, resale 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 140,313 shares of
Common Stock at $50 per share. These warrants were subsequently exchanged into
70,000 warrants at $17.50 as part of a subsequent financing in June 1996, see
Note 13 - Common Stock.
As of December 31, 1996, $2,850,000 of notes plus $27,425 of accrued
interest had been converted into 313,992 shares of common stock. On December 31,
1997, the Company converted $3,950,000 of Convertible Subordinated Debentures
and $110,625 of accrued interest into 40,488 shares of Series B Convertible
Preferred Stock. See Note 12.
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 and equipment are as follows:
December 31,
1997 1996
---- ----
Land and Buildings $1,634,078 $ 56,250
Machinery and equipment 1,881,630 2,378,560
------------- -------------
3,515,708 2,434,810
Accumulated depreciation (207,053) (202,714)
$3,308,655 $ 2,232,096
============= =============
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, 1997 are as follows:
Capital Operating
Leases Leases
Payments due in the year ending December 31,
1998$ $ 672,030 $ 197,058
1999 669,420 255,163
2000 643,051 276,879
2001 389,618 298,595
2002 200,040 304,024
Thereafter 1,225,229 76,006
------------- ------------
Minimum lease payments 3,799,388 $ 1,407,725
=============
Less: interest 1,172,688
-------------
Present value of net minimum lease payments 2,626,700
Less current portion 445,153
-------------
Long-term portion $ 2,181,547
=============
The Company's rental expense for operating leases was $81,757,
$293,766, and $292,492 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Howard Bank Term Loan: On March 31, 1997, the Company closed a $1.0
million term loan with The Howard Bank of Burlington, Vermont. The term of the
loan is payable in 36 equal monthly payments and bears interest at 12% per
annum. The proceeds from the loan were used for the initial costs of development
of Cell 2 at the Moretown landfill (See Note 6) and for general working capital
purposes at its operations in Vermont.
Mortgages: Mortgage notes are secured by the respective assets, and
are due in various amounts through 2015.
39
<PAGE>
Note 8. Accrued Expenses
Accrued expenses consisted of the following:
December 31,
1997 1996
Interest $ 103,578 $ 242,185
Professional and consulting fees 265,024 237,399
Fairhaven landfill (See Note 6) 756,000 500,000
ScotSafe litigation (See Note 3) 300,000 -
Other 341,784 246,131
------------- -------------
$ 1,766,386 $ 1,225,715
============= =============
Note 9. Income Taxes
<TABLE>
<CAPTION>
Income tax expense (benefit) consists of:
Current Deferred Total
<S> <C> <C> <C>
Year ended December 31, 1997:
Federal $ - $ - $ -
State 5,622 - 5,622
------------- ------------- -------------
$ 5,622 $ - $ 5,622
============= ============= =============
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)
============= ============= ============
A reconciliation between federal income tax expense (benefit) at the
statutory rate and the Company's federal tax expense (benefit) is as follows for
the year ended December 31:
1997 1996 1995
---- ---- ----
Statutory Federal income tax (benefit) $ (1,898,217) $ (4,717,894) $( 2,708,925)
State taxes, net of Federal income tax benefit (530,947) (1,210,466) (704,604)
Valuation allowance 2,432,087 5,898,245 3,294,764
Other 2,699 6,659 9,300
------------- ---------------- -------------
$ 5,622 $ (23,456) $ (109,465)
============= ================ =============
</TABLE>
40
<PAGE>
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, 1997 and 1996
are presented below.
1997 1996
---- ----
Deferred tax assets:
Accounts receivable $ 11,528 $ 9,788
Property and equipment 194,942 236,323
Other accrued liabilities 4,371,736 4,320,664
Operating loss and credit carryforwards 4,543,738 4,626,234
------------ ----------
Gross deferred tax assets 9,121,944 9,193,009
Less: valuation allowance (9,121,944) (9,193,009)
Net deferred tax assets - -
------------ -----------
Deferred tax liabilities:
Total deferred tax liabilities - -
------------ -----------
Net deferred tax liability $ - $ -
============= ============
At December 31, 1997 the Company had net operating loss carryforwards
for Federal income tax purposes of approximately $10 million which generally are
available to offset future Federal taxable income, if any, and which expire
during the years ending December 31, 2009 through 2012. The Company underwent an
ownership change as defined in Internal Revenue Code Section 382 on June 30,
1997 and as a result will be restricted in its ability to use net operating loss
carryforwards generated prior to the ownership to offset future taxable income.
The Company's future use of net operating loss carryforwards generated prior to
the ownership change will be subject to an annual limitation generally equal to
the product of the long-term tax exempt rate for June 1997 of 5.64% and the
value of the Company as of June 30, 1997. As a result of this limitation a
portion of its Federal and state net operating loss carryforwards may expire
unused.
Note 10. 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, 1997, that the total costs
for final closure and post-closure of Cells I and II 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 $4.2 million. Based upon the capacity of Cells I
and II, approximately $1.6 million has been accrued for at December 31, 1997.
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 - Summary of Significant Accounting Policies Landfill Closure and
Post-Closure Costs.
41
<PAGE>
Note 11. 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 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 10 Landfill Closure and Post Closure Costs.
The Company has obtained environmental impairment liability insurance
covering claims for sudden or gradual onset of environmental damage. If the
Company were to incur liability for environmental damage in excess of its
insurance limits, its financial condition could be adversely affected. The
Company carries a comprehensive general liability insurance policy which
management considers adequate at this time to protect its assets and operations
from other risks.
None of the Company's landfills are currently connected with the
Superfund National Priorities List or potentially responsible party issues.
Employment Contracts. The Company has entered into employment
agreements with its two senior executives which expire on June 10, 1999 and
subsequently provide for employment until terminated by either party at annual
salaries of $175,000.
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.
Richard Rosen. In July 1996, the Company commenced arbitration
proceedings against Richard Rosen ("Rosen"), former Chairman, Chief Executive
Officer and President of the Company, seeking to recover amounts, excluding
interest and litigation costs, 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 of the Board appointed to
investigate Rosen's financial dealings with the Company, in consultation with
independent counsel retained 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 and entered the
judgment against Rosen, which is now non-appealable, in an amount in excess of
$833,000. The Company is currently pursuing discovery against Rosen through this
forum to identify assets that Rosen may have available to satisfy the
outstanding judgment. In August of 1996, the Company secured a preliminary
injunction in Middlesex Superior Court with respect to any future sales of the
Company's stock by Rosen. The Company has filed a Motion in such action asking
the Court to issue a broader form of permanent injunction in the case. On
September 8, 1997 the Company commenced a supplementary process action in
Cambridge District Court to collect on such judgment, including seeking
foreclosure on all shares of the Company's stock owned by Rosen. On March 5,
1998 the judge granted the Company's motion and the Company is in the process of
obtaining all the shares held by Rosen. No assurance can be given that the
Company will be able to collect the entire balance of any amounts awarded in
arbitration including interest and litigation costs. The Company is carrying on
its December 31, 1997 balance sheet an amount of $300,000 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. The Company
anticipates receiving a minimum of approximately $300,000 from Rosen in cash or
stock by March 31, 1998
42
<PAGE>
On March 27, 1997, Rosen commenced an action against the Company in
Middlesex County (Massachusetts) Superior Court, seeking an award of damages
resulting from the Company's alleged breach of a Memorandum of Understanding
entered into between the Company and Rosen in connection with the termination of
Rosen's employment with the Company, in which Rosen had been granted an option
to purchase certain assets of the Company not related to its core business. The
Company believes this claim to be frivolous and is vigorously defending this
action.
Marguerite Piret. In October 1997 in the Middlesex Superior Court, the
Company commenced an action against Marguerite A. Piret, a former director of
the Company and the wife of Rosen, seeking damages against Ms. Piret for her
independent breaches of fiduciary duty as a former director of the Company. The
case is in the discovery stage and no trial date has yet been set. If the
Company is successful in its claims, the Company may recover direct and
consequential damages from Ms. Piret.
Note 12. Preferred Stock
On June 30, 1997, the Company closed a Regulation "D" private placement
of Series A Convertible Preferred Stock, which raised gross proceeds of
approximately $9.7 million. As part of the private placement, the Company
converted approximately $570,000 in bank debt into preferred stock and acquired
the minority interest in its Vermont operations for $850,000 in preferred stock.
During the six months ended December 31, 1997, holders of $480,000 in
face amount of Series A Preferred Stock converted their preferred shares into
341,334 shares of common stock.
The Series A Preferred Stock bears an 8.0% annual cumulative dividend,
and is convertible into common stock at a conversion price of $1.406 per share
of common stock, which conversion price may be reset to a lower conversion price
upon the occurrence of certain events. The dividend is payable in cash or in
additional shares of preferred stock at the Company's option and is subject to
adjustment after 3 years. The Series A Preferred Stock is also redeemable(a) at
the Company's option for Common Stock, if the Company's average closing Common
Stock price for any 20 consecutive trading days occurring after June 26, 1998
equals or exceeds $2.8125 and (b) at the Company's option for cash equal to the
redemption price as set forth in the Certificate of Designation of the Series A
Preferred Stock, if any Series A Preferred Stock is outstanding on June 26,
2002, in each case , subject to certain trading requirements. Cumulative
dividends on the Series A Preferred Stock, as of December 31, 1997 which have
not been declared or paid are approximately $395,000. The purchasers of the
Series A Preferred Stock were granted registration rights covering the
underlying Common Stock into which such preferred stock is convertible, and a
registration statement for the resale of such common stock has been filed with
the Commission but is not yet effective.
On December 31, 1997, WSI retired approximately $4.0 million of its
outstanding 10% Convertible Debentures in exchange for the issuance of a like
amount of 40,488 shares of Series B Preferred Stock. See Note 7 to the
Consolidated Financial Statements presented in Item 8.
The Series B Preferred Stock bears a 6.0% annual cumulative dividend,
and is convertible into common stock at a conversion price of $6.25 per share of
common stock. The dividend is payable in cash or in additional shares of Series
B Preferred Stock at the Company's option if the Company's closing stock price
for 20 consecutive days equals or exceeds $6.25 per share. The Series B
Preferred Stock is also redeemable (a) at the Company's option for Common Stock
if the Company's average closing Common Stock price for 20 consecutive trading
days equals or exceeds $6.25 and (b) at the Company's option for cash equal to
the redemption price as set forth in the Certificate of Designation of the
Series B Preferred Stock, if any Series B Preferred Stock is outstanding on
October 6, 2000. Cumulative dividends on the Series B Preferred Stock, as of
December 31, 1997 which have not been declared or paid are approximately $1,000.
The purchasers of the Series B Preferred Stock were granted registration rights
covering the underlying Common Stock into which such preferred stock is
convertible.
43
<PAGE>
Note 13. Common Stock
On January 21, 1997, the Company closed a Regulation "D" private
placement of 172,000 shares of common stock at $2.50 per share with gross
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 form the requirement of registration.
In September 1997, the Company issued 18,667 shares of common stock in
conection with the purchase of the minority interest in the Company's Vermont
hauling business for $70,000.
On October 7, 1997, the Company filed an S-3 Registration Statement
with the Securities and Exchange Commission to register approximately 7,100,000
shares of common stock primarily consisting of shares which are reserved for the
issuance to holders of Series A Preferred Stock upon conversion of their
preferred shares to common stock and the shares issued in the January 1997
private placement.
In December 1997, the Company's Board of Directors approved a one for
five reverse stock split of the Company's Common Stock. On February 13, 1998,
the stockholders of the Company approved the reverse stock split at a special
stockholders' meeting. No fractional shares will be issued in connection with
the reverse stock split, and stockholders will receive cash in payment for any
fractional shares otherwise issuable. The Company's financial statements have
been restated to reflect the one-for-five reverse split.
Note 14. Stock Options
Employee Stock Option Plan. Pursuant to the Company's 1995 Stock Option
and Incentive Plan as amended (the "Plan"), options to purchase up to 1,700,000
shares of Common Stock were reserved for issuance to employees and consultants
of the Company. Options granted under the Plan may be either Incentive Stock
Options or Non-Qualified Stock Options for purposes of federal income tax law.
Options are generally subject to vesting over a period of four years from the
date of grant and are exercisable only to the extent vested from time to time,
although certain options have provided for earlier vesting. The selection of
individuals to receive awards of options under the Plan and the amount and terms
of such awards may be determined by the Board of Directors of the Company or an
Administering Committee appointed by the Board of Directors.
As of December 31, 1997, options to purchase 1,327,417 shares of Common
Stock had been granted and options to purchase up to an additional 372,583
shares remained available for grant. The per share weighted average fair value
of stock options granted during 1997 and 1996 was approximately $4.08 and
$15.34, respectively, using the Black Scholes option-price model with the
following weighted average assumptions: volativity, 30%; expected dividend
yield, 0%; risk free interest rate, 5.5%; 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 1997 and 1996 would have increased to the amounts shown below.
1997 1996
------------ ----------
Net loss
- as reported $ (5,588,612) $ (13,889,772)
- pro forma (6,006,315) (14,334,772)
Net loss per share
- as reported $ (1.55) $ (4.90)
- pro forma (1.68) (5.06)
Pro forma net income reflects only the effects of options granted in
1997 and 1996. 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 are 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.
44
<PAGE>
Changes in options and option shares under the plan during the
respective years were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ---------------------------
<S> <C> <C> <C>
Weighted Avg. Weighted Avg.
exercise price Number exercise price Number
per share of shares per share of shares
Options outstanding,
beginning of year $1.41 161,200 $1.41 123,825
Options granted 1.43 1,179,217 1.41 148,250
Options exercised - 1.41 (1,312)
Options canceled 1.64 (13,000) 1.41 (109,563)
------------ -------------
Options outstanding,
end of year 1.42 1,327,417 1.41 161,200
Shares reserved for future grants 372,583 138,800
------------ -------------
Total options in the plan 1,700,000 300,000
============ =============
Options exercisable, end of year $1.42 114,900 $1.41 102,225
============ =============
</TABLE>
Effective June 30, 1997, the Board of Directors offered all employee
participants in the Stock Option Plan the opportunity to reprice to $0.28125 per
share any currently outstanding stock options with exercise prices in excess of
$0.28125 per share. Each repriced option retained the vesting schedule
associated with the original grant.
Options outstanding at December 31, 1997 and related proceeds to the Company
were as follows:
Shares Price Exercise
Under Option Per Share Proceeds
1,298,417 $1.41 $1,830,768
22,000 1.88 41,360
1,000 2.19 2,190
1,000 3.13 3,130
5,000 3.75 18,750
-------------- ----------
1,327,417 $1,896,198
============== ==========
Non-Employee Directors Stock Option Plan. Pursuant to the Company's
1995 Stock Option Plan for Non-Employee Directors as amended, each Director is
entitled to receive a grant of a Non Qualified Stock Options to purchase 2,000
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 400 shares for each year that the holder remains a
Director of the Company. In addition, the plan provides for the issuance of
4,000 fully vested options upon the election of each new member of the Board of
Directors initially elected after December 24, 1997, excluding employees of the
Company.
45
<PAGE>
Changes in options and option shares under the plan during the respective years
were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------- -----------------------------
<S> <C> <C> <C>
Weighted Avg. Weighted Avg.
exercise price Number exercise price Number
per share of shares per share of shares
Options outstanding,
beginning of year $1.41 19,416 $1.41 8,750
Options granted 2.28 35,480 1.41 10,666
Options exercised - - - -
Options canceled 2.15 (27,416) - -
------------ -------------
Options outstanding,
end of year $1.79 27,480 $1.41 19,416
============ =============
Options exercisable,
end of year $1.84 21,500 $1.41 7,041
============ =============
</TABLE>
Options outstanding at December 31, 1997 and related proceeds to the Company
were as follows:
Shares Price Exercise
Under Option Per Share Proceeds
14,000 $1.41 $19,740
13,480 2.19 29,521
-------------- -------------
27,480 $49,261
============== =============
Note 15. Subsequent Events
In January 1998, the Company entered into an additional credit
facility with The Howard Bank in Vermont for $2.25 million to fund the
development and expansion of its integrated solid waste management operations in
Vermont and for general working capital purposes.
On February 12, 1998, the Company closed a $5 million bridge loan for
use in closing certain acquisitions.
On February 13, 1998, the stockholders of the Company approved a one
for five reverse stock split at a special stockholders' meeting. No fractional
shares were issued in connection with the reverse stock split, and stockholders
received cash in payment for any fractional shares otherwise issuable. See Note
13.
As of February 16, 1998, WSI had closed 3 acquisitions of collection
companies and a transfer station, and signed definitive agreements to acquire 2
additional collection companies in the State of Vermont. The acquisitions have
combined annual revenues of approximately $5 million. The remaining 2
acquisitions are expected to close by March 31, 1998. The Company plans to
integrate these acquisitions with its current operations in Vermont. The
acquisitions will be accounted for using the purchase method of accounting.
On March 24, 1998, the Company signed a definitive agreement to
acquire Horvath Sanitation, Inc., D/B/A Eagle Waste ("Eagle"), which is based in
Altoona, PA. Eagle has approximately $8 million in annual revenue and collects
approximately 200 tons per day of solid waste.
46
<PAGE>
Item 9.Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information appearing under the caption "Information Regarding
Nominees and Executive Officers" in the Company's Proxy Statement relating to
the 1998 Annual Meeting of Stockholders is incorporated herein by reference.
Item 11. Executive Compensation
The information appearing under the following captions in the Company's
Proxy Statement relating to the 1998 Annual Meeting of Stockholders is
incorporated herein by reference.
"Director Compensation", "Executive Compensation", "Compensation
Committee Interlocks and Insider Participation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing under the caption "Beneficial Ownership" in
the Company's Proxy Statement relating to the 1998 Annual Meeting of
Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing under the caption "Certain Relationships and
Transactions" in the Company's Proxy Statement relating to the 1998 Annual
Meeting of Stockholders is incorporated herein by reference.
47
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) 1. Financial Statements
The financial statements are listed under Part II, Item 8 of this
Report.
2. Financial Statement Schedules
The financial statement schedules are listed under Part II, Item 8 of
this Report.
3. Exhibits
The exhibits are listed below under Part IV, Item 14(c) of this report.
(B) Reports on Form 8-K
Reports on Form 8-K were filed with the commission during the fourth
quarter of 1997 to report the following items as of the dates
indicated:
Waste Systems International, Inc. filed a report on Form 8-K dated
November 27, 1997 reporting under Item 5 the acquisition of a 700 acre,
3 million permitted cubic yard municipal solid waste landfill in
Hopewell, Pennsylvania. The report incorporated by reference the
contents of WSI's press release dated November 20, 1997.
(C) Exhibits
Exhibit No. Description
2.1 Articles of Merger of BioSafe International, Inc., a Nevada
Corporation, with and into Waste Systems International, Inc., a
Delaware Corporation, filed October 24, 1997 (Incorporated by
reference to Exhibit 2.1 to Form 10-Q For the Quarterly Period Ended
September 30, 1997 of Waste Systems International, Inc.)
2.2 Certificate of Merger of BioSafe International, Inc., a Nevada
Corporation, with and into Waste Systems International, Inc., a
Delaware Corporation, filed October 24, 1997 and effective October
27, 1997. (Incorporated by reference to Exhibit 2.2 to Form 10-Q For
the Quarterly Period Ended September 30, 1997 of Waste Systems
International, Inc.)
2.3 Agreement and Plan of Merger dated October 17, 1997 by and between
BioSafe International, Inc. a Nevada Corporation and Waste Systems
International, Inc. a Delaware Corporation. (Incorporated by
reference to Exhibit 2.3 to Form 10-Q For the Quarterly Period Ended
September 30, 1997 of Waste Systems International, Inc.)
3(i).1 Second Amended and Restated Certificate of Incorporation of Waste
Systems International, Inc. filed February 13, 1998.
3(i).2 Certificate of Designations of Series B Convertible Preferred Stock
of Waste Systems International, Inc. filed March 5, 1998.
3(i).3 Certificate of Corrections to the Second Amended and Restated
Certificate of Incorporation of Waste Systems International, Inc.
(as filed February 13, 1998),filed March 17, 1998.
3(ii).1 Bylaws of the Company, adopted and effective as of Octobe 27, 1997.
48
<PAGE>
4.1 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. As filed on June 26, 1995)
4.2 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.)
4.3 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.)
4.4 Certificate of Designation of Series A Convertible Preferred Stock
of Waste Systems International, Inc. filed October 20, 1997 (Refer
to Exhibit 3(i).3 above).
4.5 Certificate of Designation of Series B Convertible Preferred Stock
of Waste Systems International, Inc. filed October 20, 1997 (Refer
to Exhibit 3(i).2 above).
4.6 Amended and Restated Subscription Agreement dated as of June 30,
1997 (Incorporated by reference to Exhibit 4.2 to Form 10-Q for the
Quarterly Period Ended September 30, 1997 of Waste Systems
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 as filed on June 26, 1995.)
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 as filed on June 26, 1995.)
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.as filed on June 26, 1995.)
10.4 Agreement and Plan of Merger dated as of March 17, 1995, among the
Company, Zoe Resources, Inc., certain stockholders of the Company
and BioSafe, Inc. (Incorporated by Reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K, dated March 29, 1995.)
10.5 1995 Stock Option Plan (Incorporated by Reference to Exhibit 10.1 of
the Company's Current Report on Form 8-K, dated March 29, 1995.)
10.6 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 as filed on June 26 1995.)
10.7 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.)
21.1 Schedule of Subsidiaries.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
WASTE SYSTEMS INTERNATIONAL, INC.
Date: March 25, 1998 By: /s/ Philip Strauss
__________________
Philip Strauss
Chairman, Chief Executive Officer and
President
(Principal Executive Officer)
Date: March 25, 1998 By: /S/ Robert Rivkin
__________________
Robert Rivkin
Vice President, Chief Financial
Officer, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 25, 1998 By:
_____________________________
Philip Strauss
Chairman, Chief Executive Officer and
President
(Principal Executive Officer)
Date: March 25, 1998 By:
_____________________________
Robert Rivkin - Vice President, Chief
Financial Officer, Treasurer and
Secretary
(Principal Financial and Accounting
Officer)
Date: March 25, 1998 By:
_____________________________
Jay J. Matulich - Director
Date: March 25, 1998 By:
______________________________
David J. Breazzano - Director
Date: March 25, 1998 By:
______________________________
Charles Johnston - Director
Date: March 25, 1998 By:
______________________________
Judy K. Mencher - Director
Date: March 25, 1998 By:
_______________________________
William B. Philipbar - Director
50
<PAGE>
Exhibit 3(i).1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WASTE SYSTEMS INTERNATIONAL, INC.
Waste Systems International, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Waste Systems International, Inc. The
date of the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was January 10, 1997. The name under
which the Corporation filed its original Certificate of Incorporation was Waste
Systems International, Inc.
2. This Second Amended and Restated Certificate of Incorporation
amends, restates and integrates the provisions of the First Amended and Restated
Certificate of Incorporation of the Corporation filed with the Secretary of
State of the State of Delaware on October 20, 1997 (the "Certificate of
Incorporation"), and was duly adopt by the written consent of the stockholders
of the Corporation, all in accordance with the applicable provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware (the
"DGCL").
3. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to provide as herein set forth in full; provided,
however, that the Certificate of Designation of Series A Convertible Preferred
Stock filed with the Secretary of State of the State of Delaware on October 20,
1997, a copy of which is attached hereto as Appendix A, shall remain in full
force and effect as if fully set forth herein.
ARTICLE I
NAME
The name of the Corporation is Waste Systems International, Inc.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
<PAGE>
ARTICLE III
PURPOSES
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
CAPITAL STOCK
As of 5:00 PM, Eastern time, on the date on which this Second Amended
and Restated Certificate of Incorporation is filed with the Secretary of the
State of Delaware (the "Effective Time"), each FIVE outstanding shares of common
stock par value $.001 per share ("Old Common Stock"), shall thereupon be
reclassified and changed into ONE share of common stock, par value $.01 per
share (the "Common Stock"). Upon such Effective Time, each holder of Old Common
Stock shall thereupon automatically be and become the holder of ONE share of
Common Stock for every FIVE shares of Old Common Stock held by such holder prior
thereto. Upon such Effective Time, each Certificate formerly representing a
stated number of shares of Old Common Stock shall thereupon be deemed for all
Corporate purposes to evidence ownership of Common Stock in the appropriately,
reduced whole number of shares. As soon as practicable after such Effective
Time, stockholders as of the date of the reclassification will be notified
thereof and upon their delivery of their certificates of Old Common Stock to the
Company or its designated agent, will be sent stock certificates representing
their shares of Common Stock, rounded down to the nearest whole number, together
with cash representing the fair value of such holder's fractional shares of Old
Common Stock. No scrip or fractional share certificates for Common Stock will be
issued in connection with this revised stock split.
As of the Effective Time, the total number of shares of capital stock
which the Corporation shall have the authority to issue is Thirty-One Million
(31,000,000) shares of which (i) Thirty Million (30,000,000) shares shall be
Common Stock, par value $.01 per share, and (ii) One Million (1,000,000) shares
shall be preferred stock, par value $.001 per share (the "Preferred Stock").
A. PREFERRED STOCK
As set forth in this Article IV, the Board of Directors or any
authorized committee thereof is authorized from time to time to establish and
designate one or more series of Preferred Stock, to fix and determine the
variations in the relative rights and preferences as between the different
series of Preferred Stock in the manner hereinafter set forth in this Article
IV, and to fix or alter the number of shares comprising any such series and the
designation thereof to the extent permitted by law.
<PAGE>
The number of authorized shares of the class of Preferred Stock may be
increased or decreased (but not below the number of shares outstanding) by the
affirmative vote of the holders of a majority of the Common Stock, without a
vote of the holders of the Preferred Stock.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below.
Subject to any limitations prescribed by law, the Board of Directors or
any authorized committee thereof is expressly authorized to provide for the
issuance of the shares of Preferred Stock in one or more series of such stock,
and by filing a certificate pursuant to applicable law of the State of Delaware,
to establish or change from time to time the number of shares to be included in
each such series, and to fix the designations, powers, preferences and the
relative, participating, optional or other special rights of the shares of each
series and any qualifications, limitations and restrictions thereof. Any action
by the Board of Directors or any authorized committee thereof under this Article
IV to fix the designations, powers, preferences and the relative, participating,
optional or other special rights of the shares of a series of Preferred Stock
and any qualifications, limitations and restrictions thereof shall require the
affirmative vote of a majority of the Directors then in office or a majority of
the members of such committee. The Board of Directors or any authorized
committee thereof shall have the right to determine or fix one or more of the
following with respect to each series of Preferred Stock to the extent permitted
by law:
(a) The distinctive serial designation and the number of
shares constituting such series;
(b) The rights in respect of dividends or the amount of
dividends to be paid on the shares of such series, whether dividends shall be
cumulative and, if so, from which date or dates, the payment date or dates for
dividends, and the participating and other rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of the
shares of such series;
(d) Whether the shares of such series shall be redeemable
and, if so, the price or prices at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount or amounts payable upon the shares of such
series and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
<PAGE>
(g) Whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the Corporation
and, if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares
of such series shall be issued;
(in) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of Preferred
Stock (or series thereof) and whether such shares may be reissued as shares of
the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
B. COMMON STOCK
1. Voting. Each holder of record shall be entitled to one vote
for each share of Common Stock standing in his name on the books of the
Corporation.
2. Dividends. Subject to applicable law, the holders of Common Stock
shall be entitled to receive dividends out of funds legally available therefor
at such times and in such amounts as the Board of Directors may determine in its
sole discretion, with each share of Common Stock sharing equally, share for
share, in such dividends.
3. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (a "Liquidation Event"), after the
payment or provision for payment of all debts and liabilities of the Corporation
and all preferential amounts to which the holders of Preferred Stock are
entitled with respect to the distribution of assets in liquidation, the holders
of Common Stock shall be entitled to share ratably in the remaining assets of
the Corporation available for distribution.
4. Notices. In the event that the Corporation provides any
notice, report or statement to any holder of Common Stock, the Corporation shall
at the same time provide a copy of any such notice, report or
statement to each holder of outstanding Common Stock.
<PAGE>
ARTICLE V
BOARD OF DIRECTORS
1. General. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided herein or required by law.
2. Election of Directors. Election of Directors need not be by
written ballot unless the By-laws
of the Corporation shall so provide.
3. Terms of Directors. The number of Directors of the Corporation shall
be fixed by resolution duly adopted from time to time by the Board of Directors.
The Directors of the Corporation shall serve for one-year terms expiring on the
date of the Corporation's Annual Meeting and until such Director's successor
shall have been duly elected and qualified or until their earlier resignation or
removal. At each succeeding annual meeting of the Stockholders of the
Corporation, the successors of the Directors whose term expires at that meeting
shall be elected by a plurality vote of all votes cast at such meeting.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate of Incorporation, the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect Directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation and any certificate of designations
applicable thereto.
During any period when the holders of any series of Preferred Stock
have the right to elect additional Directors as provided for or fixed pursuant
to the provisions of Article IV hereof, then upon commencement and for the
duration of the period during which such right continues: (in) the then
otherwise total authorized number of Directors of the Corporation shall
automatically be increased by such specified number of Directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
Directors so provided for or fixed pursuant to said provisions, and (ii) each
such additional Director shall serve until such Director's successor shall have
been duly elected and qualified, or until such Director's right to hold such
office terminates pursuant to said provisions, whichever occurs earlier, subject
to such Director's earlier death, disqualification, resignation or removal.
Except as otherwise provided by the Board in the resolution or resolutions
establishing such series, whenever the holders of any series of Preferred Stock
having such right to elect additional Directors are divested of such right
pursuant to the provisions of such stock, the terms of office of all such
additional Directors elected by the holders of such stock, or elected to fill
any vacancies resulting from the death, resignation, disqualification or removal
of such additional Directors, shall forthwith terminate and the total and
authorized number of Directors of the Corporation shall be reduced accordingly.
4. Stockholder Nominations of Director Candidates. Advance
notice of nominations for the election of Directors, other than by the Board of
Directors of a committee thereof, shall be given in the manner provided
in the By-laws.
<PAGE>
5. Vacancies. Subject to the rights, if any, of the holders of any
series of Preferred Stock to elect Directors and to fill vacancies in the Board
of Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a Director, shall be filled solely by the affirmative vote of a
majority of the remaining Directors then in office, even if less than a quorum
of the Board of Directors. Any Director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
created or vacated directorship and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect Directors, no decrease in the number of Directors shall
shorten the term of any incumbent Director. In the event of a vacancy in the
Board of Directors, the remaining Directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
6. Removal. Subject to the rights, if any, of any series of Preferred
Stock to elect Directors and to remove any Director whom the holders of any such
stock have the right to elect, any Director (including persons elected by
Directors to fill vacancies in the Board of Directors) may be removed from
office (in) only with cause and (ii) only by the affirmative vote of at least
two-thirds of the total votes which would be eligible to be cast by stockholders
in the election of such Director. At least 30 days prior to any meeting of
stockholders at which it is proposed that any Director be removed from office,
written notice of such proposed removal shall be sent to the Director whose
removal will be considered at the meeting. For purposes of this Certificate of
Incorporation, "cause," with respect to the removal of any Director shall
include (in) conviction of a felony, (ii) declaration of unsound mind by order
of court, (iii) gross dereliction of duty, (iv) commission of any action
involving moral turpitude, or (v) commission of an action which constitutes
intentional misconduct or a knowing violation of law if such action in either
event results both in an improper substantial personal benefit and a material
injury to the Corporation.
ARTICLE VI
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof. Except as otherwise required by law and subject to the rights of the
holders of any series of preferred stock, special meetings of the stockholders
of the Corporation may be called only by (in) the Board of Directors pursuant to
a resolution approved by the affirmative vote of a majority of the Directors
then in office, (ii) the Chairman of the Board, if one is elected, or (iii) the
President. Only those matters set forth in the notice of the special meeting may
be considered or acted upon at a special meeting of stockholders of the
Corporation, unless otherwise provided by law. Advance notice of any matters or
nominations which stockholder intend to propose for action at an annual meeting
shall be given in the manner provided in the By-laws.
<PAGE>
ARTICLE VII
LIMITATION OF LIABILITY
A director of this Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that the elimination or limitation of
liability is not permitted under the Delaware General Corporation Law as in
effect when such liability is determined. No amendment or repeal of this
provision shall deprive a director of the benefits hereof with respect to any
act or omission occurring prior to such amendment or repeal.
Any repeal or modification of this Article VII by either of (in) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
1. Amendment by Directors Except as otherwise provided by law,
the By-laws of the Corporation may be amended or repealed by the Board of
Directors.
2. Amendment by Stockholders. The By-laws of the Corporation may be
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose, by the affirmative vote of at least
two-thirds of the total votes eligible to be cast on such amendment or repeal by
holders of voting stock, voting together as a single class; provided, however,
that if the Board of Directors recommends that stockholders approve such
amendment or repeal at such meeting of stockholders, such amendment or repeal
shall only require the affirmative vote of a majority of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this Certificate
of Incorporation in the manner now or hereafter prescribed by statute and this
Certificate of Incorporation, and all rights conferred upon stockholders herein
are granted subject to this reservation. No amendment or repeal of this
Certificate of Incorporation shall be made unless the same is first approved by
the Board of Directors pursuant to a resolution adopted by the Board of
Directors in accordance with Section 242 of the DGCL, and, except as otherwise
provided by law, thereafter approved by the stockholders. Whenever any vote of
the holders of voting stock is required to amend or repeal any provision of this
Certificate of Incorporation, and in addition to any other vote of holders of
voting stock that is required by this Certificate of Incorporation, or by law,
the affirmative vote of a majority of the total votes eligible to be cast by
holders of voting stock with respect to such amendment or repeal, voting
together a single class, at a duly constituted meeting of stockholders called
expressly for such purpose shall be required to amend or repeal any provisions
of this Certificate of Incorporation; provided, however, that the affirmative
vote of not less than 80% of the total votes eligible to be cast by holders of
voting stock, voting together as a single class, shall be required to amend or
repeal any of the provisions of Article VI or Article X of this Certificate of
Incorporation.
<PAGE>
ARTICLE X
INDEMNIFICATION
The Corporation shall, to the fullest extent permitted by the Delaware
General Corporation Law, as amended from time to time, indemnify each person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, administrative or
investigative, by reason of the fact that such person is or was, or has agreed
to become, a director or officer of the corporation, or is or was serving, or
has agreed to serve, at the request of the Corporation, as a director, officer
or trustee of, or in a similar capacity with, another corporation, as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise, from and
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person or on his or
her behalf in connection with such action, suit or proceeding and any appeal
therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of any undertaking by the person indemnified
to repay such payment if it is ultimately determined that such person in not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
payments.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article X (in) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
Any person seeking indemnification under this Article shall be deemed
to have met the standard of conduct required for such indemnification unless the
contrary shall be established.
Any amendment or repeal of the provisions of this Article shall not
adversely affect any right or protection of a director or officer of the
Corporation with respect to any act or omission of such director or officer
occurring prior to such amendment or repeal.
<PAGE>
ARTICLE XI
BOOKS
The books of this Corporation may (subject to any statutory
requirements) be kept outside the State of Delaware as may be designated by the
Board of Directors or in the Bylaws.
[Remainder of page left intentionally blank]
WASTE SYSTEMS INTERNATIONAL, INC.
By: /s/Philip Strauss
-------------------------------
Philip Strauss
President
By: /s/Robert Rivkin
-------------------------------
Robert Rivkin
Secretary
<PAGE>
Exhibit 3(i).2
WASTE SYSTEMS INTERNATIONAL, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF A SERIES OF PREFERRED STOCK
(Series B Convertible Preferred Stock)
By Resolution of the Board of Directors
We, Philip Strauss, President, and Robert Rivkin, Secretary, of Waste
Systems International, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with Section 151 of the Delaware General Corporation Act, do hereby
certify:
That, pursuant to authority conferred upon the Board of Directors of
the Corporation by the Articles of Incorporation of said Corporation, as
amended, and pursuant to the provisions of Section 151 of the Delaware General
Business Corporation Act, said Board of Directors on December 5, 1997
unanimously adopted a resolution providing for the designations, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, including, without limiting the generality
of the foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, and conversion
or exchange, of a series of preferred stock, which resolution is as follows:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the
Articles of Incorporation of the Corporation, as amended, a series of
preferred stock of the Corporation known as Series B Convertible Preferred
Stock (the "Series B Preferred Stock") be, and it hereby is, created,
classified, and authorized, and the issuance thereof is provided for, and that
the designation and number of shares, and relative rights, preferences and
limitations thereof, shall be as set forth
in the form appended hereto as Exhibit A.
EXHIBIT A
. Designation. The shares of the series of Preferred Stock
shall be designated as "Series B Convertible Preferred Stock," and the number of
shares constituting such series shall be 100,000. The par value of the Series B
Convertible Preferred Stock shall be $.001 per share.
<PAGE>
. Dividends. The holders of outstanding shares of the Series B
Preferred Stock shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available for the payment of dividends,
dividends at the annual rate of $6.00 per share. All dividends shall be
cumulative and shall be payable annually in arrears on June 26th of each year,
commencing on June 26, 1998, in preference to and with priority over dividends
on the common stock of the Corporation, par value $.001 per share (the "Common
Stock"). Such dividends shall be cumulative and shall accrue (whether or not
earned or declared, and whether or not there are funds legally available
therefor) without interest from the first day of the annual period in which such
dividend may be payable as herein provided or from the date of first issuance of
the Series B Preferred Stock, if later. Any dividends that accrue may be paid,
at the option and in the sole discretion of the Board of Directors, in cash or,
in whole or in part, by issuing fully paid and non-assessable shares of Series B
Preferred Stock, valued for such purpose at $100 per share. All dividends paid
with respect to shares of the Series B Preferred Stock pursuant to this Section
2 hereof shall be paid pro rata to the holders entitled thereto. Declaration and
payment of such dividends shall be made each year unless otherwise determined by
the Board of Directors with respect to a particular year.
. Liquidation, Dissolution or Winding Up.
() In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, holders of each share of
Series B Preferred Stock outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to stockholders, whether
such assets are capital, surplus, or earnings, an amount equal to $100 per share
of Series B Preferred Stock held plus any accrued and unpaid dividends with
respect thereto to which holders of the Series B Preferred Stock have become
entitled (the "Liquidation Preference"); provided, however, that such
Liquidation Preference is payable after any payment shall be made to holders of
the Series A Convertible Preferred Stock, par value $.001 per share, which shall
rank on liquidation senior to the Series B Preferred Stock, but before any
payment shall be made to the holders of any class of Common Stock or of any
stock ranking on liquidation junior to the Series B Preferred Stock. If upon any
liquidation, dissolution, or winding up of the Corporation, the assets to be
distributed to the holders of the Series B Preferred Stock under the foregoing
sentence shall be insufficient to permit payment to such shareholders of the
full preferential amounts aforesaid, then all of the assets of the Corporation
available for distribution to such holders under such sentence shall be
distributed to such holders pro rata, so that each holder receives that portion
of the assets available for distribution as the number of shares of Series B
Preferred Stock held by such holder bears to the total number of shares of
Series B Preferred Stock then outstanding. After the payment of all preferential
amounts required to be paid to the holders of the Series B Preferred Stock upon
the dissolution, liquidation or winding up of the Corporation, the holders of
shares of Series B Preferred Stock and shares of Common Stock then outstanding
shall share ratably in the distribution of the remaining assets and funds of the
Corporation in proportion to the number of shares of Common Stock held by them
or issuable upon conversion of shares of Series B Preferred Stock held by them.
<PAGE>
() The amount per share set forth in Section 3(a) shall be
appropriately adjusted for any stock split, stock combinations, stock dividends
or similar recapitalizations with respect to the Series B Preferred Stock.
. Voting Power.
Except as otherwise required by law, the holder of each share
of Series B Preferred Stock shall be entitled to vote on all matters. Each share
of Series B Preferred Stock shall entitle the holder thereof to such number of
votes per share as shall equal the number of shares of Common Stock into which
each share of Series B Preferred Stock is then convertible. Except as otherwise
required by law, the holders of shares of the Series B Preferred Stock and the
Common Stock shall vote together as a single class on all matters.
. Conversion. The holders of the Series B Preferred Stock shall
have the following conversion rights:
() Subject to and in compliance with the provisions of this
Section 5, any shares of the Series B Preferred Stock may, at the option of the
holder, be converted at any time or from time to time into fully-paid and
non-assessable shares of Common Stock. The number of shares of Common Stock to
which a holder of the Series B Preferred Stock shall be entitled upon conversion
shall be the product obtained by multiplying the Applicable Conversion Rate
(determined as provided in Section 5(c)) by the number of shares of Series B
Preferred Stock being converted. For purposes of this Section 5, the number of
shares of Series B Preferred Stock being converted shall include shares of
Series B Preferred Stock that would be issuable in payment of any accrued and
unpaid dividends at the time of conversion.
() () In the event that, at any time after the issuance of
shares of Series B Preferred Stock, the average closing price of the
Corporation's Common Stock on the Nasdaq SmallCap Market (or, in the event that
such security is not traded on the Nasdaq SmallCap Market, such other national
or regional securities exchange or automated quotation system upon which such
security is listed and principally traded or, if no such price is available, the
per share market value of the Common Stock as determined by a nationally
recognized investment banking firm or other nationally recognized financial
adviser retained by the Corporation for such purpose) is equal to or greater
than the Applicable Conversion Value over a period of any twenty (20) successive
trading days, the Corporation may, at its option, effect the automatic
conversion of shares of Series B Preferred Stock, in whole or in part, at the
Applicable Conversion Rate; provided that the Company's option to effect the
automatic conversion under this Section 5(b) shall be available only if the
Corporation Common Stock does in fact trade on each day in the twenty days prior
to the election to effect the automatic conversion. With respect to any
automatic conversion of fewer than all the outstanding shares of Series B
Preferred Stock, the number of shares to be converted shall be determined by the
Board of Directors and the shares to be converted shall be selected pro rata. If
the foregoing condition has been satisfied and the Corporation has elected to
effect the automatic conversion of shares of Series B Preferred Stock, it shall
deliver a notice to that effect by overnight delivery service to each holder of
shares of Series B Preferred Stock. The conversion will be effective five (5)
days after the delivery of such notice in accordance with the provisions of
Section 5(b)(ii) below.
<PAGE>
() Upon the occurrence of the events specified in Section (5)(b)(i), the
outstanding shares of Series B Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent, provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless certificates evidencing such shares of the Series B Preferred
Stock being converted are either delivered to the Corporation or any transfer
agent, as hereinafter provided, or the holder notifies the Corporation or any
transfer agent as hereinafter provided, that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection therewith.
Upon the occurrence of the automatic conversion of all of the
outstanding Series B Preferred Stock, the holders of the Series B Preferred
Stock shall surrender the certificates representing such shares at the office of
the Corporation or of any transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to each such holder, promptly at such office and
in his name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into which
the shares of the Series B Preferred Stock surrendered were convertible on the
date on which such automatic conversion occurred.
() The conversion rate in effect at any time (the "Applicable
Conversion Rate") shall equal the quotient obtained by dividing $100 by the
Applicable Conversion Value, calculated as hereinafter provided.
() The Applicable Conversion Value in effect initially,
and until first adjusted in accordance with Section 5(f) shall be $1.25.
() Upon the happening of an Extraordinary Common Stock Event
(as hereinafter defined), the Applicable Conversion Value shall, simultaneously
with the happening of such Extraordinary Common Stock Event, be adjusted by
dividing the then effective Applicable Conversion Value by a fraction, the
numerator of which shall be the number of shares of Common Stock of all classes
outstanding immediately after such Extraordinary Common Stock Event and the
denominator of which shall be the number of shares of Common Stock of all
classes outstanding immediately prior to such Extraordinary Common Stock Event,
and the quotient so obtained shall thereafter be the Applicable Conversion
Value. The Applicable Conversion Value, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive Extraordinary Common Stock
Event or Events. "Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of the Common Stock of any class as a dividend or other
distribution on outstanding Common Stock, (ii) subdivision of outstanding shares
of Common Stock of any class into a greater number of shares of the Common
Stock, or (iii) combination of outstanding shares of the Common Stock of any
class into a smaller number of shares of the Common Stock.
<PAGE>
() In the event the Corporation shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each such event
lawful and adequate provision shall be made so that the holders of Series B
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their Series B Preferred Stock
been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date (as hereinafter defined), retained such securities receivable by
them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 5 with respect to the rights of
the holders of the Series B Preferred Stock.
() If the Common Stock issuable upon the conversion of the
Series B Preferred Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by reclassification or
otherwise, then and in each such event the holder of each share of Series B
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change, by holders of the
number of shares of Common Stock into which such shares of Series B Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
() If at any time or from time to time there shall be a
capital reorganization of the Common Stock or a merger or consolidation of the
Corporation with or into another Corporation or the sale of all or substantially
all of the Corporation's properties and assets to any other person, then, as a
part of and as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of the Series B Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series B Preferred Stock the number of shares of stock or
other securities or property of the Corporation or of the successor Corporation
resulting from such merger or consolidation or sale, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
provisions shall be made with respect to the rights of the holders of the Series
B Preferred Stock after the reorganization, merger, consolidation or sale to the
end that the provisions of this Section 5 (including without limitation
provisions for adjustment of the Applicable Conversion Value and the number of
shares purchasable upon conversion of the Series B Preferred Stock) shall
thereafter be applicable, as nearly as may be, with respect to any shares of
stock, securities or assets to be deliverable thereafter upon the conversion of
the Series B Preferred Stock.
Each holder of Series B Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Corporation or the sale
of all or substantially all its assets and properties as such events are more
fully set forth in the first paragraph of this Section 5(h), shall have the
option of (i) receiving the Liquidation Preference or (ii) electing treatment of
its shares of Series B Preferred Stock under the preceding paragraph of this
Section 5(h), notice of which election shall be submitted in writing to the
Corporation at its principal offices no later than ten (10) days before the
effective date of such event.
<PAGE>
() In each case of an adjustment or readjustment of the
Applicable Conversion Rate, the Corporation will furnish each holder of Series B
Preferred Stock with a certificate, prepared by the chief financial officer of
the Corporation, showing such adjustment or readjustment, and stating in detail
the facts upon which such adjustment or readjustment is based.
() To exercise its conversion privilege as provided in Section
5(a) above, a holder of Series B Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Corporation at
its principal office, and shall give written notice to the Corporation at that
office that such holder elects to convert such shares. Such notice shall also
state the name or names (with address or addresses) in which the certificate or
certificates for shares of Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of Series B Preferred Stock
surrendered for conversion shall be accompanied by proper assignment thereof to
the Corporation or in blank. The date when such written notice is received by
the Corporation together with the certificate or certificates representing the
shares of Series B Preferred Stock being converted, shall be the "Conversion
Date." As promptly as practicable after the Conversion Date, the Corporation
shall issue and shall deliver to the holder of the shares of Series B Preferred
Stock being converted, or on its written order, a certificate or certificates as
it may request for the number of full shares of Common Stock issuable upon the
conversion of such shares of Series B Preferred Stock in accordance with the
provisions of this Section 5 and cash as provided in Section 5(k), in respect of
any fraction of a share of Common Stock issuable upon such conversion. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
holder of the converted shares of Series B Preferred Stock shall cease and the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of shares of Common Stock
represented thereby.
() No fractional shares of Common Stock or scrip representing
fractional shares shall be issued upon conversion of Series B Preferred Stock.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of Series B Preferred Stock, the Corporation shall pay
to the holder of the shares of Series B Preferred Stock which were converted a
cash adjustment in respect of such fraction in an amount equal to the same
fraction of the market price per share of the Common Stock (as determined in a
manner prescribed by the Board of Directors) at the close of business on the
Conversion Date.
() In the event some but not all of the shares of Series B
Preferred Stock represented by a certificate or certificates surrendered by a
holder are converted, the Corporation shall execute and deliver to or on the
order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series B Preferred Stock which were not
converted.
<PAGE>
() The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the shares of the Series B Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series B
Preferred Stock, and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Preferred Stock, the Corporation shall take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
. Redemption.
() Call Redemption. If any shares of Series B Preferred Stock
shall be outstanding on October 6, 2000, the Corporation may redeem, at the
option of the Corporation in its sole discretion, to the extent it has funds
legally available therefor, at any time or from time to time, in whole or in
part, shares of Series B Preferred Stock (a "Call Redemption") at a price per
share equal to the Liquidation Preference plus any accrued and unpaid dividends
with respect to such shares to which the holders of the Series B Preferred Stock
have become entitled (the "Redemption Price"). With respect to any Call
Redemption of fewer than all of the outstanding shares of Series B Preferred
Stock, the number of shares to be redeemed shall be determined by the Board of
Directors and the shares to be redeemed shall be selected pro rata.
() Notice of Call Redemption. Notice of any Call Redemption of
shares of Series B Preferred Stock, specifying the time and place of redemption
and the Redemption Price (a "Redemption Notice"), shall be sent by overnight
delivery service to each holder of Series B Preferred Stock to be redeemed, at
the address for such holder shown on the Corporation's record not more than
sixty (60) nor less than thirty (30) days prior to the Redemption Date (as
hereinafter defined). If less than all the shares of Series B Preferred Stock
owned by such holder are then to be redeemed, the Redemption Notice shall also
specify the number of shares which are to be redeemed; provided, however, that
no failure to given such Redemption Notice nor any defect therein shall affect
the validity of the procedure for the redemption of any shares of Series B
Preferred Stock to be redeemed except as to the holder to whom the Corporation
has failed to give said Redemption Notice or except as to the holder whose
Redemption Notice was defective. Each such Redemption Notice shall state: (i)
the Redemption Date (as hereinafter defined); (ii) the Redemption Price (as
hereinafter defined); (iii) the number of shares of Series B Preferred Stock to
be redeemed and, if fewer than all the shares of Series B Preferred Stock held
by a holder are to be redeemed, the number of shares thereof to be redeemed from
such holder; (iv) the manner and place or places at which payment for the shares
of Series B Preferred Stock offered for redemption will be made, presentation
and surrender to the Corporation of the certificates evidencing the shares being
redeemed; (v) that dividends on the shares of Series B Preferred Stock being
redeemed shall cease to accrue on the Redemption Date unless the Corporation
defaults in the payment of the Redemption Price; and (vi) that the rights of
holders of Series B Preferred Stock as stockholder of the Corporation with
respect to shares being redeemed shall terminate as of the Redemption Date
unless the Corporation defaults in the payment of the Redemption Price. Upon
mailing any such Redemption Notice, the Corporation shall become obligated to
redeem at the Redemption Price on the applicable Redemption Date all shares of
Series B Preferred Stock therein specified.
<PAGE>
() Redemption Date. The Corporation shall fix the date
for a Call Redemption (the "Redemption Date") no earlier than thirty (30) but
not more than sixty (60) days after the Redemption Notice is sent as set forth
in Section 6(b) hereof.
() Payment and Surrender. On any Redemption Date, the full
Redemption Price shall become payable in cash for the shares of Series B
Preferred Stock being redeemed on such Redemption Date. As a condition of
payment of the Redemption Price, each holder of Series B Preferred Stock must
surrender the certificate or certificates representing the shares of Series B
Preferred Stock being redeemed to the Corporation in the manner and at the place
designated in the Redemption Notice or in the event such certificate or
certificates have been lost, stolen or destroyed, must execute an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection therewith. Each surrendered certificate shall be
canceled and retired. All redemption payments will be made to the holders of the
shares being redeemed.
() Termination. On any Redemption Date, unless the Corporation
defaults in the payment in full of the Redemption Price, dividends on the Series
B Preferred Stock redeemed shall cease to accumulate, and all rights of holders
of such redeemed shares shall terminate, except for the right to receive the
Redemption Price.
. Restrictions and Limitations.
(a) Corporate Action. Except as expressly provided herein or
as required by law, so long as any shares of Series B Preferred Stock remain
outstanding, the Corporation shall not without the approval by vote or written
consent (which written consent need not be unanimous) by the holders of at least
fifty-one percent (51%) of the then outstanding shares of Series B Preferred
Stock, voting as a separate class:
(i) authorize or issue, or obligate itself to
authorize or issue, any equity security senior to or on parity with the
Series B Preferred Stock as to liquidation preferences, dividend rights,
redemption rights or voting rights (except for common stock as to voting
rights); or
(ii) amend, restate, modify or alter the by-laws of
the Corporation in any way which adversely affects the rights of the holders of
the Series B Preferred Stock;
. No Reissuance of Series B Preferred Stock. No share or shares of the
Series B Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired, and eliminated from the shares which the Corporation shall
be authorized to issue. The Corporation may from time to time take such
appropriate corporate action as may be necessary to reduce the authorized number
of shares of the Series B Preferred Stock accordingly.
<PAGE>
. Notices of Record Date. In the event (i) the Corporation establishes
a record date to determine the holders of any class of securities who are
entitled to receive any dividend or other distribution, or (ii) there occurs any
capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, and any transfer of all or substantially all
of the assets of the Corporation to any other Corporation, or any other entity
or person, or any voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, the Corporation shall mail to each holder of Series B
Preferred Stock at least twenty (20) days prior to the record date specified
therein, a notice specifying (a) the date of such record date for the purpose of
such dividend or distribution and a description of such dividend or
distribution, (b) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (c) the time, if any, that is to be fixed, as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up.
. Other Rights. Except as otherwise provided in this resolution or as
otherwise may be required by law, each share of Series B Preferred Stock and
each share of Common Stock shall be identical in all respects, shall have the
same powers, preferences and rights, without preference of any such class or
share over any other such class or share, and shall be treated as a single class
of stock for all purposes. IN WITNESS WHEREOF, Waste Systems International, Inc.
has caused this certificate to be executed under seal by Philip Strauss, its
President, and Robert Rivkin, its Secretary, as of the 3rd day of December,
1997.
By: /s/ Philip Strauss
------------------
Philip Strauss
President
By: /s/ Robert Rivkin
-----------------
Robert Rivkin
Secretary
State of )
) ss:
County of )
)
On ___________________ personally appeared before me, a Notary Public,
Philip Strauss and Robert Rivkin, who acknowledges that they executed the above
instrument.
<PAGE>
Notary Public
My commission expires:
(SEAL)
<PAGE>
Exhibit 3(i).3
CERTIFICATE OF CORRECTION
FILED TO CORRECT A CERTAIN ERROR IN
THE SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
WASTE SYSTEMS INTERNATIONAL, INC.
FILED IN THE OFFICE OF
THE SECRETARY OF STATE OF DELAWARE
ON
FEBRUARY 13, 1998
Waste Systems International, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
. The name of the corporation is Waste Systems International, Inc.
. That Seconded Amended and Restated Certificate of Incorporation was
filed by Secretary of State of Delaware on February 13, 1998 and that said
Certificate requires correction as permitted by Section 103 of the General
Corporation law of the State of Delaware.
. The inaccuracy or defect of said Certificate to be corrected
is as follows:
The Second Amended and Restated Certificate of Incorporation, page 1,
recital paragraph 3 is hereby deleted in its entirety and replaced with the
following:
"The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to provide as herein set forth in full; provided,
however, that the Certificate of Designation of Series A Convertible Preferred
Stock filed with the Secretary of State of the State of Delaware on October 20,
1997, a copy of which is attached hereto as Appendix A, shall remain in full
force and effect as if fully set forth herein."
IN WITNESS WHEREOF, said Waste Systems International, Inc. has caused
this Certificate to be signed by Mr. Robert Rivkin its Chief Financial Officer,
this 13th day of March, 1998.
Waste Systems International, Inc.
By: /s/ Robert Rivkin
-----------------------
Robert Rivkin
Chief Financial Officer
<PAGE>
Exhibit 3(ii).1
BYLAWS
OF
WASTE SYSTEMS INTERNATIONAL, INC.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no annual meeting has
been held for a period of thirteen months after the Corporation's last annual
meeting of stockholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these Bylaws or otherwise, all
the force and effect of an annual meeting. Any and all references hereafter in
these Bylaws to an annual meeting or annual meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.
SECTION 2. Matters to be Considered at Annual Meetings. At any annual
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Secretary of the Corporation and (ii) be present at such meeting, either in
person or by a representative. For all Annual Meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 75 days nor more than 120 days
prior to the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(A) the 75th day prior to the scheduled date of such Annual Meeting or (B) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
<PAGE>
For purposes of these Bylaws, "public announcement" shall mean: (i)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (ii) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (iii) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Secretary shall set forth as to each
matter proposed to be brought before an Annual Meeting: (i) a brief description
of the business the stockholder desires to bring before such Annual Meeting and
the reasons for conducting such business at such Annual Meeting, (ii) the name
and address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines
that any stockholder proposal was not made in a timely fashion in accordance
with the provisions of this Section 2 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2 in any material respect, such proposal shall not be presented for
action at the Annual Meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the Annual
Meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 2. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2 or that the information provided in a stockholder's
notice does not satisfy the information requirements of this Section 2 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If the Board of Directors, a designated committee thereof
or the presiding officer determines that a stockholder proposal was made in
accordance with the requirements of this Section 2, the presiding officer shall
so declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such proposal.
<PAGE>
Notwithstanding the foregoing provisions of this Bylaw, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this By-Law, and nothing in
this By-Law shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
subject to the rights, if any, of the holders of any series of Preferred Stock
of the Corporation, special meetings of the stockholders of the Corporation may
be called only by the Board of Directors pursuant to a resolution approved by
the affirmative vote of a majority of the Directors then in office.
SECTION 4. Matters to be Considered at Special Meetings. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice of all
Annual Meetings stating the hour, date and place of such Annual Meetings shall
be given by the Secretary or an Assistant Secretary (or other person authorized
by these Bylaws or by law) not less than 10 days nor more than 60 days before
the Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Amended and Restated Certificate of
Incorporation of the Corporation (as the same may hereafter be amended and/or
restated, the "Certificate") or under these Bylaws, is entitled to such notice,
by delivering such notice to him or by mailing it, postage prepaid, addressed to
such stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
Notice of an Annual Meeting or special meeting of stockholders need not
be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any Annual Meeting or special meeting of stockholders need
be specified in any written waiver of notice.
<PAGE>
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I or Section 3 of Article II hereof or otherwise. In no event shall the
public announcement of an adjournment, postponement or rescheduling of any
previously scheduled meeting of stockholders commence a new time period for the
giving of a stockholder's notice under Section 2 of Article I and Section 3 of
Article II of these Bylaws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Certificate or these Bylaws, is entitled to such notice.
SECTION 6. Quorum. The holders of shares of voting stock representing a
majority of the voting power of the outstanding shares of voting stock issued,
outstanding and entitled to vote at a meeting of stockholders, represented in
person or by proxy at such meeting, shall constitute a quorum; but if less than
a quorum is present at a meeting, the holders of voting stock representing a
majority of the voting power present at the meeting or the presiding officer may
adjourn the meeting from time to time, and the meeting may be held as adjourned
without further notice, except as provided in Section 5 of this Article I. At
such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 7. Voting and Proxies. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by written proxy, but no
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. Proxies shall be filed with the Secretary of
the meeting before being voted. Except as otherwise limited therein or as
otherwise provided by law, proxies shall entitle the persons authorized thereby
to vote at any adjournment of such meeting, but they shall not be valid after
final adjournment of such meeting. A proxy with respect to stock held in the
name of two or more persons shall be valid if executed by or on behalf of any
one of them unless at or prior to the exercise of the proxy the Corporation
receives a specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed
valid, and the burden of proving invalidity shall rest on the challenger.
<PAGE>
SECTION 8. Action at Meeting. When a quorum is present, any matter
before any meeting of stockholders shall be decided by the vote of a majority of
the voting power of shares of voting stock, present in person or represented by
proxy at such meeting and entitled to vote on such matter, except where a larger
vote is required by law, by the Certificate or by these Bylaws. Any election by
stockholders shall be determined by a plurality of the votes cast, except where
a larger vote is required by law, by the Certificate or by these Bylaws. The
Corporation shall not directly or indirectly vote any shares of its own stock;
provided, however, that the Corporation may vote shares which it holds in a
fiduciary capacity to the extent permitted by law.
SECTION 9. Action by Consent. Any action required or permitted to be
taken by the Stockholders of the Corporation at any annual or special meeting of
stockholders of the Corporation must be effected at a duly-called Annual or
Special Meeting of Stockholders and may not be taken or effected by a written
consent of stockholders in lieu thereof.
SECTION 10. Stockholder Lists. The Secretary or an Assistant Secretary
(or the Corporation's transfer agent or other person authorized by these Bylaws
or by law) shall prepare and make, at least 10 days before every Annual Meeting
or special meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 11. Presiding Officer. The Chairman of the Board, if one is
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time, subject to Sections 5 and 6 of this Article I. The order of
business and all other matters of procedure at any meeting of the stockholders
shall be determined by the presiding officer.
SECTION 12. Voting Procedures and Inspectors of Elections. The
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspector(s), and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspector(s). All determinations by the inspector(s) and, if applicable, the
presiding officer shall be subject to further review by any court of competent
jurisdiction.
<PAGE>
ARTICLE II
Directors
SECTION 1. Powers. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors except as
otherwise provided by the Certificate or required by law.
SECTION 2. Number and Terms. The number of Directors of the Corporation
shall be fixed by resolution duly adopted from time to time by the Board of
Directors. The Directors shall hold office in the manner provided in the
Certificate.
SECTION 3. Director Nominations. Nominations of candidates for election
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a majority of the Board of Directors or (b) by any
holder of record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational and
other requirements set forth in this Section 3. Any stockholder who has complied
with the timing, informational and other requirements set forth in this Section
3 and who seeks to make such a nomination, or his, her or its representative,
must be present in person at the Annual Meeting. Only persons nominated in
accordance with the procedures set forth in this Section 3 shall be eligible for
election as directors at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 3. For the first
Annual Meeting following the initial public offering of common stock of the
Corporation, a stockholder's notice shall be timely if delivered to, or mailed
to and received by, the Corporation at its principal executive office not later
than the close of business on the later of (A) the 75th day prior to the
scheduled date of such Annual Meeting or (B) the 15th day following the day on
which public announcement of the date of such Annual Meeting is first made by
the Corporation. For all subsequent Annual Meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 75 days nor more than 120 days
prior to the Anniversary Date; provided, however, that in the event the Annual
Meeting is scheduled to be held on a date more than 30 days before the
Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or (ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
<PAGE>
A stockholder's notice to the Secretary shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election as
a director: (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation's capital stock which are
beneficially owned by such person on the date of such stockholder notice, and
(iv) the consent of each nominee to serve as a director if elected. A
stockholder's notice to the Secretary shall further set forth as to the
stockholder giving such notice: (i) the name and address, as they appear on the
Corporation's stock transfer books, of such stockholder and of the beneficial
owners (if any) of the Corporation's capital stock registered in such
stockholder's name and the name and address of other stockholders known by such
stockholder to be supporting such nominee(s), (ii) the class and number of
shares of the Corporation's capital stock which are held of record, beneficially
owned or represented by proxy by such stockholder and by any other stockholders
known by such stockholder to be supporting such nominee(s) on the record date
for the Annual Meeting in question (if such date shall then have been made
publicly available) and on the date of such stockholder's notice, and (iii) a
description of all arrangements or understandings between such stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by such
stockholder.
If the Board of Directors or a designated committee thereof determines
that any stockholder nomination was not made in accordance with the terms of
this Section 3 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3 in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made in
accordance with the terms of this Section 3 or that the information provided in
a stockholder's notice does not satisfy the informational requirements of this
Section 3 in any material respect, then such nomination shall not be considered
at the Annual Meeting in question. If the Board of Directors, a designated
committee thereof or the presiding officer determines that a nomination was made
in accordance with the terms of this Section 3, the presiding officer shall so
declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second sentence of the
second paragraph of this Section 3, in the event that the number of directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least 75
days prior to the Anniversary Date, a stockholder's notice required by this
Section 3 shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if such notice shall be delivered
to, or mailed to and received by, the Corporation at its principal executive
office not later than the close of business on the 15th day following the day on
which such public announcement is first made by the Corporation.
<PAGE>
No person shall be elected by the stockholders as a Director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of Directors at the annual meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such annual meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as Directors at
the annual meeting in accordance with the procedures set forth in this Section
shall be provided for use at the annual meeting.
SECTION 4. Qualification. No Director need be a stockholder of the
Corporation.
SECTION 5. Vacancies. Subject to the rights, if any, of the holders of
any series of Preferred Stock of the Corporation to elect Directors and to fill
vacancies in the Board of Directors relating thereto, any and all vacancies in
the Board of Directors, however occurring, including, without limitation, by
reason of an increase in size of the Board of Directors, or the death,
resignation, disqualification or removal of a Director, shall be filled solely
by the affirmative vote of a majority of the remaining Directors then in office,
even if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Preferred Stock of the Corporation to elect Directors, when the number of
Directors is increased or decreased, the Board of Directors shall determine the
class or classes to which the increased or decreased number of Directors shall
be apportioned; provided, however, that no decrease in the number of Directors
shall shorten the term of any incumbent Director. In the event of a vacancy in
the Board of Directors, the remaining Directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
SECTION 6. Removal. Directors may be removed from office in the
manner provided in the Certificate.
SECTION 7. Resignation. A Director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board of
Directors shall be held, without notice other than this By-Law, on the same date
and at the same place as the Annual Meeting following the close of such Annual
Meeting of Stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
<PAGE>
SECTION 9. Special Meetings. Special meetings of the Board of Directors
may be called, orally or in writing, by or at the request of a majority of the
Directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each Director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each Director in person, by telephone,
or by telex, telecopy, telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his or her business or
home address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
Director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if telexed or telecopied, or when
delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
A written waiver of notice signed before or after a meeting by a
Director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Certificate or
by these Bylaws, neither the business to be transacted at, nor the purpose of,
any meeting of the Board of Directors need be specified in the notice or waiver
of notice of such meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors, a
majority of the Directors then in office shall constitute a quorum for the
transaction of business, but if less than a quorum is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 10 of this Article II. Any business which might have been transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present.
<PAGE>
SECTION 12. Action at Meeting. At any meeting of the Board of Directors
at which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these Bylaws.
SECTION 13. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all Directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these Bylaws.
SECTION 15. Committees. The Board of Directors, by vote of a majority
of the Directors then in office, may elect from its number one or more
committees, including, without limitation, an Executive Committee, a
Compensation Committee, a Stock Option Committee and an Audit Committee, and may
delegate thereto some or all of its powers except those which by law, by the
Certificate or by these Bylaws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these Bylaws for the Board of Directors. All members of
such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors may abolish any such committee at any time.
Any committee to which the Board of Directors delegates any of its powers or
duties shall keep records of its meetings and shall report its action to the
Board of Directors. The Board of Directors shall have power to rescind any
action of any committee, to the extent permitted by law, but no such rescission
shall have retroactive effect.
SECTION 16. Compensation of Directors. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that Directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as Directors of the
Corporation.
ARTICLE III
Officers
SECTION 1. Enumeration. The officers of the Corporation shall consist
of a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a Chairman of the Board of Directors and one or more Vice
Presidents (including Executive Vice Presidents or Senior Vice Presidents),
Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as
the Board of Directors may determine.
<PAGE>
SECTION 2. Election. At the regular annual meeting of the Board
following the annual meeting of stockholders, the Board of Directors shall elect
the President, the Treasurer and the Secretary. Other officers may be elected by
the Board of Directors at such regular annual meeting of the Board of Directors
or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a
Director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his or her duties in such amount and with such sureties
as the Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or
by these Bylaws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next annual
meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the Directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 9. President. Unless otherwise provided by the Board of
Directors or the Certificate, the President shall be the Chief Executive Officer
of the Corporation and shall, subject to the direction of the Board of
Directors, have general supervision and control of the Corporation's business.
If there is no Chairman of the Board or if he or she is absent, the President
shall preside, when present, at all meetings of stockholders and of the Board of
Directors. The President shall have such other powers and perform such other
duties as the Board of Directors may from time to time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
<PAGE>
SECTION 11. Vice Presidents and Assistant Vice Presidents. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 12. Treasurer and Assistant Treasurers. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 13. Secretary and Assistant Secretaries. The Secretary shall
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. Other Powers and Duties. Subject to these Bylaws and to
such limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
<PAGE>
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by Corporation
officers, the transfer agent or the registrar may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the time of its issue. Every certificate for
shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law,
by the Certificate or by these Bylaws, the Corporation shall be entitled to
treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock, until the shares have been transferred on the books of the
Corporation in accordance with the requirements of these Bylaws.
It shall be the duty of each stockholder to notify the Corporation of
his or her post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (1) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than sixty nor less than
ten days before the date of such meeting and (2) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (1) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held and (2) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
<PAGE>
SECTION 5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
Indemnification
SECTION 1. Definitions. For purposes of this Article: (a) "Officer"
means any person who serves or has served as a Director or officer of the
Corporation or in any other office filled by election or appointment by the
stockholders or the Board of Directors of the Corporation and any heirs,
executors, administrators or personal representatives of such person; (b)
"Non-Officer Employee" means any person who serves or has served as an employee
of the Corporation, but who is not or was not an Officer, and any heirs,
executors, administrators or personal representatives of such person; (c)
"Proceeding" means any threatened, pending, or completed action, suit or
proceeding (or part thereof), whether civil, criminal, administrative,
arbitrative or investigative, any appeal of such an action, suit or proceeding,
and any inquiry or investigation which could lead to such an action, suit, or
proceeding; and (d) "Expenses" means any liability fixed by a judgment, order,
decree or award in a Proceeding, any amount reasonably paid in settlement of a
Proceeding and any professional fees and other expenses and disbursements
reasonably incurred in a Proceeding or in settlement of a Proceeding, including
fines, taxes and penalties relating thereto.
SECTION 2. Officers. Except as provided in Section 4 of this Article V,
each Officer of the Corporation shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader rights
than said law permitted the Corporation to provide prior to such amendment)
against any and all Expenses incurred by such Officer in connection with any
Proceeding in which such Officer is involved as a result of serving or having
served (a) as an Officer or employee of the Corporation, (b) as a director,
officer or employee of any subsidiary of the Corporation, or (c) in any capacity
with any other corporation, organization, partnership, joint venture, trust or
other entity at the written request or direction of the Corporation, including
service with respect to employee or other benefit plans, and shall continue as
to an Officer after he or she has ceased to be an Officer and shall inure to the
benefit of his or her heirs, executors, administrators and personal
representatives; provided, however, that the Corporation shall indemnify any
such Officer seeking indemnification in connection with a Proceeding initiated
by such Officer only if such Proceeding was authorized by the Board of Directors
of the Corporation.
<PAGE>
SECTION 3. Non-Officer Employees. Except as provided in Section 4 of
this Article V, each Non-Officer Employee of the Corporation may, in the
discretion of the Board of Directors, be indemnified by the Corporation to the
fullest extent authorized by the DGCL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader rights than said law
permitted the Corporation to provide prior to such amendment) against any or all
Expenses incurred by such Non-Officer Employee in connection with any Proceeding
in which such Non-Officer Employee is involved as a result of serving or having
served (a) as a Non-Officer Employee of the Corporation, (b) as a director,
officer or employee of any subsidiary of the Corporation, or (c) in any capacity
with any other corporation, organization, partnership, joint venture, trust or
other entity at the request or direction of the Corporation, including service
with respect to employee or other benefit plans, and shall continue as to a
Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and
shall inure to the benefit of his or her heirs, personal representatives,
executors and administrators; provided, however, that the Corporation may
indemnify any such Non-Officer Employee seeking indemnification in connection
with a Proceeding initiated by such Non-Officer Employee only if such Proceeding
was authorized by the Board of Directors of the Corporation.
SECTION 4. Good Faith. No indemnification shall be provided pursuant to
this Article V to an Officer or to a Non-Officer Employee with respect to a
matter as to which such person shall have been finally adjudicated in any
Proceeding not to have acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, with respect to any criminal Proceeding, had no reasonable cause to believe
his or her conduct was unlawful. In the event that a Proceeding is compromised
or settled prior to final adjudication so as to impose any liability or
obligation upon an Officer or Non-Officer Employee, no indemnification shall be
provided pursuant to this Article V to said Officer or Non-Officer Employee with
respect to a matter if there be a determination that with respect to such matter
such person did not act in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
and, with respect to any criminal Proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The determination contemplated by the preceding
sentence shall be made by (i) a majority vote of those Directors who are not
involved in such Proceeding (the "Disinterested Directors"); (ii) by the
stockholders; or (iii) if directed by a majority of Disinterested Directors, by
independent legal counsel in a written opinion. However, if more than half of
the Directors are not Disinterested Directors, the determination shall be made
by (i) a majority vote of a committee of one or more disinterested Director(s)
chosen by the Disinterested Director(s) at a regular or special meeting; (ii) by
the stockholders; or (iii) by independent legal counsel chosen by the Board of
Directors in a written opinion.
SECTION 5. Prior to Final Disposition. Unless otherwise determined by
(i) the Board of Directors, (ii) if more than half of the Directors are involved
in a Proceeding by a majority vote of a committee of one or more Disinterested
Director(s) chosen in accordance with the procedures specified in Section 4 of
this Article or (iii) if directed by the Board of Directors, by independent
legal counsel in a written opinion, any indemnification extended to an Officer
or Non-Officer Employee pursuant to this Article V shall include payment by the
Corporation or a subsidiary of the Corporation of Expenses as the same are
incurred in defending a Proceeding in advance of the final disposition of such
Proceeding upon receipt of an undertaking by such Officer or Non-Officer
Employee seeking indemnification to repay such payment if such Officer or
Non-Officer Employee shall be adjudicated or determined not to be entitled to
indemnification under this Article V.
<PAGE>
SECTION 6. Contractual Nature of Rights. The foregoing provisions of
this Article V shall be deemed to be a contract between the Corporation and each
Officer and Non-Officer Employee who serves in such capacity at any time while
this Article V is in effect, and any repeal or modification thereof shall not
affect any rights or obligations then existing with respect to any state of
facts then or theretofore existing or any Proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts. If a claim for
indemnification or advancement of expenses hereunder by an Officer or
Non-Officer Employee is not paid in full by the Corporation within 60 days after
a written claim for indemnification or documentation of expenses has been
received by the Corporation, such Officer or Non-Officer Employee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim, and if successful in whole or in part, such Officer or Non-Officer
Employee shall also be entitled to be paid the expenses of prosecuting such
claim. The failure of the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) to make a
determination concerning the permissibility of such indemnification or
advancement of expenses under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible
SECTION 7. Non-Exclusivity of Rights. The provisions in respect of
indemnification and the payment of expenses incurred in defending a Proceeding
in advance of its final disposition set forth in this Article V shall not be
exclusive of any right which any person may have or hereafter acquire under any
statute, provision of the Certificate or these Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise; provided, however, that in
the event the provisions of this Article V in any respect conflict with the
terms of any agreement between the Corporation or any of its subsidiaries and
any person entitled to indemnification under this Article V, then the provision
which is more favorable to the relevant individual shall govern.
SECTION 8. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Officer or Non-Officer Employee against any
liability of any character asserted against or incurred by the Corporation or
any such Officer or Non-Officer Employee, or arising out of any such status,
whether or not the Corporation would have the power to indemnify such person
against such liability under the DGCL or the provisions of this Article V.
<PAGE>
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. Except as otherwise determined by the Board
of Directors, the fiscal year of the Corporation shall end on the last day of
December of each year.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without Director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors
otherwise provides, the Chairman of the Board, if one is elected, the President
or the Treasurer may waive notice of and act on behalf of this Corporation, or
appoint another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
Certificate, Bylaws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 7. Certificate. All references in these Bylaws to the
Certificate shall be deemed to refer to the Amended and Restated Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
SECTION 8. Amendment of Bylaws.
(a) Amendment by Directors. Except as provided otherwise by law,
these Bylaws may be amended or repealed by the Board of Directors.
(b) Amendment by Stockholders. These Bylaws may be amended or repealed
at any annual meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least two-thirds of the total
votes eligible to be cast on such amendment or repeal by holders of voting
stock, voting together as a single class; provided, however, that if the Board
of Directors recommends that stockholders approve such amendment or repeal at
such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast on such
amendment or repeal by holders of voting stock, voting together as a single
class.
Adopted and effective as of ____________, 1997.
<PAGE>
Exhibit 21.1
Schedule of Subsidiaries
As of December 31, 1997
Name and address: EIN
WSI Med-Waste Systems, Inc. 04-3377563
(Formerly Biosafe Medical Waste Technology, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI Vermont Holdings, Inc. 03-0347845
(Formerly Waste Professionals of Vermont, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI Moretown Landfill, Inc. 03-0355691
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI Burlington Area Transfer Station, Inc. 04-3374689
(Formerly Burlington Area Transfer Station, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI Waitsfield Transfer Station, Inc. 04-3292469
(Formerly Waitsville Transfer Station, Inc.
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI of Vermont, Inc. 03-0354296
(Formerly WPV Disposal, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI Transportation, Inc. 04-3386989
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI of Massachusetts Holdings, Inc. 04-3301441
(Formerly Biosafe Buckland, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI of Farihaven, Inc. 04-3301442
(Formerly Biosafe Fairhaven, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
<PAGE>
WSI South Hadley, Inc. 04-3086959
(Formerly Biosafe, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI Pennsylvania Holdings, Inc. 04-3301448
(Formerly Biosafe Mid-Atlantic, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI Hopewell Landfill, Inc. 04-3301445
(Formerly Biosafe Pennsylvania, Inc.)
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI of Pennsylvania, Inc. 04-3301449
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI of Pennsylvania Transportation, Inc. 04-3301450
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
WSI Altoona Transfer Station, Inc. 04-3301447
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
Biosafe Systems, Inc. 36-4027808
420 Bedford Street, Suite 300
Lexington, Massachusetts 02173
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Waste Systems Intenational, Inc.)
</LEGEND>
<CIK> 0000847468
<NAME> Waste Systems International, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 2,964,274
<SECURITIES> 0
<RECEIVABLES> 944,793
<ALLOWANCES> 45,833
<INVENTORY> 0
<CURRENT-ASSETS> 5,275,159
<PP&E> 13,505,472
<DEPRECIATION> 1,018,289
<TOTAL-ASSETS> 18,560,254
<CURRENT-LIABILITIES> 3,742,763
<BONDS> 0
0
13,306,557
<COMMON> 38,934
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,560,254
<SALES> 3,457,692
<TOTAL-REVENUES> 3,457,692
<CGS> 0
<TOTAL-COSTS> 3,905,826
<OTHER-EXPENSES> 2,271,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,354,614
<INCOME-PRETAX> (5,454,054)
<INCOME-TAX> 5,622
<INCOME-CONTINUING> (5,459,676)
<DISCONTINUED> 0
<EXTRAORDINARY> (133,907)
<CHANGES> 0
<NET-INCOME> (5,588,612)
<EPS-PRIMARY> (1.55)
<EPS-DILUTED> (1.55)
