SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period Ended March 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
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SERVICE SYSTEMS INTERNATIONAL, LTD.
Name of Small Business Issuer in Its Charter
NEVADA 88-0263701
State of Incorporation I.R.S. Employer
Identification No.
202 - 11 BURBIDGE STREET,
COQUITLAM, B.C., CANADA V3K 7B2
Address of Principal Executive Offices Zip code
604-468-6200
Issuer's Telephone Number
2800 Ingleton Avenue, Burnaby, B.C. Canada V5C 6G7
(Former Address of Registrant)
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
Title of class
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 23,381,023 as of May 10, 2001
INDEX
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PART I Financial Information
Item 1. Consolidated Financial Statements.
- -------------------------------------------
Consolidated Balance Sheets as of March 31, 2001
and 2000 (unaudited) 3
Consolidated Statements of Operations for the three months ended
March 31, 2001 and 2000 (unaudited) 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2000 (unaudited) 5
Notes to the Financial Statements 6 to 11
Item 2 MANAGEMENT S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITIONS 12
Part II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2 CHANGES IN SECURITIES
ITEM 3. DEFAULT UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Signatures
Part 1. Financial Information
Item 1. Financial Statements (unaudited)
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Service Systems International, Ltd.
Consolidated Balance Sheets
As of March 31, 2001 and December 31, 2000
March 31, December 31,
2001 2000
(Unaudited) (Audited)
ASSETS $ $
Current Assets
Cash and short-term investments 73,445 30,219
Short-term investments - restricted (Note 3) 247,506 260,345
Accounts receivable 477,552 126,734
Inventory and contract work in progress 227,467 292,884
Prepaid expenses and deposits 84,066 21,514
---------- ----------
Total Current Assets 1,110,036 731,696
Property, Plant and Equipment (Note 4) 97,175 86,208
Other Assets
Goodwill (net of amortization of $2,102,017) 323,391 444,661
Patents and trademarks (Note 5) 58,600 50,527
---------- ----------
Total Assets 1,589,202 1,313,092
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable 283,424 178,949
Accrued liabilities 16,249 79,801
Wages & vacation pay payable 22,929 25,292
Customer deposits 205,287 147,163
Loans payable (Note 6) 947,616 567,453
Amounts owing to related parties (Note 7 (i)) 63,404 50,014
---------- ----------
Total Current Liabilities 1,538,909 1,048,672
Long-Term Debt
Amounts owing to related parties (Note 7 (ii)) 342,244 342,244
---------- ----------
Total Liabilities 1,881,153 1,390,916
---------- ----------
Stockholders' Equity (Deficiency)
Common stock, (Note 8) $.001 par value,
50,000,000 shares authorized,
22,426,023 and 22,214,023 issued and
outstanding respectively 22,426 22,214
Additional paid-in capital 7,146,710 7,067,856
Common shares paid for but unissued
(representing 950,000 shares) 445,600 390,600
Stock based compensation 149,326 149,326
Deficit (8,056,013) (7,707,820)
---------- ----------
Total Stockholders' Equity (Deficiency) (291,951) (77,824)
---------- ----------
Total Liabilities and Stockholders' Equity 1,589,202 1,313,092
========== ==========
See accompanying notes to financial statements
Service Systems International, Ltd.
Consolidated Statements of Operations and Deficit
(Unaudited)
Three Months Three Months
ended ended
Mar. 31, 2001 Mar. 31, 2000
(Unaudited) (Audited)
$ $
Project Revenue 407,719 54,766
Project Costs 240,715 49,305
---------- ----------
Gross Profit 167,004 5,461
Manufacturing Costs Not Applied 11,012 13,982
---------- ----------
155,993 (8,521)
---------- ----------
Expenses
Selling 66,607 45,451
General and administrative 206,030 108,953
Research and development 82,452 20,043
Amortization of goodwill 121,270 121,270
Interest, net of interest income
and interest recovered 16,048 (138,052)
Foreign exchange (gain) loss 11,779 (18,805)
---------- ----------
Total Expenses 504,186 138,860
---------- ----------
Net Loss for the period 348,193 147,381
========== ==========
$ $
Net Loss per share (0.02) (0.01)
========== ==========
# #
Weighted average shares outstanding 22,426,000 17,121,000
========== ==========
See accompanying notes to financial statements
Service Systems International, Ltd.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Three Months
ended ended
Mar. 31, 2001 Mar. 31, 2000
(Unaudited) (Audited)
$ $
Cash Flows to Operating Activities
Net loss (348,193) (147,381)
Adjustments to reconcile net loss to cash
Amortization of goodwill 121,270 121,270
Depreciation 15,751 18,211
Foreign exchange (gain) loss 11,779 (18,805)
Common stock issued for expenses 40,000 71,126
Recovery of interest on long-term debt - (119,670)
Accrual of interest 18,875 17,320
Change in non-cash working capital items
(Increase) decrease in accounts receivable (350,818) (35,385)
(Increase) in inventory and contract
work in progress 65,417 (15,246)
Decrease in prepaid expenses and deposits (62,552) (8,315)
Decrease (increase) in accounts payable,
accrued liabilities, wages and vacation
pay payable and customers' deposits 97,499 (20,684)
---------- ----------
Net Cash Used in Operating Activities (390,972) (137,559)
---------- ----------
Cash Flows (to) from Investing Activities
Acquisition of short-term investment -
restricted 246 2,393
Additions to patents and trademarks (8,794) (58,736)
Capital assets acquired (25,997) (16,948)
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Net Cash Used in Investing Activities (34,545) (73,291)
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Cash Flows from (to) Financing Activities
(Decrease) in bank demand loan - (23,129)
Common stock returned to treasury 39,065 668,679
Increase in loans payable 363,888 (388,504)
Increase in amounts owing to related parties 10,790 (31,748)
(Decrease) in borrowings from minority
shareholders - (42,257)
Increase in share subscriptions received 55,000 -
---------- ----------
Net Cash Provided by Financing Activities 468,743 183,041
---------- ----------
Increase in Cash 43,226 (27,809)
Cash - Beginning of Period 30,219 47,527
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Cash - End of Period 73,445 19,718
========== ==========
Non-Cash Financing Activities
4,223,832 common shares were issued
to settle debts at $0.58 per share - 2,449,383
========== ==========
Cash paid for interest 1,014 1,494
Cash paid for income taxes - -
See accompanying notes to financial statements
Service Systems International, Ltd.
Notes to the Consolidated Financial Statements
1. Nature of Operations and Continuance of Business
The Company manufactures and markets its Ultra Guard ultra violet based
patented water treatment system through its wholly-owned Canadian
subsidiary, UV Systems Technology Inc. ("UVS"). These products and systems
are sold primarily for municipal waste disinfection, treatment of process
and industrial wastewater, and for potable water, bottled products and
agriculture and aquaculture water treatment.
Operating activities have not yet produced significant revenue and the
Company has experienced significant losses to date. The ability of the
Company to continue operations is dependent upon its successful efforts to
raise additional equity financing in the long term, continue developing the
market for its products, and/or the attainment of profitable operations.
2. Significant Accounting Policies
Consolidated financial statements
These financial statements include the accounts of the Company, and its
Canadian subsidiary, UVS, of which the Company owned 50.7% until February
14, 2000, when it acquired 100% of UVS' capital stock.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, in banks and all highly
liquid investments with maturity of three months or less when purchased.
Cash equivalents are stated at cost, which approximates market.
Property, plant, and equipment
Property, Plant, and Equipment are recorded at cost. Depreciation is
computed on a straight-line method using an estimated useful life of five
years.
Goodwill
Goodwill represents the excess of purchase consideration over fair market
value of net identifiable assets acquired, and is amortized on a straight-
line basis over five years. Goodwill is evaluated in each reporting period
to determine if there were events or circumstances that would indicate
inability to recover the carrying amount. Such evaluation is based on
various analyses including discounted cash flows and profitability
projections that necessarily involve management judgment.
Patents and trademarks
Patents and trademarks will be amortized to operations over their estimated
useful lives of twenty years.
Revenue recognition
Product sales will be recognized at the time goods are shipped. System and
project revenue will be recognized utilizing the percentage of completion
method that recognizes project revenue and profit during construction based
on expected total profit and estimated progress towards completion during
the reporting period. All related costs are recognized in the period in
which they occur.
Estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities in
the financial statements and accompanying notes. Actual results could
differ from these estimates.
2. Significant Accounting Policies (continued)
Earnings per share
The earnings per share is computed by dividing the net income (loss) for
the period by the weighted average number of common shares outstanding for
the period. Common stock equivalents are excluded from the computation if
their effect would be anti-dilutive.
Foreign currency
i) Translation of foreign currency transactions and balances:
Revenue, expenses and non-monetary balance sheet items in foreign
currencies are translated into US dollars at the rate of exchange
prevailing on the transaction dates. Monetary balance sheet items
are translated at the rate prevailing at the balance sheet date. The
resulting exchange gain or loss is included in general and
administration expenses.
ii) Translation of foreign subsidiary balances:
Monetary balance sheet items of UVS are translated into US dollars at
the rates of exchange on the balance sheet date. Non-monetary balance
sheet items are translated into US dollars at the rate of exchange
prevailing on the transaction dates. The foreign subsidiary's
operating results are translated into US dollars using the average
exchange rate for the year with any translation gain or loss and are
included separately in operations.
Adjustments
These interim unaudited financial statements have been prepared on the same
basis as the annual financial statements and in the opinion of management,
reflect all adjustments, which include only normal recurring adjustments,
necessary to present fairly the Company's financial position, results of
operations and cash flows for the periods shown. The results of operations
for such periods are not necessarily indicative of the results expected for
a full year or for any future period.
3. Restricted Cash
In connection with a letter of credit, required under a long-term project
bonding, the Company purchased a C$391,000 face value Bankers' Acceptance
to be held as a bond for the letter of credit of C$390,809.
4. Property, Plant, and Equipment
Property, plant, and equipment are stated at cost less accumulated
depreciation.
Mar. 31, Dec. 31,
2001 2000
Accumulated Net Book Net Book
Cost Depreciation Value Value
$ $ $ $
Computer equipment 52,537 35,544 16,993 13,907
Computer software 8,184 5,047 3,137 3,380
Display equipment 33,016 32,858 158 1,809
Office furniture
and equipment 32,476 29,359 3,117 4,498
Plant jigs, dies, moulds,
tools and equipment 113,941 87,501 26,440 30,803
Leasehold improvements 52,403 5,073 47,330 31,811
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292,557 195,382 97,175 86,208
======= ======= ======= =======
4. Property, Plant, and Equipment
Depreciation per class of asset:
Depreciation per class of asset: Three months ended
Mar. 31, Mar.31,
2001 2000
$ $
Computer equipment 2,087 3,096
Computer software 242 546
Display equipment 1,651 2,201
Office furniture and equipment 1,532 2,165
Plant jigs, dies, moulds, tools and equipment 4,447 7,309
Leasehold improvements 5,073 445
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15,030 15,762
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5. Patents and Trademarks
Patents and trademarks represent legal costs associated with designing,
registering and protecting certain patents and trademarks associated with
the Ultra Guard System. These costs are amortized over twenty years.
Components of the Ultra Guard System were patented in the United States on
April 12, 1996. Applications have been approved for patent protection
under the International Patent Protection Treaty covering 13 European
countries. Translations and other requirements to formalize these patents
will continue through the current fiscal year.
6. Loans Payable
a) At December 31, 2000, the Company had loans payable to "Elco Bank
Clients" located in Nassau, Bahamas, of $431,036. During the period,
additional loans of $54,957 were received and interest of $11,045 was
accrued, bringing the loans payable balance to $497,038. The loans
payable to "Elco Bank Clients" are unsecured, interest bearing at 10%
per annum and due on demand.
b) Loans payable to a shareholder of $121,780 are unsecured and interest
bearing at 8% per annum.
c) Loans payable of $202,236 are unsecured and interest bearing at 12%
per annum and due on May 21, 2001.
d) Loans payable of $126,562 are unsecured, interest bearing at 10% per
annum and due on June 21, 2001.
7. Amounts Owing to Related Parties
(i) These amounts, totaling $63,404, are owing to two directors, due
on demand, unsecured and non-interest bearing.
(ii) During the quarter ended December 31, 2000, two directors
agreed to defer payment of their loans amounting to $342,244
until January, 2002.
8. Common Stock
Additional
Common Paid-in
Shares Stock Capital
# $ $
Balance, December 31, 2000 (audited) 22,214,023 22,214 7,067,856
Issuance of stock for expenses
pursuant to the exercise of
stock options 100,000 100 39,900
Issuance of stock for cash
pursuant to stock options,
exercised at $0.35 per share 100,000 112 39,088
Share issue costs (134)
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Balance, March 31, 2001 (unaudited) 22,426,023 22,426 7,146,710
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(a) Warrants outstanding as at March 31, 2001:
Exercise
Class # Price Expiry Date(s)
"A" 2,228,379 $.20-$1.00 June 30, 2001 - December 20, 2003
"B" 2,705,174 $.07-$.20 January 9, 2003 - December 3, 2003
"C" 3,000,000 $.97-$1.00 October 3, 2011
"D" 1,455,049 $0.40 June 2, 2002
"E" 6,130,553 $.20-$.90 December 31, 2001 - December 3, 2003
450,420 Class A warrants exercisable at between $.40 to $.90 per
share expiring June 30, 2001.
17,520 Class A warrants were issued at an exercise price of $.35
expiring April 8, 2002 in connection with a shares for debt agreement
where 17,520 shares were issued at $.35 to settle $6,132 of debt.
952,699 Class A warrants were issued at various exercise prices of
$.40 to $.90 per share with various expiry dates of June 30, 2001 to
December 20, 2003 pursuant to various private placements and stock
options exercised.
1,217,456 Class B warrants and 2,399,790 Class E warrants were issued
in connection with a shares for debt agreement.
1,684,482 Class E warrants issued in prior years were reduced to an
exercise price of $.20 per share and the expiration period was
extended to June 30, 2002.
100,000 Class A and 100,000 Class E warrants with an exercise price
of $.60 and $.90 respectively were issued with an expiry period of
May 29, 2002 in connection with 200,000 performance shares issued.
150,000 Class E warrants at an exercise price of $.40 were extended
from December 31, 2000 to December 31, 2001.
1,446,281 Class E warrants were issued at an exercise price of $.40
pursuant to stock options exercised. These warrants expire September
13, 2002.
450,000 Class E warrants were issued at an exercise price of $.40 -
$.90 per share pursuant to various private placements. These
warrants expire from December 31, 2000 - February 20, 2003.
100,000 Class A warrants were issued at an exercise price of $0.50
per share expiring December 15, 2003 for investor relations services.
The value of the warrants on the date of issue was $34,690 which was
charged to compensation expense.
400,000 Class A warrants were issued during the first quarter 2001
with an expiry date of December 8, 2002, 200,000 of these warrants
have an exercise price of $0.60 per share and the balance of 200,000
have an exercise price of $1.00 per share. These warrants were
issued pursuant to an agreement for private placement financing and
investor relations. The value of the warrants at the date of issue
was $91,320 which was charged to compensation expense. The Agreement
calls for a 7% finders fee to be paid pursuant to a private placement
of units at $0.50 per unit. The Agreement also calls for an option
to purchase 400,000 from an existing shareholder at an exercise price
of approximately $1.10 per share for a period of one year.
100,000 Class E warrants were issued at $0.70 per share expiring
August 31, 2002 for website development and other related services.
The value of these warrants were $20,540 at the date of issue which
was charged to compensation expense.
1,487,718 Class B warrants were issued and exercisable at $0.0695 per
share expiring January 9, 2003. These warrants were issued in
replacement of 1,487,718 stock options available to the Vice-
President.
3,000,000 Class C warrants were issued pursuant to a Strategic
Alliance and other agreements with US Filter's Wallace and Tiernan
Products Group, a wholly owned subsidiary of U.S. Filter ("US
Filter") to market and sell under license Service Systems' UltraGuard
ultraviolet disinfection technology for water and wastewater
applications. These warrants were issued as follows:
1,000,000 Class C warrants issued, exercisable equal to the lower of
$0.97 per share or the fair market value of the stock at April 25,
2001 expiring October 31, 2011 and restricted from exercise for two
years from October 3, 2000.
1,000,000 Class C warrants were issued at an exercise price of $1.00
per share, with expiry date of October 31, 2011 and restricted from
exercise for two years from October 3, 2000.
1,000,000 Class C warrants were issued at an exercise price of $2.00
per share, with expiry date of October 31, 2011 and restricted from
exercise for two years from October 3, 2000.
Warrants to be issued:
Following the end of the quarter, on April 20, 2001, the Company issued 712,500
Class A warrants at an exercise price of $1.00 per share with various expiry
dates from January 25, 2003 to February 7, 2003 pursuant to various private
placements.
(c) Employee Stock Option Plan
The issuance of the unissued common stock underlying the Employee
Stock Option Plan, 1,588,000 shares, was registered with the
Securities Exchange Commission on October 6, 1997 on Form S-8.
On August 21, 1997 employees were granted stock options to acquire
1,217,000 shares at $1.00 per share expiring August 21, 2000. These
options are currently unexercised.
On April 15, 1998 two directors and an employee were granted stock
options to acquire 341,000 shares at $0.15 per share expiring April
15, 2001. During fiscal 1999, 321,000 options were exercised for
proceeds of $48,150. The remaining 20,000 were exercised
subsequently.
On December 5, 2000, two employees were granted stock options to
acquire 112,000 shares at $0.35 per share, expiring December 5,
2002. During the first quarter of 2001, these stock options were
exercised.
On December 6, 2000, one consultant was granted stock options to
acquire 100,000 shares at $0.40 per share, expiring December 6,
2002. These options were exercised during the first quarter of
2001.
The options are granted for services provided to the Company.
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
requires that an enterprise recognize, or at its option, disclose
the impact of the fair value of stock options and other forms of
stock based compensation in the determination of income. The Company
has elected under SFAS 123 to continue to measure compensation cost
on the intrinsic value basis set out in APB Opinion No. 25. As
options are granted at exercise prices based on the market price of
the Company's shares at the date of grant, no compensation cost is
recognized. However, under SFAS 123, the impact on net income and
income per share of the fair value of stock options must be measured
and disclosed on a fair value based method on a pro forma basis.
The fair value of the employee's purchase rights under SFAS 123, was
estimated using the Black-Scholes model with the following
assumptions used for grants on August 21, 1997: risk free interest
rate was 5.57%, expected volatility of 120%, an expected option life
of three years and no expected dividends; and for grants on April 15,
1998: risk free interest rate was 5.56%, expected volatility of
120%, an expected option life of three years and no expected
dividends.
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the period ended March
31, 2001 and 2000 would have been the same as reported.
(d) Long-Term Equity Incentive Plan
The Company has allotted 5,000,000 shares pursuant to a Long-Term
Equity Incentive Plan approved and registered December 17, 1999. The
Plan permits the grant of Non-qualified Stock Options, Incentive
Stock Options, Restricted Stock and Performance Shares. During the
prior year 330,922 performance shares were granted at a fair market
value of $193,589.
9. Segment Information
The business of the Company is carried on in one industry segment (See Note
1). The Company operates in two geographic segments. The United States
operations only consist of costs associated with debt and equity financing
and being a public company.
Three months ended Three months ended
March 31, 2001 March 31, 2000
-------------- --------------
(unaudited) (unaudited)
United United
Canada States Total Canada States Total
$ $ $ $ $ $
Revenue 407,719 - 407,719 54,766 - 54,766
Expense 468,017 (290,895) 755,912 126,492 75,655 202,147
Income (loss) (57,298) (290,895) (348,193) (71,726) (75,655) (147,381)
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As of March 31, 2001 As of March 31, 2000
-------------------- --------------------
(unaudited) (unaudited)
Identifiable assets 1,154,605 52,606 1,207,211 860,533 14,718 875,251
Goodwill and patents 50,527 323,391 381,991 314,000 808,472 1,122,472
--------------------------------------------------------------------------------------------------------------
Total assets 1,213,205 375,997 1,589,202 1,174,533 823,190 1,997,723
==============================================================================================================
10. Legal Proceedings
On October 20, 1998 a suit was filed in the Supreme Court of British
Columbia by Thomas O'Flynn against the Company, Kenneth Fielding (the
Company's President and Director), and Charles P. Nield (a former
Director and Vice President of the Company), O'Flynn alleges that in
April of 1996, he purchased shares of the Common Stock based on a
representation that they would be free trading in 40 days of "the
filing of a prospectus." He further alleges that in September of 1996 he
purchased additional shares of Common Stock based on the representation
that the shares would be free trading within 40 days of the Common Stock
becoming free trading. O'Flynn alleges that the representation was a
warranty and was incorrect. He further alleges that he suffered a loss
because the share price decreased while he was holding the shares. He
seeks damages for breach of warranty, negligence, misrepresentation and
breach of fiduciary duty. The amount claimed is not specified. The
Company filed an answer denying the claims and continues to actively defend
the suit. There has been no loss provision set-up pursuant to this action
against the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS AND FINANCIAL
CONDITION.
The following discussion and analysis should be read in conjunction with our
Financial Statements and the Notes attached. Information discussed in this
report may include forward-looking statements regarding events or our financial
performance and are subject to a number of risks and other factors, which could
cause the actual results to differ materially from those, contained in the
forward-looking statements. Among such factors are,1) general business and
economic conditions, 2) customer acceptance and demand for our products, 3) our
overall ability to design, test and introduce new products on a timely basis, 4)
the nature of the markets addressed by our products, and, 5) other risk factors
listed from time to time in documents filed by our company with the SEC.
BASIS OF PRESENTATION
The financial statements include accounts of Service Systems International Ltd.
and its 100% owned subsidiary, UV Systems Technology Inc. ("UVS")
MANAGEMENT'S DISCUSSION
Our company was incorporated in the State of Nevada in August 1990, and remained
inactive until September 1995. The initiation of the current business was
accompanied by a change of ownership (see Service System Background ). Through
UVS, Service Systems manufactures and markets its Ultra Guard ultra
violet-based patented water treatment system. These products are sold primarily
for municipal wastewater disinfection; however, the system can also be adapted
for treatment of process and industrial wastewater, and for potable water,
bottled products and agriculture and aquaculture water treatment.
In September 1995 Service Systems initiated a marketing distribution agreement
with UVS, a manufacturer of equipment using proprietary ultraviolet light
technology for the microbiological disinfection of industrial and municipal
wastewater. In July 1996 Service Systems entered into a funding agreement with
UVS, whereby under the funding agreement, Service Systems provided 50% of UVS'
operating cash needs for a six-month period. On December 1, 1996, Service
Systems acquired 50.69% of the common stock of UVS from two principals and the
minority stockholders. On February 14, 2000, Service Systems entered into an
agreement with the remaining two minority stockholders, Growth Works Capital
Ltd. (Managers of Working Opportunity Fund (EVCC) Ltd.) (WOF) and MDS Ventures
Pacific Inc.(MDS), to acquire the remaining 49.31% common stock and preferred
stock. Under this letter agreement, Service Systems issued to WOF 2,809,723
shares of restricted common shares under Regulation S to acquire all UVST Class
A and B shares held by WOF and debt of UVST totaling C$2,301,098 and to MDS
1,404,109 shares of restricted common shares under Regulation S to acquire all
UVST Class A and B shares held by MDS and debt of UVST totaling C$1,275,000.
During the period from December 1, 1996 to September 30, 1997, Service Systems
continued with UVS' system development and testing programs. These programs
included the development of both a mechanical and electronic automatic quartz
sheath cleaning system, to remove the fouling build-up due to suspended solids
and chemical prevalent in wastewater.
Field testing of the mechanical wiper cleaning system was concluded during
October and November 1997, at a production demonstration unit ("PDU") test site
near Montreal, Quebec. The test results concluded that the cleaning system did
perform above anticipated levels, and the system has now been incorporated into
current products sold. The temperature control system for the UVS System was
also tested at the Ville de Repentigney test site during temperatures ranging
down to minus 8 degrees Celsius. The test showed that with temperature control,
infinite variable lamp UV output intensity was stable and controllable. This
feature is now included on all product sales. The benefits of the temperature
control are, instant response to changes in power settings, consistent UV
output, infinite controllability through full range of UV settings, and expected
longer lamp-in-service life. To our knowledge, no other UV equipment supplier
can offer this degree of control of a UV lamp. Development of the electronic
ultrasonic cleaning system has been placed in abeyance pending availability of
additional development funds.
Negotiations continue on finalizing a project delivered to New Zealand in 1995
by UVS and release of hold back funds. Testing of the system is ongoing to
determine if the equipment is in compliance at times of correct effluent flow
conditions. During the fiscal year ended August 31, 2000, the client ordered
changes to its UV system amounting to C$31,200 and C$45,952, all of which was
prepaid. C$31,200 of the work was completed in fiscal 2000. The work to be
completed includes replacement lamp controllers, which are in construction for
the Single Lamp Reactors but will require addition features for remote location
mounting to replace the controllers at this location. This work is expected to
be completed in August 2001.
A 6-lamp Ultra Guard UV system valued at $127,000, capable of disinfecting a
wastewater flow of 3.5 million gallons per day, was sold to Hamilton, Alabama
and was installed in March, 1999. Successful final performance testing was
conducted in July 1999. This UV project is the first full scale operating Ultra
Guard UV system installed in North America. This system in Hamilton has
provided significant equipment exposure to other wastewater plants contemplating
upgrading their treatment plant discharges, including replacing chlorine as the
disinfecting means with environmentally friendly ultraviolet disinfection.
In September 1999 the formal order for a project in Toronto, Canada was secured
for about C$685,000 (approximately $466,000). The project is currently in design
and manufacture and has again been rescheduled for delivery due to delays in
delivery of components. Delivery is now scheduled for August 2001. The UV
system to be delivered to Toronto is part of a C$50 million combined storm
overflows (CSO) project (the world largest submersible CSO pumping station) and
will be used for disinfection of CSO before discharge into Lake Ontario.
After successful PDU testing in September & October 1998 at the City of
Peterborough wastewater treatment plant, we received an order valued at over
C$1,100,000 (approximately $748,000.) in March 1999. The UV system will
disinfect effluent flow in excess of 36 million gallons per day. The wastewater
plant has been rescheduled to be operational in September 2001.
Purchase orders for two additional UV systems valued at approximately C$150,000
(approximately $258,000.) were produced during the 2000-2001 period and will be
delivered into the Province of Ontario. One project was delivered in May, 2000
and the second partially shipped in January, 2001, with the balance to be
delivered in the third quarter of the 2001 fiscal year. Additional orders for
shipment to Louisiana and Virginia were received, with an aggregate value of
about $258,000. These two systems are to be delivered in 2001.
In January 1999 a PDU was installed at the County Sanitation Districts of Los
Angeles Country (the County). The purpose of the test was to determine the Ultra
Guard UV system's ability to disinfect wastewater to Title 22 Guidelines, a
stringent test protocol required as a precursor to use of a company's UV product
in reuse of wastewater for agriculture and other purposes. Testing was
completed in July 1999 and was conducted and paid for by the County. The County
reported that the findings of the five-month testing program confirmed the
ability of the Ultra Guard UV system to achieve Title 22 design objectives at
fifty percent of the dose required by low pressure, low intensity technology
previously tested. Using the same safeties as had been applied to low pressure,
low intensity technology, a substantial saving in energy usage, 12.7%, was
achieved by using the Ultra Guard system. On February 28, 2000 the Department
of Health Services advised Service Systems that Title 22 approval had been
granted.
In October 1999 Service Systems signed an agreement with a leading Australian UV
equipment manufacturer to market its product in North America. The products
provided through this agreement will permit Service Systems to sell into market
areas not currently serviced. These products will service small to intermediate
scale projects for municipal and industrial clients in the area of potable
water, food processing and recreational services. In addition, the products are
used by clients requiring treatment solutions beyond disinfection, such as
oxidation of chemical and organic by-products occurring in nature as well as
those occurring as a result of production processes. The implementation of these
products into Service Systems' product line has been delayed, pending setup of a
division to lead this business segment and the funding necessary for its
implementation. As a result of the rapidly expanding need for the use of UV in
the disinfection of potable water, this implementation has been placed high on
Service Systems' priority list as a business segment to develop and exploit in
the 2001 fiscal year.
During the fiscal year ended August 31, 2000, Service Systems began development
to reconfigure its UV system. In the quarter ended February 29, 2001, Service
Systems produced the prototype of a new UV product line, the Ultra-Flow SLR.
This product, with a designed disinfection capacity of up to 1.0 million gallons
per day per lamp, will incorporate Service Systems' patented flow reactor
chamber, the proprietary low pressure, high intensity UV lamp, and the patented
flow balanced weir. It encompasses layout flexibility, infinite automatic flow
control and monitoring, and future expansion can be easily accomplished. The
client can monitor system and component performance locally or remotely.
Additional features include full password-protected, Internet-based,
web-monitored, microprocessor control which will permit monitoring of the
Ultra-Flow SLR UV system from Service Systems' plant or from any location
equipped with an Internet connection. As part of this SLR development, Service
Systems proceeded on the development of a Power Controller with increased power
and lamp striking voltage. The work on this component of the SLR has been
slower than anticipated, the result of which is the rescheduling of jobs in
progress. Prototype testing has been completed, and products have been ordered
and will be available starting July 2001 to complete all projects by the end of
the third quarter of fiscal 2001.
On January 25, 2001, Service Systems and its wholly owned subsidiary, UV Systems
Technology, Inc., a British Columbia company ("UV Systems"), entered into a
Strategic Alliance Agreement and related agreements with US Filter/Wallace &
Tiernan, Inc., a Delaware corporation ("U.S. Filter "). In general, the
Strategic Alliance Agreement provides that U.S. Filter will market, offer and
sell Service Systems' UltraGuard ultraviolet disinfection systems (the
"Systems"), including aftermarket components and spare parts, on an exclusive
basis for ten years throughout a territory consisting of North America, Central
America (including the Caribbean Zone) and South America (the "Territory").
Certain of the basic terms of the Strategic Alliance Agreement and the related
agreements are summarized below. The summaries are subject to and qualified by
the agreements themselves. Reference should be made to the agreements
themselves to insure adequate understanding.
Strategic Alliance Agreement. The parties to the Strategic Alliance Agreement
- ----------------------------
are Service Systems and UV Systems, and U.S. Filter/Wallace & Tiernan, Inc. The
term of the Strategic Alliance Agreement is ten years, subject to earlier
termination, including a termination for convenience by either party after three
years. If not terminated, the Agreement is subject to automatic one-year
renewals. During the term, U.S. Filter will act as the exclusive agent within
the Territory for the marketing, sales and distribution of the Systems,
including aftermarket components and spare parts, for all municipal (excluding
aquatics) and industrial water and wastewater treatment applications. Service
Systems will refrain from any direct or indirect attempt to market, sell or
distribute Systems or components within the Territory. U.S. Filter will use its
existing sales network and distribution system to market, offer and distribute
the Systems, and also will provide start up assistance, ongoing service, and
components, parts and spares installation support. U.S. Filter will cause
certain companies related to it to refrain from any direct or indirect attempt
to market, sell or distribute competitive products within the Territory.
Service Systems will sell ultraviolet disinfection systems and components to
U.S. Filter, and will provide related support services. The purchase price to
be paid by U.S. Filter for each System or component manufactured or supplied by
Service Systems will be based upon Service Systems' list price and applicable
tax, less a negotiated deduction, and will be subject to further adjustment
depending upon the price at which U.S. Filter sells the System or component to
the end user. U.S. Filter will make progress payments as the design and
manufacture of the System progresses through to delivery and final acceptance of
the System by the end user. If Service Systems is unable or unwilling to meet
specified manufacture and supply requirements, then U.S. Filter may manufacture
and supply Systems and components. U.S. Filter will pay a royalty payment for
each System or component, whether manufactured or supplied by Service System or
U.S. Filter. The Strategic Alliance Agreement also gives U.S. Filter a right of
first refusal with respect to any distribution or marketing agreements, which
Service Systems or UV Systems may wish to make outside the Territory.
License Agreement. Service Systems, UV Systems and U.S. Filter also entered
- -----------------
into a License Agreement by which Service System and UV Systems granted to U.S.
Filter certain exclusive rights in and to patents, trademarks, trade secrets,
copyrights, software and know-how related to the sale, distribution, promotion,
marketing or manufacture of Systems for installation within the Territory. U.S.
Filter will pay a royalty equal to 5% of the net sales price with respect to any
System manufactured or supplied by Service Systems/UV Systems and a royalty
between 5% and 10% with respect to any System manufactured or supplied by U.S.
Filter. In connection with the License Agreement, the parties have entered a
Trust Agreement with Fort Knox Escrow Services, Inc., a Georgia corporation,
which provides that software and manufacturing instructions be placed into
escrow.
Stock Purchase Warrants. Concurrently with the execution of the Strategic
- -----------------------
Alliance Agreement, Service Systems granted three Stock Purchase Warrants to
U.S. Filter for an aggregate of 3,000,000 shares of Service Systems common
stock, as follows:
* 1,000,000 shares at an exercise price equal to the lower of $0.97 per
share or the "Fair Market Value" of the common stock as of April 25,
2001, calculated as $0.3265;
* 1,000,000 shares at an exercise price of $1.00 per share; and
* 1,000,000 shares at an exercise price of $2.00 per share.
The warrants may be exercised from time to time from October 3, 2002 up to and
including October 10, 2010. If the Strategic Alliance Agreement is terminated
for convenience, the warrants will expire on the second anniversary of the
effective date of the termination for convenience. In addition, on January 25
of each year during the term of the Strategic Alliance Agreement, Service
Systems will grant to U.S. Filter additional warrants to purchase Service
Systems common stock, based upon the orders for Systems booked or significantly
influenced by U.S. Filter during the preceding 12 months. Provided at least
US$1,000,000 of orders for Systems have been booked or influenced, each warrant
will permit U.S. Filter to purchase 50,000 shares and also 500 shares for each
US$10,000 of orders for Systems booked or significantly influenced by U.S.
Filter in excess of US$1,000,000 during the preceding 12 months.
Registration Rights Agreement. Service Systems and U.S. Filter also entered
- -----------------------------
into a Registration Rights Agreement. The Registration Rights Agreement
entitles U.S. Filter to demand registrations (two long form registrations and,
if available, short form registrations at specified intervals) and piggyback
registrations for the shares of Service Systems common stock issued upon
exercise of the warrants.
Security Agreement. Service Systems and UV Systems have granted to U.S. Filter
- ------------------
a security interest in certain rights in and to their patents, trademarks, trade
secrets, copyrights, soft ware and know how, and contracts related to the use or
exploitation of these rights in connection with the sale, distribution,
promotion, marketing or manufacture of Systems for installation within the
Territory. The security interest secures an obligation to make a $100,000
payment under the Strategic Alliance Agreement upon a termination by
convenience, or a termination, rejection, disclaiming or repudiation of the
License Agreement in connection with insolvency proceedings.
Service Systems believes the Strategic Alliance with US Filter will benefit
Service Systems through a reduction of operating and working capital, as US
Filter will be responsible for sales and marketing expenses and after sales
costs associated with start up, installation support and ongoing service, among
other things. Due to the operational cost reduction, margin expectations remain
consistent with those contemplated before the signing of the Agreement.
With the signing of our Strategic Alliance Agreements and related agreements
with US Filter's Wallace and Tiernan Products Group on January 25, 2001, the
responsibility for marketing the Ultra Guard systems within the Exclusive
Territory was transferred to US Filter. The exclusive territory consists of
North, South and Central America and the Caribbean. At this time, a joint
determination is being made as to which of our agents will be retained by US
Filter, those not taken over will be terminated. US Filter's representative
companies will then have the responsibility for all our sales within the
Exclusive Territory.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001.
Three months ended March 31, 2001 compared to three months ended
March 31, 2000.
Revenues. During the first quarter of fiscal 2001, we reported revenues
of $407,719 compared to revenues of $54,766 being reported in the first
quarter of fiscal 2000, an increase of $352,953 or 644% The increase was as a
result of project components shipped and invoiced and projected percentage
completion of projects in progress in the factory.
Direct Project Costs. Project costs recorded during the first quarter of
fiscal 2001 amounted to $240,305 compared to $49,305 in the first quarter of
2000, an increase of 388%. The increase in cost incurred, was as a result of the
increase sales shipments and projected cost of sales on projects in process .
Gross Profit. Gross profits rose to $167,004 during the first quarter on
2001, compared to $5,461 recorded during the first quarter of fiscal 2000 . The
increase was due to the increased in sales recorded, with higher margins being
achieved on these sales.
Manufacturing Costs Not Applied. Manufacturing costs not applied are
annual plant overhead costs, that are not being charged against contracts. The
balance not charged is identified as manufacturing cost not applied. As our
level of activity increases, we expect that these costs will be fully recovered.
For the first quarter of fiscal 2001, we reported $11,011 of these costs, a
decrease of $ 2,971, or 21%, from $13,982, in the comparable period of the
prior year. This decrease occurred as a result of increased sales activity
which allowed more of the overhead costs to be applied directly to production
costs. The reported amounts represent manufacturing costs such as facilities,
plant personnel, power, etc. which continue irrespective of manufacturing
activity.
Selling Expenses. For the first quarter of fiscal 2001, we reported
selling expenses of $66,607, an increase of $21,156, or 47% from $45,451
reported in the comparable period of the prior year. This increase primarily
was a result of increased travel and training costs incurred due to the
Strategic Alliance signed with US Filter/Wallace & Tiernan, Inc.
General and Administrative Expense. For the first quarter of fiscal 2001,
we reported general and administrative expense of $206,030, an increase of
$97,077, or 89%, from $108,953 reported in the comparable period of the prior
year. This increase resulted primarily from increased salaries and salary
related costs, increased office facility costs due to the transitional costs of
two locations during transfer to our new facilities and increased consulting
fees.
Research and Development Expense. For the first quarter of fiscal 2001, we
reported research and development expense of $82,452, an increase of $62,409,
or 311% from $20,043 in the comparable period of the prior year. The increase
in design costs and engineering and prototyping expenses was due to the full
write-off of all R & D activity costs incurred during this first quarter of
fiscal 2001.
Amortization of Goodwill. For the first quarter of fiscal 2001, we
reported amortization of goodwill of $121,270, the same figure for the
comparable period of the prior year. The goodwill resulted from our acquisition
of a majority interest in our subsidiary, UVS. The goodwill will be completely
amortized in fiscal 2001.
Interest, Net of Interest Income. For the first quarter of fiscal 2001, we
reported interest, net of interest income, of $16,048, an increase of
$154,100, over $(138,052) in the comparable period of the prior year. This
increase was due to interest costs on increased short term loans incurred in
this fiscal quarter of 2001 compared to the favorable results due to
forgiveness of interest on long term debt negotiated with minority shareholders,
recorded in the first quarter of fiscal 2000.
Foreign Exchange Translation Loss. For the first quarter of fiscal 2001,
we reported a foreign exchange translation loss n of $11,779, an increase of
$30,584, or 163%, over $(18,805) in the comparable period of prior year. The
increase in cost in the fiscal 2001 resulted from an increase in the value of
the Canadian dollar as compared to previous fiscal periods.
Net Loss for the Period. For the first quarter of fiscal 2001, we reported
a net loss for the period of $348,193, an increase of $200,812 or 136% over
$147,381 in the comparable period of prior year. The increase in net loss was
due primarily to the increased selling, general and administrative expense, and
write-off of engineering and prototyping expenses, during fiscal 2001 compared
to gains in foreign exchange accounts and interest expense forgiveness
negotiated with minority shareholders during fiscal 2000.
Net Loss per Share. For the first quarter of fiscal 2001, we reported a
net loss per share for the period of $0.02, an increase of $0.01, or 100% from
$0.01 in the comparable period of prior year. The net loss per share
increased as a result of the increased net loss. This net loss increase was
partly offset by the loss being allocated over an increased number of shares
outstanding and share equivalents in fiscal 2001.
LIQUIDITY
The nature of our business may be expected to include a normal lag time between
the incurring of operating expenses and the collection of contract receivables,
which may be expected to be due largely from governments, if and when sales are
made. In addition, we are dependent on sales to a licensee, which is obligated
to purchase agreed upon system components, and on awards of water treatment
system contracts for non-recurring projects. Many of our contracts may be
expected to include provision for hold back, entitling the other party to the
contract to withhold a specified portion of the payment for a given period of
time until after completion of a project. For these and other reasons, we may
experience periods of limited working capital and may be expected to require
financing for working capital during those periods. Pursuant to the Strategic
Alliance Agreement, 35% of project financing is paid to Service Systems before
shipping of the project.
Our sales of Ultra Guard systems to governmental entities outside of the
Strategic Alliance distribution area may be expected to occur on an intermittent
rather than consistent basis as requests for proposal ("RFP") are issued and
awards made. Sales on both an annual and quarterly basis are subject to
fluctuations that are often beyond our control.
In addition, we will require financing over and above our current resources to
sustain our operations and expand our marketing efforts. We cannot assure that
the additional financing can be obtained on a timely basis, on terms that are
acceptable or if at all.
We financed our operations during this fiscal period from progress payments
received from work in progress, and in part, from proceeds of sales of
restricted common stock, short term loans, loans from related parties and
minority shareholders of Service Systems.
We expect that during fiscal 2001, project sales should increase, as a result of
the signed Strategic Alliance (SA) with US Filter. During the first quarter of
fiscal 2001, since the signing of the SA, activities with US Filter included
transfer of marketing and quotation information, training of the US Filter
General Manger of UV products both at our premises and at US Filter's offices,
training of their in-house sales quotation personnel and application engineer.
We also held two regional training seminars for their area managers and agent
sales forces in Nevada and Florida. Marketing activities included 52 project
quotations. Orders for two production demonstration units (PDU) are being
negotiated with US Filter and one PDU demonstration project is currently
underway in Illinois. Additional PDU demonstration projects have been requested
by potential UV system users and are being scheduled around unit availability.
We expect to fund project orders received from US Filter primarily through the
progress payments to be provided in the US Filter agreements. As well, we will
continue to depend on receipt of additional funds through public or private
equity or debt sales or other lender financing to fund the expansion of our
market in territories not covered within the Strategic Alliance, in potable
water industry activities, and the manufacturing of products sold and general
operational and sales expenses. Except as previously indicated, no arrangements
are currently in place to raise funds, although we actively continue to seek
sources. Failure to receive these funds may be expected to have a material
adverse effect on our company.
Part II Other Information
Item 1. Legal Proceedings
On October 20, 1998 a suit was filed in the Supreme Court of British Columbia by
Thomas O' Flynn against the Company, Kenneth Fielding (the Company's President
and Director), and Charles P. Nield (a former Director and Vice President of
the Company). O' Flynn alleges that in April of 1996, he purchased shares of the
Common Stock based on a representation that they would be free trading in 40
days of "the filing of a prospectus". He further alleges that in September of
1996 he purchased additional shares of Common Stock based on the representation
that the shares would be free trading within 40 days of the Common Stock
becoming free trading. O' Flynn alleges that the representation was a warranty
and was incorrect. He further alleges that he suffered a loss because the share
price decreased while he was holding the shares. He seeks damages for breach of
warranty, negligence, misrepresentation and breach of fiduciary duty. The amount
claimed is not specified. The Company filed an answer denying the claims and
continues to actively defend the suit. Examination for discovery of Charles P.
Nield was conducted in June 1999; since then there has been no further activity.
Item 2. Changes in Securities
Sales of and issuances of the securities during the quarter ended March
31, 2001 were:
Service Systems issued the following shares of common stock to two Canadians
employees for cash and one Canadian consultant for technical services.
Table
Date Shares Residence/ Consideration
Exemption Citizenship Valued at
- -------------------------------------------------------------------------------
Jan 9, 2001 100,000 Canada Exercise price of option
for services valued at $40,00 N/A*
Jan 3, 2001 100,000 Canada Exercise price of option
for services valued at $35,000 N/A*
Jan 9, 2001 12,000 Canada Exercise price of option
for services valued at $4,200 N/A*
*Registered on Form S-8 on October 6, 1997
Warrants Issued
- ---------------
On January, 2001, 1,487,718 Class B warrants were issued at an exercise price
of $0.0695, with an expiry date of January 9, 2003. These warrants were
issued in replacement of a 1,487,718 stock option agreement available to the
Vice-President.
On January 25, 2001, 3,000,000 Class C warrants were issued at various prices,
pursuant to a Strategic Alliance and other agreements with US Filter's Wallace
and Tiernan Products Group pursuant to Section 4(2) of the Securities Act of
1933 as follows:
1,000,000 Class C warrants issued, exercisable at $0.3265 per share
expiring October 31, 2011 and restricted from exercise for two years from
October 3, 2000.
1,000,000 Class C warrants were issued at an exercise price of $1.00 per
share, with expiry date of October 31, 2011 and restricted from exercise
for two years from October 3, 2000.
1,000,000 Class C warrants were issued at an exercise price of $2.00 per
share, with expiry date of October 31, 2011 and restricted from exercise
for two years from October 3, 2000.
400,000 Class A warrants were issued during the first quarter 2001 with an
expiry date of December 8, 2002, 200,000 of these warrants have an exercise
price of $0.60 per share and the balance of 200,000 have an exercise price
of $1.00 per share,. These warrants were issued pursuant to an agreement
for private placement financing and investor relations. The value of the
warrants at the date of issue was $91,320 which was charged to compensation
expense. The Agreement calls for a 7% finders fee to be paid pursuant to a
private placement of units at $0.50 per unit. The Agreement also calls for
an option to purchase 400,000 from an existing shareholder at an exercise
price of approximately $1.10 per share for a period of one year.
Each of these investors were informed of the risks involved in an investment in
Service Systems and had all information about Service Systems that they needed
to make an informed investment in Service Systems.
Item 3. Defaults upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (exhibit reference numbers refer to Item 601 of
Regulation SB
Exhibit Number Description Method of Filing
(3)(I) Articles of Incorporation (1)
(3)(ii) Bylaws, as amended (2)
(10)(iii) Agreement between Douglas
Sommerville and Company dated
12/6/96 (3)
(10)(iv) Agreement between John Gaetz
and the Company dated 12/6/96 (3)
(10)(v) Sample Agreement among minority
Shareholders of UV Systems
Technology, Inc. and the Company
each dated 2/28/97 (3)
(10)(vi) Marketing Distribution Agreement
Between UV Systems Technology, Inc.
and the Company (2)
(10)(vii) Sales Representation Agreement
between UV Systems Technology,
Inc. and "The Representative" (2)
(10)(viii) Exclusive Distributorship Agreement
Between UV Waterguard Systems, Inc.
and Chiyoda Kohan Co., Ltd., and NIMAC
Corporation. (2)
(10)(ix) 1997 Stock Option Plan (4)
(10)(x) Interim Funding Agreement
between UVS, MDS and WOF (5)
(10)(xi) Letter Agreement between Service
Systems and Elco Bank and Trust
Company Limited (6)
(10)(xii) Loan Agreement between the Company
and TD Bank (6)
(10)(xiii) Service Systems 1999 Long-Term
Equity Incentive Plan (7)
(10)(xiv) Letter Agreement between Service
Systems, UVS, WOF and MDS dated
February 13, 2000(7)
(10)(xv) Lease dated October, 2000 between
Service Systems, UV Technology Inc.
and Slough Estates Canada Limited(8)
(10)(xvi) Amended 1999 Long-Term Equity Incentive
Plan Filed Herewith
Electronically
(10)(xvii) Strategic Alliance Agreement Between
Service Systems, UV Technology, Inc.
And US Filter dated January 25, 2001(9)
(11) Statement Regarding Computation Filed Herewith
of Per Share Earnings Electronically
(21) Subsidiaries of the Corporation:
UV Systems Technology, Inc.,
incorporated in British Columbia,
Canada ***
(1) Incorporates by reference to the Corporation's Form 10SB effective
on January 22, 1997.
(2) Incorporated by reference to the Corporation's Form S-8 filed with the
Commission on October 6, 1997.
(3) Incorporated by reference to the Corporation's Form 10Q for the fiscal
quarter ended February 28, 1997.
(4) Incorporation by reference to the Corporation's Form 10KSB for the fiscal
Year ended August 31, 1997.
(5) Incorporation by reference to the Corporation's Form 10KSB for the fiscal
Year ended August 31, 1998
(6) Incorporated by reference to the Corporation's Form 10KSB for the fiscal
year ended August 31, 1999
(7) Incorporated by reference to the Corporation's Form 10QSB for the fiscal
quarter ended February 29, 2000.
(8) Incorporated by reference to the Corporation's Form 10KSB for the fiscal
year ended August 31, 2000
(9) Incorporated by reference to the Corporation's Form 8-K filed February
27, 2001
(b) Reports on Form 8-K
The Company filed one report on Form 8-K, filed on February 27, 2001 during
the period ended March 31, 2001 which reported the completion of the agreement
between the Company, UV Systems Technology, Inc. and US Filter.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
SERVICE SYSTEMS INTERNATIONAL, LTD.
/s/ Kenneth R. Fielding
--------------------------------
Kenneth R. Fielding, President
Date: May 23, 2001 /s/ Ken Fielding
- ------------------
Ken Fielding, President
Date: May 19, 2001 /s/ John R Gaetz
- ------------------
John R Gaetz, Principal Financial Officer
EXHIBIT 10XVI
Service Systems International, Ltd.
1999 Long-Term Equity Incentive Plan
Section 1. Purpose
Service Systems International, Ltd. (hereinafter referred to as the "Company"),
a Nevada corporation, hereby establishes the 1999 Long-Term Equity Incentive
Plan (the "Plan") to promote the interests of the Company and its shareholders
through the (i) attraction and retention of directors, executive officers and
other key employees essential to the success of the Company; (ii) motivation
of executive officers and other key employees using performance related and
stock based incentives linked to longer range performance goals and the
interests of Company shareholders; and (iii) enabling of these directors and
employees to share in the long term growth and success of the Company. The
Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options
(intended to qualify under Section 422 of the Internal Revenue Code of 1986,
as amended), Restricted Stock, and Performance Shares, subject to the
provisions of this Plan document and applicable law.
Section 2. Effective Date and Duration
The Plan was approved by the Committee and the Board of Directors on December
17, 1999. The Plan shall be effective on December 17, 1999; however, any Award
granted under this Plan before the Plan is approved by shareholders, shall be
granted subject to shareholder approval of the Plan if that approval is, in the
sole determination of the Board of Directors, required for any reason. The Plan
shall expire on December 17, 2009; however, all Awards made before, and
outstanding on that date, shall remain valid in accordance with their terms and
conditions.
Section 3. Definitions
Except as otherwise defined in the Plan, the following terms shall have the
meanings set forth below:
3.1 "Affiliate" shall have the meaning ascribed to such term in Rule 12b 2
under the Exchange Act.
3.2 "Award" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, Restricted Stock, or
Performance Shares.
3.3 "Award Date" or "Grant Date" means the date on which an Award is made by
the Committee under this Plan.
3.4 "Award Agreement" or "Agreement" means a written agreement implementing the
grant of each Award signed by an authorized officer of the Company and by the
Participant.
3.5 "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d
3 under the Exchange Act.
3.6 "Board" or "Board of Directors" means the Board of Directors of the
Company.
3.7 "Cashless Exercise" means the exercise of an Option by the Participant
through the use of a brokerage firm to make payment to the Company of the
exercise price either from the proceeds of a loan to the Participant from the
brokerage firm or from the proceeds of the sale of Stock issued pursuant to the
exercise of the Option, and upon receipt of such payment, the Company delivers
the exercised Shares to the brokerage firm. The date of exercise of a Cashless
Exercise shall be the date the broker executes the sale of exercised Shares, or
if no sale is made, the date the broker receives the exercise loan notice from
the Participant to pay the Company for the exercised Shares.
3.8 "Change in Control" means a change in control of the Company of a nature
that would be required to be reported in response to Item 1(a) of the Current
Report on Form 8 K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Exchange Act; provided, that without limitation, such a Change in
Control shall be deemed to have occurred at such time as a "person" (as used in
Section 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d 3 under the Exchange Act), directly or indirectly, of 15% or
more of the combined voting power of the Company's outstanding securities
ordinarily having the right to vote in elections of directors; or (b)
individuals who constitute the Board of Directors of the Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a Director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the Directors
comprising the Incumbent Board shall be, for purposes of this subsection (b),
considered as though such person were a member of the Incumbent Board.
Notwithstanding the foregoing definition, no Change in Control shall be
deemed to have occurred unless and until the Participant has actual knowledge
from one of the following sources: a report filed with the Securities and
Exchange Commission, a public statement issued by the Company, or a periodical
of general circulation, including but not limited to The New York Times or The
Wall Street Journal.
3.9 "Code" means the Internal Revenue Code of 1986, as amended from time to
time.
3.10 "Committee" means the Compensation Committee of the Board which will
administer the Plan pursuant to Section 4 herein
3.11 "Common Stock" or "Stock"
means the Common Stock of the Company, or such other security or right or
instrument into which such Common Stock may be changed or converted in the
future.
3.12 "Company" means Service Systems International, Ltd., including all
Affiliates and Subsidiaries, or any successor thereto.
3.13 "Covered Participant" means a Participant who is a "covered employee" as
defined in Section 162(m)(3) of the Code, and the regulations promulgated
thereunder.
3.14 "Department" means the Department of the Company responsible for Human
Resources.
3.15 "Designated Beneficiary" means the beneficiary designated by the
Participant, pursuant to procedures established by the Department, to receive
amounts due to the Participant in the event of the Participant's death. If the
Participant does not make an effective designation, then the Designated
Beneficiary will be deemed to be the Participant's estate.
3.16 "Director" shall mean a non-employee member of the Board of Directors as
defined in Rule 16b.
3.17 "Disability" means (i) the mental or physical disability, either
occupational or non-occupational in origin, of the Participant defined as "total
disability" in the Long term Disability Plan of the Company currently in effect
and as amended from time to time; or (ii) a determination by the Committee of
"Total Disability" based on medical evidence that precludes the Participant from
engaging in any occupation or employment for wage or profit for at least twelve
months and appears to be permanent.
3.18 "Divestiture" means the sale of, or closing by, the Company of the business
operations in which the Participant is employed.
3.19 "Early Retirement" means retirement of a Participant from employment with
the Company after age 55, but before the Company's normal retirement date as
stated in its employee policies.
3.20 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.21 "Executive Officer" means those individuals designated as "officers" for
purposes of Section 16 of the Securities Exchange Act of 1934 by the Board.
3.22 "Fair Market Value" means, on any given date, the closing price of the
Stock as reported on the NASDAQ on the immediately preceding trading day, all as
reported by such source as the Committee may select.
3.23 "Full time Employee" means an employee designated by the Company as being a
"regular, full time employee" who is eligible for all plans and programs of the
Company set forth for those employees. This designation includes all part time,
temporary, leased or contract employees who work for the Company more than 10
hours a week, consultants and product sales agents and representatives to the
Company, all of whom would be eligible to be included in a registration
statement with the Securities and Exchange Commission on a Form S-8.
3.24 "Incentive Stock Option" or "ISO" means an option to purchase Stock,
granted under Section 7 herein, which is designated as an incentive stock
option and is intended to meet the requirements of Section 422 of the Code.
3.25 "Key Employee" means an officer or other employee of the Company, who, in
the opinion of the Committee, can contribute significantly to the growth and
profitability of, or perform services of major importance to, the Company.
3.26 "Nonqualified Stock Option" or "NQSO" means an Option to purchase Stock,
granted under Section 7 herein, which is not intended to be an Incentive Stock
Option.
3.27 "Normal Retirement" means the retirement of any Participant under the
Company's regular policies at age 65.
3.28 "Option" means an Incentive Stock Option or a Nonqualified Stock Option.
3.29 "Participant" means a Key Employee or Director who has been granted an
Award under the Plan.
3.30 "Performance Based Exception" means the performance based exception from
the tax deductibility limitations of Code Section 162(m).
3.31 "Performance Measures" mean, unless and until the Committee proposes for
shareholder approval and the Company's shareholders approve a change in the
general performance measures set forth in this article, the attainment of which
may determine the degree of payout and/or vesting with respect to Awards which
are designed to qualify for the Performance Based Exception, measure(s) chosen
from among the following alternatives:
(a) Total shareholder return (absolute or peer group comparative)
(b) Stock price increase (absolute or peer group comparative)
(c) Dividend payout as a percentage of net income (absolute or peer group
comparative)
(d) Return on equity (absolute or peer group comparative)
(e) Return on capital employed (absolute or peer group comparative)
(f) Cash flow, including operating cash flow, free cash flow, discounted
cash flow return on investment, and cash flow in excess of cost of capital
(g) Economic value added (income in excess of capital costs)
(h) Market share
(i) Earnings Per Share (absolute or peer group performance)
(j) Growth in Earnings per share (absolute or peer group performance)
(k) Net income (either pre-tax or after tax and either absolute or peer
group performance)
(l) Operating earnings, earnings before interest and taxes ("EBIT") and
earnings before interest, taxes, depreciation and amortization ("EBITDA")
(absolute or peer group performance)
(m) Annual revenues and growth in revenues (absolute or peer group performance)
(n) Reduction of debt to asset ratio
(o) Increase in number of marketing Agents/Representatives
(p) Attainment of specific Standard approvals, including but not limited to,
product acceptance for sale in the State of California under Title 22,
International Standard Association Approval (ISO 9000 series and ISO 14000
series), Canadian Standard Association Product Approval (CSA), Underwriters
Laboratories Approval (UL)
(q) Attainment of purchase order, task or project, on schedule, at contract
or budgeted price, with required or targeted result achieved
(r) Company implementation of a participant's recommendation or suggestion
resulting in a reduction of product cost or substantial increase in product
performance
(s) Increase or realignment of marketing efforts resulting in an increase in
product sales of more than 10% from the previous fiscal year or defined
financial period.
3.32 "Performance Period" means the time period designated by the Committee
during which performance goals must be met.
3.33 "Performance Share" means an Award, designated as a Performance Share,
granted to a Participant pursuant to Section 9 herein, the value of which is
determined, in whole or in part, by the value of Stock in a manner deemed
appropriate by the Committee and described in the Agreement or Sub Plan.
3.34 "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is restricted, pursuant to Section 8 of the Plan.
3.35 "Person" shall have the meaning ascribed to such term in Section 3 (a) (9)
of the Exchange Act and used in Sections 13 (d) and 14 (d) thereof, including a
"group" as defined in Section 13 (d).
3.36 "Plan" means the Service Systems International, Ltd. 1999 Long-Term Equity
Incentive Plan as herein described and as hereafter from time to time amended.
3.37 "Restricted Stock" means an Award of Stock granted to a Participant
pursuant to Section 8 of the Plan.
3.38 "Rule 16b 3" means Rule 16b 3 under Section 16(b) of the Exchange Act as
adopted in Exchange Act Release No. 34 37260 (May 31, 1996, effective August 15,
1996), or any successor rule as amended from time to time.
3.39 "Section 162(m)" means Section 162(m) of the Code, or any successor section
under the Code, as amended from time to time and as interpreted by final or
proposed regulations promulgated thereunder from time to time.
3.40 "Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder, or any successor law, as amended from time
to time.
3.41 "Stock" or "Shares" means the Common Stock of the Company.
3.42 "Sub Plan" means a written document that permits the grant of Awards
consistent with the provisions of this Plan.
3.43 "Subsidiary" means a corporation in which the Company owns, either directly
or through one or more of its Subsidiaries, at least 50% of the total combined
voting power of all classes of stock.
Section 4. Administration
4.1 The Committee. The Plan shall be administered and interpreted by the
Committee, which shall have full authority and all powers necessary or desirable
for such administration. The express grant in this Plan of any specific power
to the Committee shall not be construed as limiting any power or authority of
the Committee. In its sole and complete discretion the Committee may adopt,
alter, suspend and repeal any such administrative rules, regulations,
guidelines, and practices governing the operation of the Plan as it shall from
time to time deem advisable. In addition to any other powers
and, subject to the provisions of the Plan, the Committee shall have the
following specific powers: (i) to determine the terms and conditions upon which
the Awards may be made and exercised; (ii) to determine all terms and provisions
of each Agreement and/or Sub Plan, which need not be identical for types of
Awards nor for the same type of Award to different Participants; (iii) to
construe and interpret the Agreements, Sub Plans and the Plan; (iv) to
establish, amend, or waive rules or regulations for the Plan's administration;
(v) to accelerate the exercisability of any Award, the length of a Performance
Period or the termination of any Period of Restriction; and (vi) to make all
other determinations and take all other actions necessary or advisable for the
administration of the Plan. The Committee may take action by a meeting in
person, by unanimous written consent, or by meeting with the assistance of
communications equipment which allows all Committee members participating in the
meeting to communicate in oral or written form or as permitted by applicable
law. The Committee may seek the assistance or advice of any persons it deems
necessary to the proper administration of the Plan.
4.2 Selection of Participants. The Committee shall have sole and complete
discretion to determine those Key Employees and Directors who shall participate
in the Plan. The Committee may request recommendations for individual Awards
from the Chief Executive Officer of the Company and may delegate to the Chief
Executive Officer of the Company the authority to make Awards to Participants
who are not Executive Officers of the Company, subject to a fixed maximum Award
amount for such a group and a maximum Award amount for any one Participant, as
determined by the Committee. Awards made to the Executive Officers shall be
determined by the Committee.
4.3 Award Agreements and Sub Plans. Each Award granted under the Plan shall be
granted either under the terms of an Award Agreement and/or a Sub Plan. Award
Agreements and Sub Plans shall specify the terms, conditions and any rules
applicable to the Award, including but not limited to the effect of
transferability, a Change in Control, or death, Disability, Divestiture, Early
Retirement, Normal Retirement or other termination of employment of the
Participant of the Award. If the Award is granted under the terms of an Award
Agreement, the Award Agreement shall be signed by an authorized representative
of the Company and the Participant, and a copy of the signed Award Agreement
shall be provided to the Participant. If the Award is granted under the terms
and conditions of a Sub Plan, the Sub Plan shall be approved by the Committee
as an Exhibit to the Plan, and a copy of the Sub Plan or a summary
description thereof shall be provided to each Participant.
4.4 Committee Decisions. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan shall be final, conclusive, and
binding upon all persons, including the Company, its stockholders, employees,
Participants, and Designated Beneficiaries, except when the terms of any sale or
award of shares of Stock or any grant of rights or Options under the Plan are
required by law or by the Articles of Incorporation or Bylaws of the Company to
be approved by the Company's Board of Directors or shareholders before any such
sale, award or grant.
4.5 Rule 16b 3 and Section 162(m) Requirements. Notwithstanding any other
provision of the Plan, the Committee may impose such conditions on any Award,
and the Board may amend the Plan in any such respects, as may be required to
satisfy the requirements of Rule 16b 3 or Section 162(m).
4.6 Indemnification of Committee. In addition to such other rights of
indemnification as they may have as Directors or as members of the Committee,
the members of the Committee shall be indemnified by the Company against
reasonable expenses incurred from their administration of the Plan. Such
reasonable expenses include, but are not limited to, attorneys' fees, actually
and reasonably incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Award granted or made hereunder, and against
all amounts reasonably paid by them in settlement thereof or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, if such
members acted in good faith and in a manner which they believed to be in, and
not opposed to, the best interests of the Company.
Section 5. Eligibility
The Committee in its sole and complete discretion shall determine the Key
Employees, including officers and Directors, who shall be eligible for
participation under the Plan, subject to the following limitations: (i) no
member of the Committee or Director shall be eligible to participate under the
Plan except with full Board approval; (ii) no person owning, directly or
indirectly, more than 20% of the total combined voting power of all classes of
Stock shall be eligible to participate under the Plan, and (iii) only Full time
Employees shall be eligible to participate under the Plan, except that Directors
may be granted Nonqualified Stock Options or Restricted Stock awards.
Section 6. Shares Subject to the Plan
6.1 Number of Shares. Subject to adjustment as provided in Section 6.4 herein,
the maximum aggregate number of Shares that may be issued pursuant to Awards
made under the Plan shall not exceed 5,000,000 Shares of Common Stock, which may
be in any combination of Options, Restricted Stock, or any other rights or
Options. Shares of Common Stock may be available from the authorized but
unissued Shares of Common Stock, or any Shares of Common Stock acquired by the
Company, including Shares of Common Stock purchased in the open market. Except
as provided in Section 6.2 and 6.3 herein, the issuance of Shares in connection
with the exercise of, or as other payment for,
Awards under the Plan shall reduce the number of Shares available for future
Awards under the Plan.
6.2 Lapsed Awards of Forfeited Shares. If (i) any Option or other Award
granted under the Plan terminates, expires, or lapses for any reason other than
exercise of the Award, or (ii) if Shares issued pursuant to the Awards are
canceled or forfeited for any reason, the Shares subject to that Award shall
thereafter again be available for grant of an Award under the Plan.
6.3 Delivery of Shares as Payment. If a Participant pays for any Option or
other Award granted under the Plan or for withholding taxes through the delivery
of previously acquired shares or withholding of shares of Common Stock, or
withholding of shares of common stock which otherwise would have been issued,
the number of shares of Common Stock available for Awards under the Plan shall
be increased by the number of Shares surrendered by the Participant, or
withheld, subject to Rule 16b 3 as interpreted by the Securities and Exchange
Commission or its staff.
6.4 Capital Adjustments. The number and class of Shares subject to each
outstanding Award, the Option Price and the aggregate number, type and class of
Shares for which Awards thereafter may be made shall be subject to adjustment,
if any, as the Committee deems appropriate, based on the occurrence of a number
of specified and non specified events. Such specified events include but are
not limited to the following:
(a) If the outstanding Shares of the Company are increased, decreased or
exchanged through merger, consolidation, sale of all or substantially all of
the property of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split or other distribution in respect to such Shares, for
a different number or type of Shares, or if additional Shares or new or
different Shares are distributed with respect to such Shares, an appropriate and
proportionate adjustment shall be made in: (i) the maximum number of shares of
Stock available for the Plan as provided in Section 6.1 herein, (ii) the type of
Shares or others securities available for the Plan, (iii) the number of shares
of Stock subject to any then outstanding Awards under the Plan, and (iv) the
price (including exercise price) for each share of Stock (or other kind of
shares or securities) subject to then outstanding awards, but without change in
the aggregate purchase as to which such Options remain exercisable or Restricted
Stock releasable.
(b) If other events not specified above in this Section 6.4, such as any
extraordinary cash dividend, split up, spin off, combination, exchange of
shares, warrants or rights offering to purchase Common Stock, or other similar
corporate event affect the Common Stock such that an adjustment is necessary to
maintain the benefits or potential benefits intended to be provided under this
Plan, then the Committee in its discretion may make adjustments to any or all of
(i) the number and type of Shares which thereafter may be optioned and sold or
awarded, (ii) the grant, exercise or conversion price of any Award made under
the Plan thereafter, and (iii) the number and price (including Exercise Price)
of each share of Stock (or other kind of shares or securities) subject to then
outstanding Awards, but without change in the aggregate purchase price as to
which such Options remain exercisable or Restricted Stock releasable. Any
adjustment as provided above shall be subject to any applicable restrictions
set forth in Section 13 or in Section 162(m).
(c) Any adjustment made by the Committee pursuant to the provisions of this
Section 6.4, subject to approval by the Board of Directors, shall be final,
binding and conclusive. A notice of such adjustment, including identification
of the event causing such an adjustment, the calculation method of such
adjustment, and the change in price and the number of shares of Stock, or
securities, cash or property purchasable subject to each Award shall be sent to
each Participant. No fractional interests shall be issued under the Plan based
on such adjustments, and shall be forfeited.
Section 7. Stock Options
7.1 Grant of Stock Options. Subject to the terms and provisions of the Plan
and applicable law, the Committee, at any time and from time to time, may grant
Options to Key Employees and Directors as it shall determine, provided however,
that Directors may only receive NQSO's. The Committee shall have sole and
complete discretion in determining the type of Option granted, the Option Price
(as hereinafter defined), the duration of the Option, the number of Shares to
which an Option pertains, any conditions imposed upon the exercisability or
transferability of the Options, the conditions under which the Option may be
terminated and any such other provisions as may be warranted to comply with the
law or rules of any securities trading system or stock exchange. Notwithstanding
the preceding, grants to Directors must be approved by the full Board. Each
Option grant shall have such specified terms and conditions detailed in an Award
Agreement. The Agreement shall specify whether the Option is intended to be an
Incentive Stock Option within the meaning of Section 422 of the Code, or a
Nonqualified Stock Option.
7.2 Option Price. The exercise price per share of Stock covered by an Option
("Option Price") shall be determined at the time of grant and by the Committee,
subject to the limitation that the Option Price shall not be less than 100% of
Fair Market Value of the Common Stock on the Grant Date.
7.3 Exercisability. Options granted under the Plan shall be exercisable at
such times and be subject to such restrictions and conditions as the Committee
shall determine, which will be specified in the Award Agreement and need not be
the same for each Participant. However, no Option may be exercisable after the
expiration of ten years from the Grant Date.
7.4 Method of Exercise. Options shall be exercised by the delivery of a
written notice from the Participant to the Company in the form prescribed by the
Committee setting forth the number of Shares with respect to which the Option is
to be exercised, accompanied by full payment for the Shares. The Option Price
shall be payable to the Company in full in cash, or its equivalent, or by
delivery of Shares of Stock (not subject to any security interest or pledge) or
withholding (in the case of NQSO's) shares which would otherwise be acquired
upon exercise, valued at Fair Market Value at the time of exercise or by a
combination of the foregoing. In addition, at the request of the Participant,
and subject to applicable laws and regulations, the Company may (but shall not
be required to) cooperate in a Cashless Exercise of the Option. In addition,
any NQSO granted under the Plan may provide, at the committee's discretion,
that payment of the exercise price may also be made in whole or in part in the
form of shares of common stock subject to risk of forfeiture or other
restrictions. As soon as practicable, after receipt of written notice and
payment, the Company shall deliver to the Participant, Stock certificates in an
appropriate amount based upon the number of Shares with respect to which the
option is exercised, issued in the Participant's name.
7.5 Notice. Each Participant shall give prompt notice to the Company of any
disposition of Shares acquired upon exercise of an Incentive Stock Option if
that disposition occurs within either two (2) years after the date of grant or
one (1) year after the date of transfer of those Shares to the Participant upon
the exercise of the Incentive Stock Option.
7.6 Maximum Award. Each Participant's Award shall be limited to the maximum
Award set out in Section 11 of this Plan.
Section 8. Restricted Stock
8.1 Grant of Restricted Stock. Subject to the terms and provisions of the Plan
and applicable law, the Committee, at any time and from time to time, may grant
shares of Restricted Stock under the Plan to such Participants, and in such
amounts and for such duration and/or consideration as it shall determine.
Participants receiving Restricted Stock Awards are not required to pay the
Company therefor (except for applicable tax withholding) other than the
rendering of services and/or until other considerations are satisfied as
determined by the Committee at its sole discretion.
8.2 Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced
by an Agreement that shall specify the Period of Restriction; the conditions
which must be satisfied before removal of the restriction; the number of Shares
of Restricted Stock granted; and such other provisions as the Committee shall
determine. The Committee may specify, but is not limited to, the following
types of restrictions in the Award Agreement: (i) restrictions on acceleration
or achievement of terms or vesting based on any business or financial goals of
the Company, including, but not limited to the Performance Measures set out in
Section 3.33, and (ii) any other further restrictions that may be advisable
under the law, including requirements set forth by the Securities Act, any
securities trading system or stock exchange upon which such Shares under the
Plan are listed.
8.3 Removal of Restrictions. Except as otherwise noted in this Section 8,
Restricted Stock covered by each Award made under the Plan shall be provided and
become freely transferable by the Participant after the last day of the Period
of Restriction and/or upon the satisfaction of other conditions as determined by
the Committee. Except as specifically provided in this Section 8, the Committee
shall have no authority to reduce or remove the restrictions or to reduce or
remove the Period of Restriction without the express consent of the stockholders
of the Company. If the grant of Restricted Stock is performance based, the
total Restricted Period for any or all shares of Restricted Stock so granted
shall be no less than one (1) year. Any other shares of Restricted Stock issued
pursuant to this Section 8 shall provide that the minimum Period of Restrictions
shall be two (2) years, which Period of Restriction may permit the removal of
restrictions on no more than one half (1/2) of the shares of Restricted Stock at
the end of the first year following the Grant Date, and the removal of the
restrictions on an additional one half (1/2) of the Shares at the end of each
subsequent year. In no event shall any restrictions be removed from shares of
Restricted Stock during the first year following the Grant Date except if a
Change in Control occurs.
8.4 Voting Rights. During the Period of Restriction, Participants in whose
name Restricted Stock is granted under the Plan may exercise full voting rights
with respect to those Shares.
8.5 Dividends and Other Distributions. During the Period of Restriction,
Participants in whose name Restricted Stock is granted under the Plan shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares. If any such dividends or distributions are paid in Shares, the
Shares shall be subject to the same restrictions on
transferability as the Restricted Stock with respect to which they were
distributed.
8.6 Maximum Award. Each Participant's Award shall be limited to the maximum
Award set out in Section 11 of this Plan.
Section 9. Performance Based Awards
9.1 Grant of Performance Awards. Subject to the terms and provisions of the
Plan and applicable law, the Committee, at any time and from time to time, may
issue Performance Awards in the form of Performance Shares to Participants
subject to the Performance Measures and Performance Period as it shall
determine. The Committee shall have complete discretion in determining the
number and value of Performance Shares granted to each Participant.
Participants receiving Performance Awards are not required to pay the Company
therefor (except for applicable tax withholding) other than the rendering of
services.
9.2 Value of Performance Awards. The Committee shall determine the number and
value of Performance Shares granted to each Participant as a Performance Award.
The Committee shall set Performance Measures in its discretion for each
Participant who is granted a Performance Award. The extent to which those
Performance Measures are met will determine the number of Performance Shares
earned by the Participant. Such Performance Measures may be particular to a
Participant, may relate to the performance of the Subsidiary or Affiliate which
employs him or her, may be based on the division which employs him or her, may
be based on the performance of the Company generally, or a combination of the
foregoing. The terms and conditions of each Performance Award will be set forth
in an Agreement and/or a Sub Plan.
9.3 Settlement of Performance Awards. After a Performance Period has ended,
the holder of a Performance Share shall be entitled to receive the value thereof
based on the degree to which the Performance Measures established by the
Committee and set forth in the Agreement and/or Sub Plan have been satisfied.
9.4 Form of Payment. Payment of the amount to which a Participant shall be
entitled upon the settlement of a Performance Award shall be made in cash,
Stock, or a combination thereof as determined by the Committee. Payment may be
made in a lump sum or installments as prescribed by the Committee.
9.5 Maximum Award. Each Participant's Award shall be limited to the maximum
Award set out in Section 11 of this Plan.
10. Election By Directors. For any service year as a Director of the Company, a
Director may elect to have up to 100% of the Director's cash compensation to be
payable by the Company during that year for the Director's services as a
Director applied to the purchase of shares of Common Stock ("Elected Amount"),
as provided in this Section. "Service year" means the period of a Director's
service beginning upon the Director's election or appointment (or, as to
Directors in office on the effective date of this Plan, the first day of the
then current fiscal year of the Company) and ending the earlier of one year
from its beginning or at the next meeting of shareholders of the Company at
which Directors are elected, but will never be less than three months. The
Director must notify the Board of Directors in writing of that election
before the first day of the service year for which the election is made, or
as required by Section 16(b), (or before such later date as may be approved
by the Board of Directors). Unless otherwise determined by the Board of
Directors, a separate election must be made for each service year. An election
made pursuant to this Section shall be irrevocable from and after the first day
of that service year; provided, however, that an election made during a service
year for the remaining portion of that service year shall be irrevocable from
and after the date the election is made. Elections shall be made on a form
prescribed by the Board of Directors.
10.2 Issuance Of Shares Pursuant To Election. Promptly following the end of
each year of a Director's service, the Company shall, subject to the provisions
of this Section, issue to each Director who elected to receive shares of Common
Stock, effective as of the last day of that service year, a number of whole
shares determined by the Board of Directors. This issuance shall be deemed to be
a separate Share Award made to the Director. No fractional shares of Common
Stock shall be issued to an electing Director by the Company under this Section,
and no cash payment or other adjustment shall be made in respect of any such
fractional share that would otherwise be issuable.
10.3 Eligibility Of Electing Director. A Director must be serving as a
Director on the last day of the service year in order to be eligible to receive
shares of Common Stock pursuant to this Section in respect of the Director's
Elected Amount, if any, for that service year. Any Director who becomes
ineligible to receive shares of Common Stock in respect of the Director's
Elected Amount for a service year because the Director's service
as a Director terminated before the last day of the service year shall be paid
any earned amounts of the Elected Amount in cash, without interest, as promptly
as practicable following the date of the termination of service, and the
election made by that Director with respect to the Elected Amount shall be null
and void effective as of the date of that termination of service.
10.4 Restriction On Transfer Of Shares. No shares issued to a Director in
respect of an Elected Amount shall be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of by the Director, other than by will or
pursuant to the laws of descent or distribution (unless otherwise permitted
under Section 16(b), as determined by the Board of Directors in its sole
discretion, and at the Board's sole option), until six months have elapsed from
the effective date of issuance of those shares. The Company shall hold
the certificates representing those shares (and any other securities distributed
in respect of them) for the Director's benefit until the restrictions on
transfer have lapsed. Subject to the restrictions of this paragraph, a Director
shall have all rights as a shareholder, including voting rights and the right to
receive dividends and distributions, with respect to the Director's shares.
Section 11. Special Provisions Applicable to Covered Participants
Unless the Committee in its sole discretion determines that any Award made to a
Covered Employee is not intended to qualify for the exemption for performance
based compensation under Section 162(m), Awards subject to Performance Measures
paid to Covered Participants under this Plan shall be governed by the conditions
of this Section 11 in addition to the requirements of Sections 7, 8 and 9 above.
Should conditions set forth under this Section 11 (when applicable) conflict
with the requirements of Sections 7, 8, and 9, the conditions of this Section 11
shall prevail.
(a) Performance Measures for Covered Participants shall be established by the
Committee in writing before the beginning of the Performance Period, or by such
other later date during the Performance Period as may be permitted under Section
162(m). Performance Measures for Covered Participants may include alternative
and multiple Performance Measures and may be based on one or more business
criteria.
(b) All Performance Measures must be objective and must satisfy third party
"objectivity" standards under Section 162(m).
(c) The Performance Measures shall not allow for any discretion by the
Committee as to an increase in any Award, but discretion to lower an Award is
permissible.
(d) The Award and payment of any Award under this Plan to a Covered Participant
with respect to the relevant Performance Period shall be contingent upon the
attainment of the Performance Measures that are applicable to that Covered
Participant. The Committee shall certify in writing before payment of any such
Award that the applicable Performance Measures relating to the Award are
satisfied. Approved minutes of the Committee may be used for this purpose.
(e) The maximum Award that may be paid to any Covered Participant under the
Plan pursuant to Sections 7, 8, and 9 for any Performance Period is $1,500,000.
The maximum number of shares of Stock subject to Options, and/or Restricted
Stock granted to any Covered Participant for any Performance Period shall be
1,000,000 Shares.
(f) All Awards to Covered Participants under this Plan shall be further subject
to such other conditions, restrictions, and requirements as the Committee may
determine to be necessary to carry out the purpose of this Section 11.
Section 12. General Provisions
12.1 Withholding. The Company shall have the right to deduct or withhold, or
require a Participant to remit to the Company, any taxes required by law to be
withheld with respect to the Awards made under this Plan. In the event an Award
is paid in the form of Common Stock, the Committee may require the Participant
to remit to the Company the amount of any taxes required to be withheld from
such payment in Common Stock, or, in lieu thereof the Company may withhold (or
the Participant may be provided the opportunity to elect to tender) the number
of shares of Common Stock equal in Fair Market Value to the amount required to
be withheld.
12.2 No Right to Employment. No granting of an Award shall be construed as a
right to employment with the Company.
12.3 Rights as Shareholder. Subject to the Award provisions, no Participant or
Designated Beneficiary shall be deemed a shareholder of the Company nor have any
rights as such with respect to any shares of Common Stock to be provided under
the Plan until he or she has become the holder of those Shares. Notwithstanding
the aforementioned with respect to Stock granted under a Restricted Stock
Agreement under this Plan, the Participant or Designated Beneficiary of such
Award shall be deemed the owner of such Shares. As such, unless contrary to
the provisions herein or in any such related Award Agreement, such stockholders
shall be entitled to full voting, dividend and distribution rights as provided
any other Company stockholder.
12.4 Construction of the Plan. The Plan, and its rules, rights, Agreements,
Sub Plans and regulations, shall be governed, construed, interpreted and
administered in accordance with applicable Federal laws, or to the extent that
Federal laws do not apply, the laws of the State of Nevada. In the event any
provision of the Plan shall be held invalid, illegal or unenforceable, in whole
or in part, for any reason, that determination shall not affect the validity,
legality or enforceability of any remaining provision, or portion of provision,
of the Plan overall, which shall remain in full force and effect.
12.5 Amendment of Plan. The Committee or Board of Directors may amend,
suspend, or terminate the Plan or any portion thereof at any time, provided the
amendment is made with shareholder approval if that approval is necessary to
comply with any tax or regulatory requirement, including for these purposes any
approval requirement for the performance based compensation exception under
Section 162(m). The Committee in its discretion may amend the Plan so as to
conform with local rules and regulations subject
to any provisions to the contrary specified herein.
12.6 Amendment of Award. At any time and in its sole and complete discretion,
the Committee may amend any Award for the following reasons: (i) additions
and/or changes are made to the Code, any federal or state securities law, or
other law or regulations subsequent to the date of grant, and have an impact on
the Award; or (ii) for any other reason not described in clause (i) provided the
Participant gives his or her consent to such
amendment.
12.7 Exemption from Computation of Compensation for Other Purposes. By
accepting an Award under this Plan, each Participant agrees that such Award
shall be considered special incentive compensation and will be exempt from
inclusion as "wages" or "salary" for purposes of calculating benefits under
pension, profit sharing, disability, severance, life insurance, and other
employee benefit plans of the Company, except as otherwise provided in those
benefit plans.
12.8 Legend. In its sole and complete discretion, the Committee may elect to
legend certificates representing shares of Stock sold or awarded under the Plan,
to make appropriate references to the restrictions imposed on such Shares.
12.9 Executive Officers and Covered Participants. All Award Agreements and/or
Sub Plans for Participants subject to Section 16(b) shall be deemed to include
any such additional terms, conditions, limitations and provisions as Rule 16b 3
requires, unless the Committee in its discretion determines that any such Award
should not be governed by Rule 16b 3. All performance based Awards shall be
deemed to include any such additional terms, conditions, limitations and
provisions as are necessary to comply with the performance based compensation
exemption of Section 162(m), unless the Committee, in its sole discretion,
determines that an Award to a Covered Participant is not intended to qualify as
exempt performance based compensation
12.10 Change in Control. If a Change in Control occurs, the Committee may, in
its sole and complete discretion, accelerate the payment or vesting of any Award
and release any restrictions on any Awards.
12.11 Divestiture. In the event of a Divestiture, the Committee may, in its
sole and complete discretion, accelerate the payment or vesting of any Award and
release any restrictions on any Awards.
12.12 Unfunded Obligation. Nothing in this Plan shall be interpreted or
construed to require the Company in any manner to fund any obligation to the
Participants or any Designated Beneficiary. Nothing contained in this Plan nor
any action taken hereunder shall create, or be construed to create a trust of
any kind, or a fiduciary relationship between the Company and/or the Committee,
and the Participants and/or any Designated Beneficiary. To the extent that any
Participant or Designated beneficiary acquires a right to receive payments under
this Plan, such rights shall be no greater than the rights of any unsecured
general creditor of the Company.
12.13 Plan Expenses. All reasonable expenses of the Plan shall be paid by the
Company.
EXHIBIT 11
Service Systems International, Ltd.
Computation of Per-Share Income
Treasury Stock Method
As Modified for 20% Test
Period Ended March 31, 2001
---------------------------
(Three Months)
Weighted average number of shares outstanding 22,426,023
==========
Total common and common equivalent shares 22,426,023
==========
Net income (loss) for the period $ (348,193)
==========
Loss per common and common equivalent shares $ (0.02)
==========
Earnings per share:
The earnings per share is computed by dividing the net income (loss) for the
period by the weighted average number of common shares outstanding for the
period. Common stock equivalents are excluded from the computation if their
effect would be anti-dilutive.