<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(b) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM _________ TO __________
Commission File Number 0-20267
OMEGA ENVIRONMENTAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 91-1499751
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
19805 NORTH CREEK PARKWAY, PO BOX 3005
BOTHELL, WASHINGTON 98041-3005
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
206-486-4800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.YES __X__ NO _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date. As of July 31, 1996, outstanding common shares totaled
43,240,971.
<PAGE>
OMEGA ENVIRONMENTAL, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS .............................. 1
Consolidated Balance Sheets as of June 30, 1996 and March 31, 1996 ... 1
Consolidated Statements of Operations for the Three Months
Ended June 30, 1996 and June 30, 1995 ................................ 2
Consolidated Statements of Cash Flows for Three Months Ended
June 30, 1996 and June 30, 1995 ...................................... 3
Notes to Consolidated Financial Statements ........................... 4
Independent Auditors' Review Report .................................. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. .................................. 9
Results of Operations ................................................ 9
Liquidity and Capital Resources ...................................... 10
Forward Looking Statements ........................................... 11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ............................................. 13
ITEM 2. CHANGE IN SECURITIES .......................................... 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........... 13
ITEM 5. OTHER INFORMATION.............................................. 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .............................. 14
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
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June 30, March 31,
ASSETS 1996 1996
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<S> <C> <C>
Current assets: (unaudited) (audited)
Cash $ 942 1,276
Receivables, net of allowance for doubtful accounts of $2,179 at
June 30,1996 and $2,518 at March 31, 1996 39,155 29,758
Receivables from related parties 410 883
Inventories 11,236 10,512
Costs and estimated earnings in excess of billings on uncompleted contracts 12,548 18,757
Prepaid expenses and other assets 2,635 1,956
----------- ----------
Total current assets 66,926 63,142
Property and equipment, at cost, net of accumulated depreciation
and amortization 9,332 9,752
Goodwill, net of accumulated amortization 28,258 28,554
Note receivable from related party 500 --
Other assets 981 565
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$105,997 102,013
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------
Current liabilities:
Revolving credit loan $ 13,860 8,895
Current installments of long-term obligations 1,944 2,025
Accounts payable 19,046 17,495
Accrued expenses 7,995 9,441
Billings in excess of costs and estimated earnings on uncompleted contracts 2,477 2,352
----------- ----------
Total current liabilities 45,322 40,208
Long-term obligations, excluding current installments 3,968 6,554
Class action lawsuit settlement obligation -- 5,225
----------- ----------
Total liabilities 49,290 51,987
----------- ----------
Shareholders' equity:
Preferred stock, $.0025 par value. Authorized 5,000,000 shares;
500 shares of Series A Convertible Redeemable Preferred Stock
issued, 20 shares outstanding at June 30, 1996 and
210 outstanding at March 31, 1996
Common stock, $.0025 par value. Authorized 60,000,000 shares;
issued and outstanding 42,775,502 shares at June 30, 1996 and
38,662,637 at March 31, 1996 107 97
Additional paid in capital 119,103 111,636
Treasury stock, 100,000 shares at June 30, 1996 and March 31, 1996, at cost (563) (563)
Foreign currency translation adjustment (985) (972)
Accumulated deficit (60,955) (60,172)
----------- ----------
Total shareholders' equity 56,707 50,026
Commitments and contingencies
----------- ----------
$105,997 102,013
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</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
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1996 1995
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Sales $39,213 40,409
Cost of Sales 31,376 32,428
------- ------
Gross profit 7,837 7,981
------- ------
Operating Expenses:
Selling, general and administrative 7,549 7,677
Amortization of goodwill 408 491
------- ------
Total operating expenses 7,957 8,168
------- ------
Operating loss (120) (187)
------- ------
Other income (expense):
Interest inoome 30 132
Interest expense (773) (396)
Other, net 80 108
------- ------
Total other income (expense) (663) (156)
------- ------
Net loss $ (783) (343)
------- ------
------- ------
Net loss per common share $ (0.02) (0.01)
------- ------
------- ------
Weighted average number of
common shares outstanding 40,111 32,975
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See accompanying notes to consolidated financial statements.
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (783) (343)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,078 1,200
Loss on sale of equipment 18 22
Change in certain assets and liabilities:
Increase in receivables (9,396) (3,746)
(Increase) decrease in inventories (727) 721
Decrease (increase) in costs and estimated earnings in excess of billings
on uncompleted contracts 6,206 (515)
Increase in prepaids and other assets (679) (282)
Increase in accounts payable and accrued expenses 108 1,671
Increase in billings in excess of cost and estimated earnings on
uncompleted contracts 126 292
Change in other assets and liabilities, net (555) (655)
------- -------
Net cash used in operating activities (4,604) (1,635)
------- -------
Cash flows from investing activities:
Collection of loans to related parties - 1,778
Proceeds from sale of equipment 79 322
Additions to property and equipment (348) (694)
------- -------
Net cash (used in) provided by investing activities (269) 1,406
------- -------
Cash flows from financing activities:
Proceeds from lines of credit - 15,233
Repayments of lines of credit - (15,466)
Net proceeds from revolving credit loan 4,965 -
Proceeds from long-term obligations - 550
Repayments of long-term obligations (2,667) (1,462)
Proceeds from exercise of stock options, unit purchase options, warrants and
employee stock purchase plan 2,252 85
Proceeds from sale of common stock - 1,559
------- -------
Net cash provided by financing activities 4,550 499
------- -------
Effect of exchange rate changes on cash (11) (64)
------- -------
Net (decrease) increase in cash (334) 206
Cash at beginning of period 1,276 2,156
------- -------
Cash at end of period $ 942 2,362
------- -------
------- -------
Supplemental disclosure of cash flow information:
Issuance of common stock in payment of class action
lawsuit settlement obligation $ 5,225 -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) CONSOLIDATION
The consolidated financial statements and related notes have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures
normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying
consolidated financial statements and related notes should be read in
conjunction with the audited consolidated financial statements of the
Company, and notes thereto, for its fiscal year ended March 31, 1996.
Intercompany transactions and balances have been eliminated in
consolidation. The information furnished reflects, in the opinion of
management, all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the results of the interim periods
presented.
(2) LIQUIDITY
The Company has incurred significant losses since inception and
operations have not generated cash. To meet cash needs the Company has
obtained cash from borrowings and the sale of equity securities.
In September 1995, the Company entered into a loan agreement with
BNY Financial Corporation ("BNYFC"), increasing the Company's borrowing
capacity. Borrowing capacity under this agreement is limited to a
percent of eligible assets, primarily receivables, inventories and
property and equipment. At June 30, 1996, the Company had borrowing
capacity under the revolving loan of approximately $20,000,000, of which
the Company had borrowed $13,860,000.
As of June 30, 1996, the Company had receivables and costs and estimated
earnings in excess of billings on uncompleted contracts relating to a
Florida State Reimbursement Program of approximately $12,652,000. The
program allows the Company to enter into financing agreements with
unrelated entities ("Funders") and assign the right of the reimbursement
to the Funder for the specific reimbursement application. As of June 30,
1996, the Company has obtained commitments with Funders for up to $7.8
million of receivables under the Florida State Reimbursement Program and
is pursuing additional funding.
In June 1996, certain unit options and underlying warrants were exercised
by the underwriters for net proceeds to the Company of approximately
$2,019,000. In July 1996, additional unit options and underlying warrants
were exercised for net proceeds to the Company of approximately $676,000.
In July 1996, the Company sold 500 shares of Series B Convertible
Redeemable Preferred Stock under Regulation S for net proceeds of
$4,700,000. These proceeds were used to reduce long-term obligations and
the revolving credit loan.
As part of its organizational consolidation, management has continued to
take steps to significantly reduce overhead and is evaluating further
cost reduction and margin improvement programs. There can be no assurance
that the Company will be able to generate cash from operations,
borrowings or the sale of additional Company equity securities.
Additionally, there can be no assurance that the Company will be in
compliance with the loan agreement covenants or that eligible assets will
be adequate to support borrowing under the loan agreement. The
accompanying consolidated financial information has been prepared on the
basis that the Company will be able to meet its cash needs and continue
as a going concern.
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to
concentrations of credit risk consist primarily of
receivables and costs and estimated earnings in excess of
billings on uncompleted contracts resulting from sales to
the commercial and retail petroleum industry. Other than
amounts related to a Florida State Reimbursement Program,
concentrations of credit risk are limited due to the
Company's large number of customers and their geographic
dispersion. At June 30, 1996, the Company had receivables
and costs and estimated earnings in excess of billings on
uncompleted contracts relating to a Florida State
Reimbursement Program of approximately $12,652,000.
(4) GOODWILL
In the Company's 1996 annual report, it disclosed that (i)
the Company had assessed the recoverability of goodwill and
its dependence upon certain entities achieving future
profitable operations, (ii) management had taken and
continued to take steps to significantly reduce overhead and
is evaluating further cost reduction and margin improvement
programs, (iii) based upon current information and
projections, goodwill will be recovered over the period of
benefit, and (iv) if future profitable operations are not
achieved at these entities, goodwill will be impaired. In
the opinion of management, based on current information and
projections, the remaining goodwill balance at March 31,
1996 will be recovered over the expected period of benefit.
However, if future profitable operations are not achieved at
these entities, goodwill will be impaired.
During the three months ended June 30, 1996, certain
entities continued to incur operating losses. Management is
continuing to monitor the operating performance of these
entities in relation to projections used at March 31, 1996.
If the results suggest that goodwill impairment has
occurred, the Company will critically analyze and measure
the aforementioned goodwill for impairment, and a
significant write down is possible.
(5) REVOLVING CREDIT LOAN AND LONG-TERM OBLIGATIONS
In September 1995, the Company entered into a $30,000,000
Revolving and Term Loan Agreement ("Loan Agreement") with
BNYFC. The three-year Loan Agreement provides for a
$10,000,000 term loan and $20,000,000 revolving loan and is
secured by the Company's assets. Borrowing capacity under
the Loan Agreement is limited to a percent of eligible
assets (as defined in the Loan Agreement), primarily
receivables, inventories and property and equipment. At
June 30, 1996, the Company had a borrowing capacity under
the revolving loan of $20,000,000 of which the Company had
borrowed $13,860,000 and the term loan balance was
$6,563,000.
This financing agreement contains covenants which, among
other provisions, require the Company to maintain a minimum
tangible net worth, minimum working capital, minimum net
income, and other financial ratios, and restrictions on
acquisitions, capital expenditures, additional indebtedness
or liens, payment of dividends, and other restrictions. As
of March 31, 1996, the Company was not in compliance with
certain financial covenants. BNYFC waived these events of
default for March 31, 1996 and modified certain financial
and other covenants consistent with management's forecast.
As partial consideration for these actions, the Company paid
BNYFC certain additional fees. Further, the Company's
interest rates through June 30, 1996 were increased 200
basis points. At June 30, 1996, the Company was in
compliance with these covenants and restrictions.
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) PREFERRED STOCK
In April 1996, 190 shares of Series A Convertible Redeemable
Preferred Stock ("Series A Preferred Stock") were converted
into 859,421 shares of Common Stock. The remaining 20
shares of Series A Preferred Stock were converted into
111,478 shares of Common Stock in July and August 1996.
In July 1996, the Board of Directors designated 500 shares
of the preferred stock to be Series B Convertible Redeemable
Preferred Stock ("Series B Preferred Stock") and the Company
sold these 500 shares under Regulation S for net proceeds of
$4,700,000.
The holders of Series B Preferred Stock have the right to
vote, together with the holders of all the outstanding
shares of Common Stock, on all matters on which holders of
Common Stock have the right to vote. The holders of Series
B Preferred Stock have the right to cast one vote for each
share of Common Stock into which each share of Series B
Preferred Stock held by them is convertible. The holders of
Series B Preferred Stock do not have any liquidation
preference.
Each share of Series B Preferred Stock is convertible into
shares of Common Stock, through July 30, 1997. The number
of shares of Common Stock to be issued upon conversion is
determined by dividing $10,000 by the lower of (i) $1.83661
or (ii) 85% of the average closing bid price of the
Company's Common Stock over the seven trading-day period
immediately preceding each written notice by a holder of the
Series B Preferred Stock of such conversion.
The Company has the right to redeem all of the outstanding
Series B Preferred Stock for $12,200 per share. Unless
redeemed or converted, the Series B Preferred Stock will
automatically convert to Common Stock on July 30, 1997.
(7) UNIT OPTIONS
In June 1996, the underwriters exercised 65,271 IPO unit
options, including underlying Class A and B common stock
purchase warrants. The Company issued 603,757 shares of
Common Stock for net proceeds to the Company of
approximately $906,000. In July 1996, the underwriters
exercised the remaining 48,740 IPO unit options, including
underlying Class A and B common stock purchase warrants.
The Company issued 450,845 shares of Common Stock for net
proceeds to the Company of approximately $676,000.
In June 1996, the underwriters exercised 4.34375 Private
Placement unit options, including underlying Class A and B
common stock purchase warrants. The Company issued 742,234
shares of Common Stock for net proceeds to the Company of
approximately $1,113,000.
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) COMMITMENTS AND CONTINGENCIES
In January 1995 the Company entered into an agreement in
principle to settle the May 17, 1994 class action lawsuits.
On December 5, 1995, the United States District Court in
Seattle, Washington, approved the class action settlement
agreement. Pursuant to such agreement, the settlement
consisted of (i) $250,000 in cash, (ii) $125,000 in cash or
common stock, and (iii) 550,000 shares of the Company's
common stock. However, the Company guaranteed that the
Common Stock to be issued in settlement, as of February 1,
1996 (the "guarantee date"), would have a minimum value of
$9.50 per share. The stock value based upon the 20 trading-
day average of the closing market prices of the Company's
Common Stock (as reported in the Wall Street Journal the
following day) through February 1, 1996 was $3.00795. Since
the average was less than $9.50 per share, the Company was
required to issue 1,187,063 additional shares of Common
Stock. In April 1996, the Company issued 1,737,063 shares
as final settlement.
As of June 30, 1996, principal amounts owing to Funders from
a Florida State Reimbursement Program for services performed
by the Company were approximately $12,000,000. The
reimbursement received by the Funder may be less than
amounts originally submitted due to deductions for costs
which, in the State's opinion, are not allowable under the
regulations. Upon such notification, the Funder may appeal
and/or require the Company to repurchase the denied amount.
In accordance with certain Funder agreements, the Company
has placed approximately $1,458,000 in escrow to reimburse
Funders for any shortfalls. Management believes the Company
has reserved adequate amounts to cover any anticipated
shortfalls.
In 1994 the Company filed a lawsuit against Gilbarco Inc., a
unit of General Electric PLC in the United Kingdom and a
major manufacturer of fuel dispensing equipment, alleging
violation of antitrust and other laws. This action was
filed by the Company in response to Gilbarco's canceling its
distributorship arrangement with two of the Company's
operations. On December 4, 1995, in the U.S. Federal Court
for the Western District of Washington, in Seattle, a jury
awarded the Company and two of its operations, $27 million
in damages and related interest and attorneys' fees and
costs. While that federal court judge has since entered a
judgment in favor of the Company and denied a motion to set
aside the previously announced judgment, Gilbarco has filed
an appeal. The Company will not recognize the award in its
consolidated financial statements until it is received or
assured.
The Company is subject to other legal proceedings and claims
which have arisen in the ordinary course of its business.
These actions when ultimately concluded and determined will
not, in the opinion of management, have a material adverse
effect on results of operations or the financial condition
of the Company. The Company is not currently a party to any
litigation or regulatory investigation or inquiry with
respect to environmental matters.
<PAGE>
INDEPENDENT AUDITORS' REVIEW REPORT
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The Board of Directors
Omega Environmental, Inc.
We have reviewed the accompanying consolidated financial
information of Omega Environmental, Inc. and subsidiaries as of
June 30, 1996 and for the three-month period then ended. This
consolidated financial information is the representation of the
Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the object of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the consolidated financial
information referred to above for it to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Omega
Environmental, Inc. and subsidiaries as of March 31, 1996, and
the related consolidated statements of operations, shareholders'
equity, and cash flows for the year then ended (not presented
herein); and in our report dated May 31, 1996, except as to notes
2 and 5(d), which are dated June 26, 1996, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
consolidated financial information as of March 31, 1996, is
fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
Our report dated May 31, 1996, except as to notes 2 and 5 (d),
which are as of June 26, 1996, on the consolidated financial
statements of Omega Environmental, Inc. and subsidiaries as of
and for the year ended March 31, 1996, contains an explanatory
paragraph that states that the Company has incurred significant
losses since inception and operations have not generated
sufficient cash to cover current obligations. These matters
raise substantial doubt about the Company's ability to continue
as a going concern. The consolidated balance sheet as of March
31, 1996, does not include any adjustments that might result from
the outcome of that uncertainty.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
August 13, 1996
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Management is focused on improving operations. In the quarter
ended March 31, 1996, management significantly lowered overhead,
eliminated duplicate functions and facilities, disposed of non-
core lines of business, and significantly downsized two units'
operations. The Company is currently in the process of aligning
operations along functional lines on a national basis including
(i) centralizing purchasing and bringing distribution under one
national information system, (ii) consolidating maintenance
services in one nationally coordinated and directed unit, and
(iii) consolidating marketing and sales activities.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO 1995
The Company's net loss increased from $343,000 to $783,000. The
improvements made in the previous quarter were offset by
increased bank charges resulting from loan agreement
modifications and increased interest expense.
SALES, COST OF SALES AND GROSS PROFIT
Sales and cost of sales decreased $1,196,000 or 3% and $1,052,000
or 3%, respectively, primarily due to management's decision to
significantly downsize two units' operations. Gross margins
remained constant at 20% in 1996 and 1995.
OPERATING EXPENSES
Selling, general and administrative expenses decreased by
$128,000. This decrease was principally due to elimination of
personnel and overhead expenses. These savings were partially
offset by increased bank charges.
Amortization of goodwill decreased due to the goodwill write-down
recorded in March 1996. Goodwill amortization will continue to
have an adverse effect on future results of operations.
During the three months ended June 30, 1996, certain entities
continued to incur operating losses. Management is continuing to
closely monitor the operating performance of these entities in
relation to projections used at March 31, 1996. If the results
suggest that goodwill impairment has occurred, the Company will
critically analyze and measure the aforementioned goodwill for
impairment, and a significant write down is possible.
OTHER INCOME (EXPENSE)
The change in other income (expense) is due primarily to a
$102,000 decrease in interest income related to the use of cash
in operations and the increase in interest expense of $377,000,
primarily related to additional borrowings and higher interest
rates. Management expects interest expense to decrease in the
short term due to discontinuance of the default rate under the
BNYFC Loan Agreement and repayment of debt with proceeds from the
exercise of unit options and sale of Series B Preferred Stock.
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
(IN THOUSANDS)
Three months ended June 30, 1996 1995
-------- ---------
Net cash used in operating $ (4,604) (1,635)
activities
Net cash (used in) provided by (269) 1,406
investing activities
Net cash provided by financing 4,550 499
activities
(in thousands)
June 30, March 31,
1996 1996
-------- ---------
Working capital $ 21,604 22,934
Long-term obligations, excluding
current installments and class (3,968) (6,554)
action lawsuit settlement
obligation
The Company has incurred significant losses since inception and
operations have not generated cash. Net cash used in operating
activities increased $2,969,000 due to increases in receivables.
This increase was caused by significant billings under the
Florida State Reimbursement Program that were previously recorded
as costs and estimated earnings in excess of billings on
uncompleted contracts, and an increase in sales in the quarter
ended June 30, 1996 as compared to the quarter ended March 31,
1996.
Net cash used in investing activities was $269,000 as compared to
cash provided of $1,406,000 in the same period in 1995. This
change is primarily due to the collection of loans to related
parties in 1995. Net cash provided by financing activities was
$4,550,000, as compared to $499,000 in 1995. This increase is
primarily due to the additional borrowings under the revolving
credit loan to finance the growth in receivables.
Working capital decreased $1,330,000 due to repayment of long-
term obligations, extension of the maturity date of a related
party note receivable and increases in other long-term assets.
Long-term obligations, excluding current installments and class
action lawsuit settlement obligations, decreased $2,586,000 due
to repayment of borrowings under the BNYFC term loan from the net
proceeds of the exercise of unit options.
As of June 30, 1996, the Company had receivables of $7,028,000
and costs and estimated earnings in excess of billings of
$5,624,000 related to the Florida State Reimbursement Program.
The Company has obtained commitments to fund up to $7.8 million
of these receivables and costs and estimated earnings in excess
of billings on uncompleted contracts and is pursuing additional
funding. Management believes, based upon recent changes in laws
governing the Florida State Reimbursement program, that the
majority of these receivables and costs and estimated earnings in
excess of billings on uncompleted contracts will be collected
from Funders by December 31, 1996. Management expects to
continue to provide services in Florida under the revised
government program that provides for an assigned priority ranking
system, task pre-approval, and payment within 45 days of
invoicing of completed tasks.
In addition, the Company is responsible for any shortfalls
related to the approximately $12 million of billings to the
Florida State Reimbursement Program for services performed by the
Company and paid to the Company by the Funders. In accordance
with certain Funder agreements, the Company has placed
approximately $1,458,000 in escrow to reimburse Funders for any
shortfalls. Management believes the Company has reserved
adequate amounts to cover any anticipated shortfalls.
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
In September 1995, the Company entered into a loan agreement with
BNY Financial Corporation ("BNYFC"), increasing the Company's
borrowing capacity. Borrowing capacity under this agreement is
limited to a percent of eligible assets, primarily receivables,
inventories and property and equipment. At June 30, 1996, the
Company had borrowing capacity under the revolving loan of
approximately $20,000,000, of which the Company had borrowed
$13,860,000.
In June 1996, certain unit options and underlying warrants were
exercised by the underwriters for net proceeds to the Company of
approximately $2,019,000. In July 1996, additional unit options and
underlying warrants were exercised for net proceeds to the Company
of approximately $676,000. In July 1996, the Company sold 500
shares of Series B Convertible Redeemable Preferred Stock under
Regulation S for net proceeds of $4,700,000. These proceeds were
used to reduce long-term obligations and the revolving credit loan.
As part of its organizational consolidation, management is
continuing to take steps to significantly reduce overhead and is
evaluating further cost reduction and margin improvement
programs. There can be no assurance that the Company will be
able to generate cash from operations, borrowings or the sale of
additional Company equity securities. Additionally, there can be
no assurance that the Company will be in compliance with the Loan
Agreement covenants or that eligible assets will be adequate to
support borrowings under the Loan Agreement.
In addition to normal operating cash commitments, Omega has the
following existing and planned cash requirements:
- - In accordance with the STC acquisition agreement, additional
cash of up to $875,000 will be paid if certain income levels, as
defined in the acquisition agreement, are achieved for each six
month period between September 30, 1994 and September 30, 1997.
As of June 30, 1996, these income levels have not been achieved.
- - Omega Financial facilitates third-party financing primarily
for customers of the Company's operating divisions. In addition
to serving as an intermediary between customers and funding
sources, Omega Financial has been authorized by the Company's
Board of Directors to provide up to $2 million to be held in
limited recourse assurances and guarantees to participating
financial institutions. At June 30, 1996, the Company has
guaranteed repayment of certain loans of customers totaling
$1,391,000.
FORWARD LOOKING STATEMENTS
Matters discussed herein contain forward looking statements that
involve risk and uncertainties. The Company's results may differ
significantly from results indicated by forward looking
statements. Factors that might cause some differences, including
but not limited to:
- - Changes in general economic conditions, including but not
limited to increases in interest rates and supply and prices of
petroleum products, affecting customers or the Company;
- - Changes in government regulations affecting customers or the
Company or additional changes in governmental reimbursement
programs particularly in Florida;
- - Risks generally involved in the construction business,
including weather, fixed price contracts and shortages of
materials or labor;
- - Competition;
- - Foreign operations in Mexico, which could be subject to an
additional devaluation of the peso and foreign currency and
import restrictions;
- - The ability to successfully reorganize the Company into
functional lines on a national basis and obtain quantity
discounts from vendors and to continue relationships with
vendors;
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
- - The ability to generate cash from operations, borrowings,
including funding of receivables under the Florida State
Reimbursement Program, or the sale of additional equity
securities;
- - The ability to maintain compliance with the covenants and
conditions of the Company's loan agreement or that eligible
assets will be adequate to support borrowing levels under the
loan agreement;
- - Recoverability of goodwill and its dependency on certain
entities achieving future profitable operations.
- - The occurrences of incidents which could subject the Company
to liability or fines under any environmental laws or the
adequacy of insurance; and
- - The timing and nature of any future acquisitions.
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 1995 the Company entered into an agreement in
principle to settle the May 17, 1994 class action lawsuits. On
December 5, 1995, the United States District Court in Seattle,
Washington, approved the class action settlement agreement.
Pursuant to such agreement in principle, the settlement consisted
of (i) $250,000 in cash, (ii) $125,000 in cash or common stock,
and (iii) 550,000 shares of the Company's common stock. However,
the Company guaranteed that the common stock to be issued in
settlement, as of February 1, 1996 (the "guarantee date"), would
have a minimum value of $9.50 per share. The stock value based
upon the 20 trading-day average of the closing market prices of
the Company's common stock (as reported in the Wall Street
Journal the following day) through February 1, 1996 was $3.00795.
Since the average was less than $9.50 per share, the Company was
required to issue 1,187,063 additional shares of common stock.
In April 1996, the Company issued 1,737,063 shares as final
settlement.
In 1994 the Company filed a lawsuit against Gilbarco Inc., a unit
of General Electric PLC in the United Kingdom and a major
manufacturer of fuel dispensing equipment, alleging violation of
antitrust and other laws. This action was filed by the Company
in response to Gilbarco's canceling its distributorship
arrangement with two of the Company's operations. On December 4,
1995, in the U.S. Federal Court for the Western District of
Washington, in Seattle, a jury awarded the Company and two of its
operations, $27 million in damages and related interest and
attorneys' fees and costs. While that federal court judge has
since entered a judgment in favor of the Company and denied a
motion to set aside the previously announced judgment, Gilbarco
has filed an appeal. The Company will not recognize the award in
its consolidated financial statements until it is received or
assured.
The Company is subject to other legal proceedings and claims
which have arisen in the ordinary course of its business. These
actions when ultimately concluded and determined will not, in the
opinion of management, have a material adverse effect on results
of operations or the financial condition of the Company. The
Company is not currently a party to any litigation or regulatory
investigation or inquiry with respect to environmental matters.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i) Amended and Restated Certificate of Incorporation
11 Statement regarding computation of per share loss
15 Letter re unaudited interim financial information
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
OMEGA ENVIRONMENTAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the registration requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
OMEGA ENVIRONMENTAL, INC.
(Registrant)
DATE: August 14, 1996 /s/ Louis J. Tedesco
------------------- ----------------------------------
Louis J. Tedesco
Chief Executive Officer and
President
(Principal Executive Officer)
DATE: August 14, 1996 /s/ Dan E. Steigerwald
------------------- ----------------------------------
Dan E. Steigerwald
Chief Financial Officer
(Principal Financial Officer)
DATE: August 14, 1996 /s/ Bradley S. Powell
------------------- ----------------------------------
Bradley S. Powell
Corporate Controller (Principal
Accounting Officer)
<PAGE>
EXHIBIT 3(i)
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
OMEGA ENVIRONMENTAL, INC.
OMEGA ENVIRONMENTAL, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
ONE: Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Amended and Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of this Corporation.
TWO: The stockholders of said corporation, at their annual meeting held on
September 17, 1992, duly adopted the amendment to the Fourth Article appearing
in the following Amended and Restated Certificate of Incorporation of said
corporation.
THREE: The text of the Amended and Restated Certificate of Incorporation
as heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
FIRST: The name of the Corporation is OMEGA ENVIRONMENTAL,INC.
SECOND: Its registered office in the State of Delaware is located at 1209
Orange Street in the City of Wilmington, County of New Castle. The name and
address of its registered agent is The Corporation Trust Company, No. 1209
Orange Street, Wilmington, Delaware 19801.
THIRD: The nature of the business or objects or purposes to be transacted,
promoted or carried on are:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is sixty million (60,000,000)share of Common Stock of
the par value of $0.0025 each, and five million (5,000,000) shares of Preferred
Stock of the par value of $0.0025 each.
The designations, powers, preferences and relative participating, optional
or other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of each class are as follows:
1
<PAGE>
PREFERRED STOCK
The Preferred Stock shall be of the par value of $0.0025 and may be issued
from time to time in one or more series, each of such series to have such voting
powers, designations, preferences, and relative participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, as
are stated and expressed herein or in a resolution or resolutions, providing for
the issuance of such series, adopted by the Board of Directors as hereinafter
provided. The Board of Directors is hereby expressly empowered, subject to the
provisions of this Article Fourth, to provide for the issuance of the preferred
Stock from time to time in series and to fix by resolution or resolutions
providing for the issuance of such series:
(a) The number of shares to constitute such series and the designation
thereof;
(b) The voting rights, full or limited, if any, to which holders of shares
of any series of Preferred stock may be entitled;
(c) The dividend rate of the shares of such series, and whether or not
such dividends shall be cumulative;
(d) Whether or not the shares of such series shall be redeemable and, if
redeemable, the redemption price and the terms and conditions thereof;
(e) The amount, if any, which the shares of any such series shall be
entitled to receive, before any distribution or payment shall be made to holders
of the Common Stock, in the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary, or of any
proceedings resulting in any distribution of all, or substantially all, of its
assets to its stockholders; provided, however, that no shares of Preferred Stock
of any series shall be entitled to receive, in any such event, an amount which
exceeds the sum of One Hundred Dollars ($100.00) and the difference, if any,
between the total amount of dividends payable with respect to such share from
the date upon which such dividends first became payable, to and including the
date fixed for any such liquidation, dissolution, winding up or distribution,
and the aggregate amount of dividends actually paid thereon; and provided
further that the sale of all, or substantially all of the property and assets of
the Corporation to, or the merger or consolidation of the Corporation into or
with, any other company shall not be deemed to be a liquidation, dissolution or
winding up within the meaning of this subdivision (e);
(f) Whether or not the shares of such series shall be subject to the
operation of retirement or sinking funds to be applied to the purchase or
redemption of such shares and, if such funds are established, the annual amount
thereof and the terms and provisions relative to the operation thereof;
2
<PAGE>
(g) Whether or not the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of any other series of
the same or any other class of stock of the Corporation and, if convertible, the
conversion price or prices or rate or rates of conversion or exchange and terms
of adjustments, if any, upon such conditions as shall be stated in said
resolution or resolutions; and
(h) Such other designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof as it may deem advisable and shall be stated in said resolution or
resolutions.
COMMON STOCK
The Common Stock shall have a par value of $0.0025 per share. Upon any
liquidation, dissolution or winding up of the Corporation, and after payment, if
required, shall have been made in full to the holders of any share of Preferred
Stock which may be issued and outstanding, pursuant to the terms upon which such
Preferred Stock was issued, the holders of the Common Stock shall be entitled to
share pro rata in the distribution of any and all assets remaining to be paid or
distributed, and the holders of the Preferred Stock shall be entitled to share
therein. Subject to any rights of the Preferred Stock, dividends may be paid
upon the Common Stock, as and when declared by the Board of Directors, out of
any funds or assets legally available therefor.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make, alter or repeal the By-laws of the Corporation.
To authorize and cause to be executed the mortgages and liens upon the real
and personal property of the Corporation.
To set apart out of any funds of the corporation available for dividends a
reserve or reserves for any proper purpose and to abolish any such reserve in
the manner in which it was created.
When and as authorized by the affirmative vote of the holders of a majority
of the stock issued and outstanding having voting power given at a stockholders
meeting, duly called for that purpose, or when authorized by the written consent
of the holders of a majority of the voting stock issued and outstanding, to
sell, lease or exchange all of the property and assets of the Corporation,
including its good will and its corporate franchises, upon such terms and
conditions and for such consideration, which may be in whole or in part shares
of stock in, and/or securities of, any other corporation or corporations, as its
Board of Directors shall deem expedient and for the best interests of the
Corporation.
3
<PAGE>
SIXTH: Meetings of stockholders may be held outside the State of Delaware,
if the by-laws so provide. The books of the Corporation may be kept (subject to
any provision contained in the statutes) outside the State of Delaware at such
place or places as may be designated from time to time by the Board of Directors
or in the by-laws of the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence to such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
NINTH: (a) The Corporation shall indemnify to the full extent authorized
or permitted by law (as now or hereafter in effect) any person made, or
threatened to be made, a defendant or witness to any action, suit or proceedings
(whether civil or criminal or otherwise) by reason on the fact that he, his
testator or intestate, is or was a director or officer of the Corporation or by
reason of the fact that such director or officer, at the request of the
Corporation, is or was serving any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, in any capacity.
Nothing contained herein shall affect any rights to indemnification to which
employees, other than directors and officers may be entitled by law. No
amendment or repeal of this subdivision (a) shall apply to or have any effect on
any right to indemnification provided hereunder for any acts or omissions
occurring prior to such amendment or repeal.
(b) No director of the Corporation shall be personally liable to the
corporation or its stockholders for monetary
4
<PAGE>
damages for any breach of fiduciary duty by such a director as a director.
Nothwithstanding the foregoing sentence, a director shall be liable to the
extend provided by applicable law (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which such director derived
an improper personal benefit. No amendment to or repeal of this subdivision
(b) shall apply to or have any effect on the liability or alleged liability
of any director of the Corporation for or concerning any acts or omissions of
such director occurring prior to such amendment or repeal.
(c) In furtherance and not in limitation of the powers conferred by
statute:
(i) the Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
him against such liability under the provisions of law; and
(ii) the Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of
credit, surety bonds and/or other similar arrangements), as well as enter into
contracts providing indemnification to the full extent authorized or permitted
by law and including as part thereof provisions concerning any or all of the
foregoing to ensure the payment of such amounts as may become necessary to
effect indemnification as provided therein, or elsewhere.
IN WITNESS WHEREOF, said OMEGA ENVIRONMENTAL, INC. has caused this
certificate to be signed by David C. Kravitz, its President, and attested by Leo
L. Azure, Jr., its Secretary this 17th day of September 1992.
OMEGA ENVIRONMENTAL, INC.
By /s/
--------------------
David C. Kravitz,
President
ATTEST:
By /s/
------------------------
Leo L. Azure, Jr.,
Secretary
5
<PAGE>
State of Delaware
PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORECT COPY OF THE CERTIFICATE OF DESIGNATION
OF "OMEGA ENVIRONMENTAL, INC.", FILED IN THIS OFFICE ON THE TWENTY-EIGHTH DAY OF
DECEMBER, A.D. 1995, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
/s/
-----------------------------------
Edward J. Freel, Secretary of State
2241799 8100 AUTHENTICATION: 7774517
950311217 DATE: 01-02-96
<PAGE>
CERTIFICATE OF DESIGNATIONS
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS OF THE SERIES A
CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
OMEGA ENVIRONMENTAL, INC.
----------------------
Pursuant to Section 151 of the
General Corporation Law of
the State of Delaware
Omega Environmental, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, does hereby certify that the following resolution was
duly adopted by the Board of Directors of the Corporation on December 26, 1995:
RESOLVED that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article Fourth of the Certificate of
Incorporation of the Corporation, the Board of Directors hereby designates 500
shares of Preferred Stock to be Series A Convertible Redeemable Preferred Stock
and fixes and determines the voting rights, designations, preferences,
qualifications, privileges, limitations, options and other rights of the 500
shares of Series A Convertible Redeemable Preferred Stock, par value $.0025 per
share (the "Series A Preferred Stock"), of the Corporation as follows:
1. VOTING RIGHTS. The holders of Series A Preferred Stock shall have the
right to vote, together with the holders of all the outstanding shares of Common
Stock ("Common Stock") and not by classes, except as otherwise provided herein
or as required by the Delaware General Corporation Law, on all matters on which
holders of Common Stock shall have the right to vote. The holders of shares of
Series A Preferred Stock shall have the right to cast one vote for each share of
Common Stock into which each share of Series A Preferred Stock held by them is
convertible, with any fractions rounded up to the next full vote.
The Corporation shall not amend, alter or repeal any of the provisions of
its Certificate of Incorporation or bylaws so as to affect adversely the powers,
preferences, qualifications, limitations or rights of the holders of the Series
A Preferred Stock.
1
<PAGE>
2. LIQUIDATION. Upon any voluntary liquidation, dissolution or winding
up of the Corporation, the holders of shares of Series A Preferred Stock shall
not receive out of the assets of the Corporation remaining after the payment of
all debts and liabilities of the Corporation any liquidation preference.
3. CONVERSION RIGHTS. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) CONVERSION. Each share of Series A Preferred Stock shall be
convertible, on or after the forty-first day after the initial sale of the
Series A Preferred Stock (the "Exchange Date"), into fully paid and
nonassessable unlegended shares (rounded up to the nearest full share) of Common
Stock (the "Conversion Shares") at a conversion price (the "Conversion Price")
determined to be the lower of (x) 85% of the average closing bid price of the
Corporation's Common Stock as calculated over the five day trading day period
ending on the day prior to the date of the Subscription Agreement (the "Original
Conversion Price") or (y) 85% of the average closing bid price of the
Corporation's Common Stock as calculated over the five trading-day period
immediately preceding each written notice by a holder of the Series A Preferred
Stock of such conversion. The number of Conversion Shares to be received upon
conversion shall be determined by dividing the Subscription Price per share of
Series A Preferred Stock of $10,000 by the Conversion Price.
(b) MECHANICS OF CONVERSION. Before any holder of Series A Preferred
Stock shall be entitled to receive certificates evidencing Conversion Shares
into which Series A Preferred Stock have been converted, such holder shall give
written notice by telefax to the Corporation of such conversion (the "Conversion
Notice") that such holder wishes to receive certificates evidencing the
Conversion Shares and shall state therein the name or names in which such holder
wishes the certificate or certificates for shares of Conversion Shares to be
issued. Notice given by telecopier to telecopier number 206-486-3113 shall be
deemed notice for purposes of this paragraph. The Corporation shall be deemed to
have accepted such Conversion Notice provided that the holder shall surrender,
or cause the escrow agent to surrender, the certificate or certificates for the
Series A Preferred Stock, duly endorsed, at the office of the Corporation or of
any transfer agent for such stock, within seven (7) business days after the
Conversion Notice. Within three (3) business days of the receipt by the
Corporation of the Series A Preferred Stock certificate or certificates, the
Corporation shall issue to such holder, an unlegended certificate or
certificates for the number of shares of Conversion Shares to which such holder
shall be entitled. Upon tender of the Conversion Shares by the Corporation, the
conversion may be said to have been effected.
2
<PAGE>
(c) ADJUSTMENTS TO ORIGINAL CONVERSION PRICE FOR CERTAIN EVENTS.
(i) In case at any time prior to conversion of the Series A
Preferred Stock the Corporation shall pay or make a stock dividend or other
distribution (payable otherwise than in cash out of funds legally available
therefor) on any class of Common Stock of the Corporation in Common Stock, the
Original Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced so that the same
shall equal the price determined by multiplying such Original Conversion Price
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution,
such adjustment to become effective immediately after the opening of business on
the day following the date fixed for such determination. Such adjustment shall
be made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Conversion Price shall again be adjusted
to be the Original Conversion Price which would then be in effect if such record
date has not been fixed.
(ii) In case at any time prior to conversion of the Series A
Preferred Stock the Corporation shall (A) subdivide its outstanding Common
Stock, (B) combine its outstanding Common Stock into a smaller number of shares,
or (C) issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing corporation) any shares, the Original Conversion
Price in effect at the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of any
Series A Preferred Stock surrendered for conversion after such time shall be
entitled to receive the aggregate number and kind of shares which, if such
Series A Preferred Stock had been converted immediately prior to such time, such
holder would have owned upon such conversion and been entitled to receive upon
such subdivision, combination or reclassification. Such adjustment shall be
made successively whenever any event listed above shall occur; and in the event
that such distribution is not so made, the Conversion Price shall again be
adjusted to be the Original Conversion Price which would then be in effect if
such record date has not been fixed.
(iii) In case at any time prior to conversion of the Series A
Preferred Stock the Corporation shall issue or sell shares of Common Stock or
any securities of the Corporation convertible or exchangeable into shares of
Common Stock for a
3
<PAGE>
price per share Common Stock (or, in the case of securities of the
Corporation convertible or exchangeable into shares of Common Stock, the
price per share of Common Stock for which the shares of Common Stock may at
any time thereafter be issuable pursuant to such securities of the
Corporation) less than the greater of Current Market Price (as defined in
paragraph (vi) of this subsection (c)) or the original Conversion Price, then
the original Conversion Price shall be adjusted to the number determined by
multiplying the Original Conversion Price in effect immediately prior to such
issuance or sale by a fraction, as follows: (A) if issued for a price per
share less than Current Market Price the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the
issuance or sale of such Common Stock or other securities plus the number of
such shares of Common Stock (or, in the case of securities convertible or
exchangeable into Common Stock, the number of shares of Common Stock issuable
upon conversion or exchange) so issued or sold, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior
to the issuance or sale of the shares of Common Stock or other securities
plus the number of shares of Common Stock which the aggregate consideration
for such shares of Common Stock or other securities so issued or sold would
purchase at a price per share equal to the Current Market Price and (B) if
issued for a price per share less than the Original Conversion Price, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance or sale of such shares of Common Stock or
other securities plus the number of such shares of Common Stock (or, in the
case of securities convertible or exchangeable into Common Stock, the number
of shares of Common Stock issuable upon conversion or exchange) so issued or
sold, and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance or sale of such shares of
Common Stock or other securities plus the number of shares of Common Stock
which the aggregate consideration for such shares of Common Stock or other
securities so issued or sold would purchase at a price per share equal to
such Original Conversion Price. If shares of Common Stock shall be issued at
a price per share less than both the Original Conversion Price and Current
Market Price, the Original Conversion Price shall be adjusted in the manner
hereinabove set forth which will result in the greater increase in the
Original Conversion Price. For the purposes of this subparagraph (iii), the
date as of which such original Conversion Price or Current Market Price shall
be computed shall be the earlier of (x) the date on which the Corporation
shall enter into a firm contract for the issuance or sale of such shares of
Common Stock or other securities or (y) the date of the actual issuance or
sale of such shares of Common Stock or other securities.
(iv) In case at any time prior to conversion of the Series A
Preferred Stock the Corporation shall fix a record
4
<PAGE>
date for the issuance of rights or warrants to all holders of its Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Current Market Price of the Common Stock on
such record date, the original Conversion Price in effect at the opening of
business on the day following such record date, shall be reduced so that the
same shall equal the price determined by multiplying such Original Conversion
Price by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on such record date plus
the number of shares of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such Current Market Price and the
denominator shall be the number of shares of Common Stock outstanding at the
close of business on such record date plus the number of shares of Common
Stock so offered for subscription or purchase, such reduction to become
effective immediately after the opening of business on the day following such
record date. Such reduction shall be made successively whenever such a record
date is fixed; and in the event that such rights or warrants are not so
issued or (if issued) to the extent not exercised, the Conversion Price shall
again be adjusted to be the Original Conversion Price which would then be in
effect if such record date had not been fixed or such unexercised rights or
warrants had not been issued.
(v) In case at any time prior to conversion of the Series A
Preferred Stock the Corporation shall fix a record date for the making of a
distribution, by dividend or otherwise, to all holders of its Common Stock, of
evidences of its indebtedness or assets (including securities, but excluding (x)
any dividend or distribution referred to in paragraph (i) of this subsection (c)
and (y) any dividend or distribution paid in cash out of funds legally available
therefor of the Corporation), then in each such case the Original Conversion
Price in effect after such record date shall be determined by multiplying the
Original Conversion Price in effect immediately prior to such record date by a
fraction, of which the numerator shall be the total number of outstanding shares
of Common Stock multiplied by the Current Market Price on such record date, less
the fair market value (as determined by the Board of Directors of the
Corporation, whose determination shall be conclusive) of the portion of the
assets or evidences of indebtedness so to be distributed, and of which the
denominator shall be the total number of outstanding shares of Common Stock
multiplied by such Current Market Price. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
distribution is not so made, the Conversion Price shall again be adjusted to be
the Original Conversion Price which would then be in effect if such record date
has not been fixed.
5
<PAGE>
(vi) For the purpose of any computation under paragraphs (iii),
(iv) and (v) of this subsection (c), the "Current Market Price" on any date
shall be deemed to be the average of the Closing Prices for the 10 consecutive
days upon which the principal trading market for the Common Stock is open
selected by the Corporation commencing not less than 20 nor more than 30 days
before the day in question. The Closing Price for any day shall be the average
of the reported closing bid and asked prices regular way on Nasdaq, or if the
Common Stock is listed or admitted to trading on a national securities exchange,
the last reported sales prices regular way, or if the Common Stock is quoted on
the Nasdaq National Market, the closing sale price, or if not so quoted, as
reasonably determined by the Board of Directors of the Corporation.
(vii) No adjustment in the Original Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least five percent (5%) in such Original Conversion Price; PROVIDED, HOWEVER,
that any adjustment which by reason of this paragraph (vii) is not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this subsection (c) shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.
(d) MANDATORY CONVERSION; REDEMPTIONS; AUTOMATIC CONVERSION.
(i) The Corporation will have the right to redeem all
conversions and all outstanding shares of Series A Preferred Stock on the terms
set forth below, provided, however, that holders of Series A Preferred Stock may
continue to submit notices of conversion until the termination of the relevant
notice period and will receive Conversion Shares rather than cash if they submit
such notices prior to the expiration of said notice period.
(ii) The Corporation will have the right, on giving ten days'
written notice to the holders of the Series A Preferred Stock, as shown on the
records of the Corporation, to redeem any conversion for cash pursuant to the
following formula: ($10,000 divided by .85).
(iii) The Corporation will also have the right, upon giving
ten days' written notice to the holders of Series A Preferred Stock, as shown on
the records of the Corporation, to redeem all the outstanding Series A Preferred
Stock for cash pursuant to the following formula: ($10,000 divided by .82). A
PREFERRED STOCK WILL AUTOMATICALLY CONVERT TO COMMON STOCK ONE YEAR AFTER THE
ORIGINAL ISSUANCE OF THE SERIES A PREFERRED STOCK.
6
<PAGE>
(e) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
subsection 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(f) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate executed by the Corporation's
President or Chief Financial officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price for the Series A Preferred Stock at the
time in effect, and (iii) the number of shares of Conversion Shares and the
amount, if any, of other property which at the time would be received upon the
conversion of the Series A Preferred Stock.
(g) NOTICE OF RECORD DATE. In the event that the Corporation shall
propose at any time prior to conversion of the Series A Preferred Stock: (i) to
declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock or other securities, whether or not a regular cash dividend and
whether or not out of earnings or earned surplus; (ii) to offer for subscription
pro rata to the holders of any class or series of its stock (other than the
Series A Preferred Stock) any additional shares of stock of any class or series
or other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
merge or consolidate with or into any other corporation where the Corporation is
not the surviving corporation, or sell, lease or convey all or substantially all
of its assets, or to liquidate, dissolve or wind up, then, in connection with
each such event, the Corporation shall send to the holders of Series A Preferred
Stock:
(1) at least twenty (20) days' prior written notice of the
record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for
7
<PAGE>
determining rights to vote, if any, in respect of the matters referred to in
(iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and (iv)
above, at least twenty (20) days prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
4. DIVIDENDS. The holders of Series A Preferred Stock shall not be
entitled to any dividend payment.
5. REGISTRATION. The Corporation hereby agrees that, upon demand or
holders of the Series A Preferred Stock or the underlying Common Stock, as a
result of a regulatory development including, but not limited to, an amendment
of Regulation S, or any "no action" or written interpretive guidance from the
Securities and Exchange Commission, which call into question the ability of
Buyer to resell the Series A Preferred Stock without registration, the
Corporation will file, and use its reasonable best efforts to cause to become
effective a registration statement on Form S-3 (or any other available form)
under the Securities Act covering the resale of the Common Stock issuable upon
conversion of the Series A Preferred Stock. Any such registration statement
shall remain effective for up to twelve (12) months, or until all of the shares
of Common Stock are sold, whichever is earlier. The Corporation shall provide
the Buyer with such number of copies of the prospectus as shall be reasonably
requested to facilitate the sale of the Common Stock issuable upon conversion of
the Series A Preferred Stock. The Corporation shall bear all expenses incurred
in connection with any such registration, excluding discounts and commissions
and other expenses of the Buyer (including, but not limited to Buyer's counsel's
fees).
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by Louis J. Tedesco, its Chief Executive officer and attested by Bradley
Powell, its Assistant Secretary, this 28th day of December, 1995.
OMEGA ENVIRONMENTAL, INC.
By: /s/
-----------------------
Louis J. Tedesco
Attest:
/s/
- -----------------------
Bradley Powell
8
<PAGE>
State of Delaware
PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORECT COPY OF THE CERTIFICATE OF DESIGNATION
OF "OMEGA ENVIRONMENTAL, INC.", FILED IN THIS OFFICE ON THE THIRTY-FIRST DAY OF
JULY, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE KENT COUNTY
RECORDER OF DEEDS FOR RECORDING.
/s/
-----------------------------------
EDWARD J. FREEL, SECRETARY OF STATE
2241799 8100 AUTHENTICATION: 8050159
960223575 DATE: 07-31-96
<PAGE>
CERTIFICATE OF DESIGNATIONS
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS OF THE SERIES B
CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF
OMEGA ENVIRONMENTAL, INC.
-------------------------
Pursuant to Section 151 of the
General Corporation Law of
the State of Delaware
-------------------------
Omega Environmental, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with the provisions of Section 151 of the General Corporation Law of
the State of Delaware, does hereby certify that the following resolution was
duly adopted by the Board of Directors of the Corporation on July 25, 1996:
RESOLVED that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by Article Fourth of the Certificate of
Incorporation of the Corporation, the Board of Directors hereby designates 500
shares of Preferred Stock to be Series B Redeemable Preferred Stock and fixes
and determines the voting rights, designations, preferences, qualifications,
privileges, limitations, options and other rights of the 500 shares of Series B
Convertible Redeemable Preferred Stock, par value $.0025 per share (the "Series
B Preferred Stock"), of the Corporation as follows:
1. VOTING RIGHTS. The holders of Series B Preferred Stock shall have the
right to vote, together with the holders of all the outstanding shares of Common
Stock ("Common Stock") and Series A Convertible Redeemable Preferred Stock and
not by classes, except as otherwise provided herein or as required by the
Delaware General Corporation Law, on all matters on which holders of Common
Stock shall have the right to vote. The holders of shares of Series B Preferred
Stock shall have the right to cast one vote for each share of Common Stock into
which each share of Series B Preferred Stock held by them is convertible, with
any fractions rounded up to the next full vote, PROVIDED, HOWEVER, if as a
result of the foregoing, the holders of all outstanding Series B Preferred Stock
had a number of votes exceeding eight million four hundred thirty-eight thousand
fifty (8,438,450) votes, then the number of votes all outstanding shares of
Series B Preferred Stock shall equal only eight million four hundred thirty-
eight thousand four
1
<PAGE>
hundred fifty (8,438,450) votes with such number of votes being allocated pro
rata to all outstanding shares of Series B Preferred Stock (with fractional
votes being disregarded).
The Corporation shall not amend, alter or repeal any of the provisions of
its Certificate of Incorporation or bylaws so as to affect adversely the powers,
preferences, qualifications, limitations or rights of the holders of the Series
B Preferred Stock.
2. LIQUIDATION. Upon any voluntary liquidation, dissolution or winding
up of the Corporation, the holders of shares of Series B Preferred Stock shall
not receive out of the assets of the Corporation remaining after the payment of
all debts and liabilities of the Corporation any liquidation preference.
3. CONVERSION RIGHTS. The holders of the Series B Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) CONVERSION. Each share of Series B Preferred Stock shall be
convertible, on or after the forty-first day after the final sale of the Series
B Preferred Stock, into fully paid and nonassessable unlegended shares (rounded
up to the nearest full share) of Common Stock (the "Conversion Shares") at a
conversion price (the "Conversion Price") determined to be the lower of (x) 85%
of the average closing bid price of the Corporation's Common Stock as calculated
over the seven day trading day period ending on the day prior to the date of
the Subscription Agreement (the "Original Conversion Price") or (y) 85% of the
average closing bid price of the Corporation's Common Stock as calculated over
the seven trading-day period immediately preceding the day on which each written
notice of such conversion is submitted to the Corporation. The number of
Conversion Shares to be received upon conversion shall be determined by dividing
the Subscription Price per share of Series B Preferred Stock of $10,000 by the
Conversion Price.
(b) MECHANICS OF CONVERSION. Before any holder of Series B Preferred
Stock shall be entitled to receive certificates evidencing Conversion Shares
into which Series B Preferred Stock have been converted, such holder shall give
written notice by telefax to the Corporation of such conversion (the "Conversion
Notice") that such holder wishes to receive certificates evidencing the
Conversion Shares and shall state therein the name or names in which such holder
wishes the certificate or certificates for shares of Conversion Shares to be
issued. Notice given by telecopier to telecopier number 206-486-3113 shall be
deemed notice for purposes of this paragraph. Subject to Section 3(d)(ii)
hereof, the Corporation shall be deemed to have accepted such Conversion Notice
provided that the holder shall surrender, or cause the escrow agent to
surrender, the certificate or certificates for the Series B Preferred
2
<PAGE>
Stock, duly endorsed, at the office of the Corporation or of any transfer
agent for such stock, within seven (7) business days after the Conversion
Notice. Subject to Section 3(d)(ii) hereof, within three (3) business days
of the receipt by the Corporation of the Series B Preferred Stock certificate
or certificates, the Corporation shall issue to such holder, an unlegended
certificate or certificates for the number of shares of Conversion Shares to
which such holder shall be entitled. Subject to Section 3(d)(ii) hereof,
upon tender of the Conversion Shares by the Corporation, the conversion may
be said to have been effected.
(c) ADJUSTMENTS TO ORIGINAL CONVERSION PRICE FOR CERTAIN EVENTS.
(i) In case at any time prior to conversion of the Series B
Preferred Stock the Corporation shall pay or make a stock dividend or other
distribution (payable otherwise than in cash out of funds legally available
therefor) on any class of Common Stock of the Corporation in Common Stock, the
Original Conversion Price in effect at the opening of business on the day
following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced so that the same
shall equal the price determined by multiplying such Original Conversion Price
by a fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares and
the total number of shares constituting such dividend or other distribution,
such adjustment to become effective immediately after the opening of business on
the day following the date fixed for such determination. Such adjustment shall
be made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Conversion Price shall again be adjusted
to be the Original Conversion Price which would then be in effect if such record
date has not been fixed.
(ii) In case at any time prior to conversion of the Series B
Preferred Stock the Corporation shall (A) subdivide its outstanding Common
Stock, (B) combine its outstanding Common Stock into a smaller number of shares,
or (C) issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Corporation is the continuing corporation) any shares, the Original Conversion
Price in effect at the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of any
Series B Preferred Stock surrendered for conversion after such time shall be
entitled to receive the aggregate number and kind of shares which, if such
Series B Preferred Stock had been converted immediately prior to such time, such
holder would
3
<PAGE>
have owned upon such conversion and been entitled to receive upon such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur; and in the event
that such distribution is not so made, the Conversion Price shall again be
adjusted to be the Original Conversion Price which would then be in effect if
such record date has not been fixed.
(iii) In case at any time prior to conversion of the Series B
Preferred Stock the Corporation shall issue or sell shares of Common Stock or
any securities of the Corporation convertible or exchangeable into shares of
Common Stock for a price per share Common Stock (or, in the case of securities
of the Corporation convertible or exchangeable into shares of Common Stock, the
price per share of Common Stock for which the shares of Common Stock may at any
time thereafter be issuable pursuant to such securities of the Corporation) less
than the greater of Current Market Price (as defined in paragraph (vi) of this
subsection (c)) or the original Conversion Price, then the original Conversion
Price shall be adjusted to the number determined by multiplying the Original
Conversion Price in effect immediately prior to such issuance or sale by a
fraction, as follows: (A) if issued for a price per share less than Current
Market Price the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance or sale of such Common Stock
or other securities plus the number of such shares of Common Stock (or, in the
case of securities convertible or exchangeable into Common Stock, the number of
shares of Common Stock issuable upon conversion or exchange) so issued or sold,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance or sale of the shares of Common
Stock or other securities plus the number of shares of Common Stock which the
aggregate consideration for such shares of Common Stock or other securities so
issued or sold would purchase at a price per share equal to the Current Market
Price and (B) if issued for a price per share less than the Original Conversion
Price, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance or sale of such shares of Common
Stock or other securities plus the number of such shares of Common Stock (or, in
the case of securities convertible or exchangeable into Common Stock, the number
of shares of Common Stock issuable upon conversion or exchange) so issued or
sold, and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to the issuance or sale of such shares of Common
Stock or other securities plus the number of shares of Common Stock which the
aggregate consideration for such shares of Common Stock or other securities so
issued or sold would purchase at a price per share equal to such Original
Conversion Price. If shares of Common Stock shall be issued at a price per
share less than both the Original Conversion Price and Current
4
<PAGE>
Market Price, the Original Conversion Price shall be adjusted in the manner
hereinabove set forth which will result in the greater increase in the
Original Conversion Price. For the purposes of this subparagraph (iii), the
date as of which such original Conversion Price or Current Market Price shall
be computed shall be the earlier of (x) the date on which the Corporation
shall enter into a firm contract for the issuance or sale of such shares of
Common Stock or other securities or (y) the date of the actual issuance or
sale of such shares of Common Stock or other securities.
(iv) In case at any time prior to conversion of the Series B
Preferred Stock the Corporation shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share less than
the Current Market Price of the Common Stock on such record date, the original
Conversion Price in effect at the opening of business on the day following such
record date, shall be reduced so that the same shall equal the price determined
by multiplying such Original Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on such record date plus the number of shares of Common Stock which
the aggregate of the offering price of the total number of shares of Common
Stock so offered for subscription or purchase would purchase at such Current
Market Price and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on such record date plus the number of
shares of Common Stock so offered for subscription or purchase, such reduction
to become effective immediately after the opening of business on the day
following such record date. Such reduction shall be made successively whenever
such a record date is fixed; and in the event that such rights or warrants are
not so issued or (if issued) to the extent not exercised, the Conversion Price
shall again be adjusted to be the Original Conversion Price which would then be
in effect if such record date had not been fixed or such unexercised rights or
warrants had not been issued.
(v) In case at any time prior to conversion of the Series B
Preferred Stock the Corporation shall fix a record date for the making of a
distribution, by dividend or otherwise, to all holders of its Common Stock, of
evidences of its indebtedness or assets (including securities, but excluding (x)
any dividend or distribution referred to in paragraph (i) of this subsection (c)
and (y) any dividend or distribution paid in cash out of funds legally available
therefor of the Corporation), then in each such case the Original Conversion
Price in effect after such record date shall be determined by multiplying the
Original Conversion Price in effect immediately prior to such record date by a
fraction, of which the numerator shall be the
5
<PAGE>
total number of outstanding shares of Common Stock multiplied by the Current
Market Price on such record date, less the fair market value (as determined
by the Board of Directors of the Corporation, whose determination shall be
conclusive) of the portion of the assets or evidences of indebtedness so to
be distributed, and of which the denominator shall be the total number of
outstanding shares of Common Stock multiplied by such Current Market Price.
Such adjustment shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Conversion
Price shall again be adjusted to be the Original Conversion Price which would
then be in effect if such record date has not been fixed.
(vi) For the purpose of any computation under paragraphs (iii),
(iv) and (v) of this subsection (c), the "Current Market Price" on any date
shall be deemed to be the average of the Closing Prices for the 10 consecutive
days upon which the principal trading market for the Common Stock is open
selected by the Corporation commencing not less than 20 nor more than 30 days
before the day in question. The Closing Price for any day shall be the average
of the reported closing bid and asked prices regular way on Nasdaq, or if the
Common Stock is listed or admitted to trading on a national securities exchange,
the last reported sales prices regular way, or if the Common Stock is quoted on
the Nasdaq National Market, the closing sale price, or if not so quoted, as
reasonably determined by the Board of Directors of the Corporation.
(vii) No adjustment in the Original Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least five percent (5%) in such Original Conversion Price; provided, however,
that any adjustment which by reason of this paragraph (vii) is not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this subsection (c) shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.
(d) REDEMPTIONS; AUTOMATIC CONVERSION.
(i) The Corporation will have the right to redeem all
outstanding shares of Series B Preferred Stock on the terms set forth below,
provided, however, that holders of Series B Preferred Stock may continue to
submit notices of conversion until the termination of the relevant notice period
and will receive Conversion Shares rather than cash if they submit such notices
prior to the expiration of said notice period. The Corporation will have the
right, upon giving ten days' written notice to the holders of Series B Preferred
Stock, as shown on the records of the Corporation, to redeem all the outstanding
Series B Preferred Stock for $12,200 cash per share of Series B Preferred Stock.
No
6
<PAGE>
redemptions shall be permitted pursuant to this Section 3(d) (i) until forty
(40) days after the issuance of the Series B Preferred Stock.
(ii) All unconverted shares of Series B Preferred Stock
shall beredeemed by the Corporation on giving ten day's written notice to the
holders of Series B Preferred Stock at a price of $12,200 cash per share of
Series B Preferred Stock in the event that a Conversion Notice or Conversion
Notices are submitted which, if accepted, would (x) otherwise require the
Corporation to issue Common Stock to the holders of Series B Preferred Stock
in an amount which exceeds eight million four hundred thirty-eight thousand
four hundred fifty (8,438,450) shares of Common Stock of the Corporation, or
(y) result in the issuance of Common Stock in excess of the number of
authorized shares of Common Stock provided for in the Certificate of
Incorporation of the Company (as amended).
(iii) UNLESS OTHERWISE REDEEMED OR CONVERTED, THE SERIES B
PREFERRED STOCK WILL AUTOMATICALLY CONVERT TO COMMON STOCK ONE YEAR AFTER THE
ORIGINAL ISSUANCE OF THE SERIES B PREFERRED STOCK AT THE CONVERSION PRICE THEN
IN EFFECT.
(e) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions Of this
subsection 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock against impairment.
(f) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 3,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock a certificate executed by the Corporation's
President or Chief Financial officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series B Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price for the Series B Preferred Stock at the
time in effect, and (iii) the number of shares of Conversion Shares and the
amount, if any, of other property which at the time would be received upon the
conversion of the Series B Preferred Stock.
7
<PAGE>
(g) NOTICE OF RECORD DATE. In the event that the Corporation shall
propose at any time prior to conversion of the Series B Preferred Stock: (i) to
declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock or other securities, whether or not a regular cash dividend and
whether or not out of earnings or earned surplus; (ii) to offer for subscription
pro rata to the holders of any class or series of its stock (other than the
Series B Preferred Stock) any additional shares of stock of any class or series
or other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
merge or consolidate with or into any other corporation where the Corporation is
not the surviving corporation, or sell, lease or convey all or substantially all
of its assets, or to liquidate, dissolve or wind up, then, in connection with
each such event, the Corporation shall send to the holders of Series B Preferred
Stock:
(1) at least twenty (20) days' prior written notice of the
record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (iii) and (iv) above; and
(2) in the case of the matters referred to in (iii) and (iv)
above, at least twenty (20) days prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
4. DIVIDENDS. The holders of Series B Preferred Stock shall not be
entitled to any dividend payment.
5. REGISTRATION. The Corporation hereby agrees that, upon demand or
holders of the Series B Preferred Stock or the underlying Common Stock, as a
result of a regulatory development including, but not limited to, an amendment
of Regulation S, or any "no action" or written interpretive guidance from the
Securities and Exchange Commission, which call into question the ability of
Buyer to resell the Series B Preferred Stock without registration, the
Corporation will file, and use its reasonable best efforts to cause to become
effective a registration statement on Form S-3 (or any other available form)
under the Securities Act covering the resale of the Common Stock issuable upon
conversion of the Series B Preferred Stock. Any such registration statement
shall remain effective for up to twelve (12) months, or until all of the shares
of Common Stock are sold, whichever is earlier. The Corporation shall provide
the Buyer with such number of copies of the prospectus as shall be reasonably
requested to facilitate the sale of the Common Stock
8
<PAGE>
issuable upon conversion of the Series B Preferred Stock. The Corporation
shall bear all expenses incurred in connection with any such registration,
excluding discounts and commissions and other expenses of the Buyer
(including, but not limited to Buyer's counsel's fees).
IN WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by Louis J. Tedesco, its Chief Executive officer and attested by Bradley
Powell, its Assistant Secretary,
this 25th day of July, 1996.
OMEGA ENVIRONMENTAL, INC.
By: /s/
------------------------
Louis J. Tedesco
Attest:
/s/
- ----------------------------
Bradley Powell
9
<PAGE>
OMEGA ENVIRONMENTAL, INC. EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE LOSS
FOR THE THREE MONTHS ENDED JUNE 30, 1996
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
<TABLE>
<CAPTION>
Number Weighted
Number of Days Average Shares
of Shares O/S (91 Day Period)
---------- -------- ----------------
<S> <C> <C> <C>
Non-Escrow Shares at March 31, 1996 37,963,585 91 37,963,585
April - Preferred Stock 859,421 88 831,088
April - C Warrants 140,400 79 122,605
April - Other 78,617 61 52,700
May - Class action lawsuit settlement 1,737,063 55 1,049,873
May - Other 26,087 37 10,607
June - Unit Options 1,345,991 5 73,955
June - Other 31,549 18 6,286 Historical Loss Loss Per Share
---------- -------- ----------------
Total Historical Non-Escrow Shares 42,182,713 40,110,699 (783,248) (0.02)
---------------------------------------------
---------------------------------------------
Parks escrowed shares 75,000
ESSI escrowed shares 50,000
PEC escrowed shares 17,279
Fedco escrowed shares 26,087
STC escrowed shares 18,547
Gurr escrowed shares 267,766
SSC escrowed shares 25,988
SST escrowed shares 12,122
Treasury Shares 100,000
----------
Total Issued & Outstanding Shares @ June 30, 1996 42,775,502
----------
</TABLE>
<PAGE>
OMEGA ENVIRONMENTAL, INC. EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE LOSS
FOR THE THREE MONTHS ENDED JUNE 30, 1995
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
<TABLE>
<CAPTION>
Number Weighted
Number of Days Average Shares
of Shares O/S (91 Day Period)
---------- -------- ----------------
<S> <C> <C> <C>
Non-Escrow Shares at March 31, 1995 32,820,768 91 32,820,768
April Activity 77,462 83 70,761
May Activity 165,483 35 63,554
June Activity 600,000 3 19,780 Historical Loss Loss Per Share
---------- ---------------------------------------------
Total Historical Non-Escrow Shares 33,663,713 32,974,863 (343,410) (0.01)
---------------------------------------------
---------------------------------------------
Parks escrowed shares 150,000
Kelley escrowed shares 5,176
ESSI escrowed shares 50,000
PEC escrowed shares 34,558
Fedco escrowed shares 52,174
STC escrowed shares 37,095
Gurr escrowed shares 401,649
SSC escrowed shares 51,976
SST escrowed shares 24,245
Treasury Shares 100,000
----------
Total Issued & Outstanding Shares @ June 30, 1995 34,570,586
----------
</TABLE>
<PAGE>
EXHIBIT 15
Omega Environmental, Inc.
Bothell, Washington
Ladies and Gentlemen:
With respect to registration statements, we acknowledge our
awareness of the use therein of our report dated August 13, 1996
related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such
report is not considered part of a registration statement
prepared or certified by an accountant or a report prepared or
certified by an accountant within the means of sections 7 and 11
of the Act.
/s/
- -----------------------
KPMG Peat Marwick LLP
Seattle, Washington
August 13, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINNANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS
AS OF AND FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 942
<SECURITIES> 0
<RECEIVABLES> 39,565<F1>
<ALLOWANCES> 0
<INVENTORY> 11,236
<CURRENT-ASSETS> 66,926
<PP&E> 9,332<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,997
<CURRENT-LIABILITIES> 45,322
<BONDS> 0
0
0
<COMMON> 107
<OTHER-SE> 56,600
<TOTAL-LIABILITY-AND-EQUITY> 105,997
<SALES> 39,213
<TOTAL-REVENUES> 39,213
<CGS> 31,376
<TOTAL-COSTS> 31,376
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 773
<INCOME-PRETAX> (783)
<INCOME-TAX> 0
<INCOME-CONTINUING> (783)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (783)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
<FN>
<F1>THIS AMOUNT IS NET OF ALLOWANCES FOR DOUBTFUL ACCTS.
<F2>THIS AMOUNT IS NET OF ACCUMULATED DEPRECIATION.
</FN>
</TABLE>
