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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 1997 .
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from ___________________ to ___________________.
Commission File Number: 0-22294
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MED/WASTE, INC.
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(Name of small business issuer in its charter)
DELAWARE 65-0297759
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6175 N.W. 153rd Street, Suite 324, Miami Lakes, FL 33014
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(Address of Principal Executive's Offices) (Zip code)
Issuer's telephone number: (305) 819-8877
Securities registered under Section 12(b) of the Exchange Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.001 par value
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(Title of Class)
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B, contained in this form 10-KSB and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [x].
The issuer's revenue for its most recent fiscal year was 13,547,960.
The aggregate market value of the shares of voting stock held by
non-affiliates, computed by reference to the average bid and asked price for
such stock of $4.83 as of March 27, 1998 was approximately $22,545,986.
The number of shares outstanding of the registrant's common stock
$,001 par value as of March 1998 was 4,669,598.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Definitive Proxy Statement for the Company's 1998
annual meeting of stockholders, to be filed with the Securities and Exchange
Commission, is hereby incorporated by reference herein into Part III, Items 10,
11 and 12 hereof.
Transitional Small Business Disclosure Format (Check one) Yes No X
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ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Med/Waste, Inc. (the "Company") is a holding company which, through
its subsidiaries, is engaged in the provision of medical waste management
services throughout the eastern United States. The Company's operations are
conducted through Safety Disposal System, Inc. ("SDS"), Safety Disposal System
of South Carolina, Inc. ("SDSSC"), Safety Disposal System of Pennsylvania, Inc.
(SDSPA"), Safety Disposal System of Georgia, Inc. ("SDSGA") and Incendere, Inc.
("Incendere"). Prior to January 30, 1998, the Company also provided commercial
cleaning services operations through a wholly owned subsidiary, The Kover Group,
Inc. ("Kover"). On January 30, 1998, the Company sold 100% of the capital stock
of Kover to Kover's president and chief executive officer, Phillip W. Kubec
("Kubec"). See "Discontinued Operations" below.
SDS, SDSGA and Incendere provide collection, transportation,
treating, tracking and related services for the disposal of medical waste
throughout Delaware, Florida, Georgia, Maryland, New Jersey, North Carolina,
Pennsylvania, South Carolina, Tennessee and Virginia. SDS also sells or leases
turnkey autoclave treatment units for large quantity generators. SDSSC operates
an incineration facility in Hampton, South Carolina, which is permitted to treat
municipal, medical and special waste which the Company receives from generators
throughout the eastern United States. SDSSC mainly focuses on the treatment of
medical waste and to a lesser degree, special waste. SDSPA owns and operates a
medical waste autoclave treatment facility located in Marcus Hook, Pennsylvania.
SDS also owns an autoclave medical waste treatment facility in West Palm Beach,
Florida.
Medical waste is generally any waste which may cause an infectious
disease or can reasonably be suspected of harboring pathogenic organisms.
Medical waste includes predominantly all material that comes in contact with
human and animal body fluids. The Company collects medical waste from medical
waste generators, including hospitals, clinics, medical and dental offices,
veterinarians, laboratories, funeral homes, home health agencies and others. In
addition to medical waste collection, the Company provides programs to assist
customers to promote safe handling of medical waste and comply with federal and
state requirements applicable to their operations. Special waste is generally
all non-residential waste which requires more stringent management than
municipal solid waste, but does not include medical or hazardous waste.
Nationally, most medical waste is disposed of by incineration.
However, more stringent government regulation and a generally negative public
attitude toward nearby incineration facilities have resulted in a declining
number of incineration disposal facilities. Relatively few newly permitted
incineration facilities have opened due to the significant cost of compliance
with new environmental legislation. The Company's incinerator is in compliance
with all federal and state regulations dealing with air pollution controls. The
incinerator is a waste to energy facility with a rated capacity for processing
up to 270 tons per day of special, medical and municipal waste. The facility is
currently permitted under South Carolina law to incinerate up to 200 tons per
day of waste both, liquid and solid.
The trend against incinerator facilities has encouraged the
development and commercial use of a variety of environmentally acceptable
alternative disposal techniques. The Company owns and operates a 48 ton
autoclave medical waste treatment facility located in Marcus Hook, Pennsylvania.
The company also operates an autoclave treatment facility in West Palm Beach,
Florida, which is
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capable of treating 24 tons of medical waste per day. The autoclaves treat the
medical waste through sterilization, allowing most of such waste to be handled
and disposed of as solid waste.
In addition, as part of its comprehensive medical waste services, the
Company supplies, installs and oversees the operations of on-site autoclaves at
large quantity generators, typically hospitals. Management believes that
autoclaves can reduce each hospital's medical waste by up to 90%, thus
significantly reducing the expense of disposal both due to decreased volume and
the significant cost savings of disposing of solid, versus medical waste.
Hospitals either purchase or lease the autoclave and related equipment. During
the term of the lease the Company provides maintenance and support of the
autoclave on-site and collects the treated waste and transports it for ultimate
disposal at a local landfill.
MEDICAL WASTE INDUSTRY OVERVIEW
According to information released in 1997 by the Environmental
Working Group of the Florida Department of Environmental Protection, the United
States generates over two million tons of Medical Waste per year. It has been
estimated that the current market for medical waste disposal services in the
United States is approximately $1.25 billion per year.
Nationally, most medical waste is disposed of by incineration.
However, more stringent government regulation and a generally negative public
attitude toward nearby incineration facilities have resulted in a declining
number of incineration disposal facilities. Relatively few newly permitted
incineration facilities have opened due to the significant cost of compliance
with new environmental legislation. The Company's incinerator is in full
compliance with all federal and state regulations dealing with air pollution
controls.
BUSINESS STRATEGY
The Company's focus is to become a fully integrated medical waste
management services company. The Company believes that in order to remain
competitive in the medical waste industry, it is important to provide customers
with a total program for their medical waste compliance problems. As part of
such strategy, the Company has sought to provide all aspects of medical waste
management, including collection, transportation and treatment. By providing all
services, the Company is able to take advantage of economies of scale and become
a formidable competitor within the medical waste industry. The Company can also
exploit the cross marketing opportunities through its complete menu of medical
waste services. The Company has primarily expanded through acquisitions and
expects to continue its acquisition program to access new regions and to obtain
a greater share of its existing markets.
OPERATIONS
GENERAL.
Generators of medical waste are generally liable under applicable
regulations for the collection, packaging, transportation, tracking,
documentation and disposal of such waste, as well as training of employees in
the handling of such waste. As new regulations are written, the complexity of
administering a medical waste management system increases. As a result, the
Company expects more health care providers will engage specialists to ensure
their compliance. Further, most small medical waste generators cannot afford the
cost of individualized compliance. The Company believes it's approach to
management of medical waste, including the use of on-site equipment, specialized
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containers, on-site training, a specially designed tracking system, timely
customer service, radio dispatched trucks and low cost disposal methods provide
customers with a cost effective solution for compliance.
The Company collects medical waste from medical waste generators,
including hospitals, clinics, medical and dental offices, veterinarians,
laboratories, funeral homes, home health agencies and others. In addition to
medical waste collection, The Company provides programs to assist customers to
promote safe handling of medical waste and comply with federal and state
requirements applicable to their operations.
The Company owns an incineration facility in South Carolina, which is
permitted to treat municipal, medical and special waste, as well as autoclave
medical waste treatment facilities in Pennsylvania and Florida. The Company
receives waste from generators throughout the eastern United States. While the
incineration facility primarily focuses on the treatment of medical waste, it is
also permitted to treat special waste. Special waste is generally all
non-residential waste which requires more stringent management than municipal
solid waste, but does not include medical or hazardous waste.
The Company believes that to remain competitive in the medical waste
industry it is critical to provide customers with a total program for their
medical waste compliance problems. In addition to disposal, the Company also
provides a variety of waste management services, including training of customer
employees on the handling of medical waste, educating generators on the latest
regulations, providing containers for disposal and documentation and tracking
medical waste from pick-up to ultimate disposal.
COLLECTION. The Company contracts with medical and special waste
generators to collect their waste on a regular schedule pursuant to a negotiated
fee structure. Schedules for pickup can vary from several times per week to once
a month, depending on the volume of waste produced by a customer. Each waste
generator is responsible for packing its waste in containers usually provided to
them by the Company, then placing the containers at a designated collection area
on the generator's premises. The Company sends its truck driven by a Company
driver to pick up the waste. If a waste generator is sufficiently large, the
Company places a large temporary storage container at the premises, which the
Company picks up for ultimate disposal at a waste treatment facility. The
Company then delivers the waste to a treatment facility before it is transported
for disposal in a local sanitary landfill. See "Disposal of Medical Waste"
below.
The Company typically supplies containers to its customers for use in
the disposal of infectious medical waste. These containers contain the universal
biohazard symbol to draw attention to their contents. The containers used are
either cardboard or a rigid plastic depending on the intended contents. The
plastic containers are used for hypodermic needles, scalpels and other so-called
"sharps." Smaller plastic containers are packed in the cardboard containers with
other medical waste for ease of transport. The Company does not accept waste
unless it is properly packaged by customers in Company supplied or approved
containers.
DOCUMENTATION. In accordance with law, the Company provides complete
documentation to its customers for all waste it collects. Such documentation
includes information related to point of origin, date of pick-up and date of
delivery to a treatment facility. The documentation system developed by the
Company meets all applicable local, state and federal regulations regarding
packaging, labeling and proof of disposal of waste materials.
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TRANSFER STATIONS. The Company currently operates 12 transfer
stations: three in Florida; three in Pennsylvania; two in Virginia; three in
Georgia; and one in Tennessee. Each transfer station is licensed as appropriate,
by state, county and city governmental authorities. The transfer stations are
used as temporary storage facilities to maximize efficiency in the transport of
medical waste. In most instances, waste containers picked up from generators are
stored at a transfer station until a full truck load can be brought to the
Company's autoclave or Incineration facilities or to a third-party treatment
facility, thus saving time and cost.
DISPOSAL OF WASTE.
The two most common methods of treating infectious waste are
incineration and steam sterilization, i.e., autoclaving. Alternate methods
include chemical disinfection, microwave and numerous other specialized and
experimental techniques. Incineration burns the medical waste at high
temperatures and reduces the waste to ash and metal. Incineration has the
advantage of significantly reducing the volume of waste. However, incineration
has come under increasing scrutiny by environmentalists and state and local
regulators due to emissions generated by incineration. Emissions contain
pollutants such as carbon monoxide, mercury, cadmium, lead and other toxins. As
a result, the cost of developing incineration facilities or to upgrade existing
facilities to meet regulatory standards is significant.
INCINERATION FACILITY. SDSSC disposes of all of the waste that it
receives from third parties by incineration at its incineration facility located
in Hampton, South Carolina (the "Incinerator"). The Incinerator is in full
compliance with all federal and state regulations dealing with air pollution
controls. The incinerator is a waste to energy facility with a rated capacity
for processing up to 270 tons per day of special, medical and municipal waste.
The facility is currently permitted under South Carolina law to incinerate up to
200 tons per day of waste, both liquid and solid, including 100 tons of medical
waste per day. The Incinerator is equipped with three (3) Consumat modular,
multi-chamber, solid hearth, controlled-air incinerators. Each incinerator has a
design capacity of 90 tons per day for waste materials. The primary chamber of
each incinerator operates at 1,400 to 1,600 degrees Fahrenheit, with the
secondary and tertiary chambers operating at 1,800 to 2,400 degrees Fahrenheit.
The secondary and tertiary chambers have auxiliary gas fired burners designed to
maintain 1,800 degrees Fahrenheit temperature and at least two seconds residence
time for flue gas. Ash residue from the incineration process is screened at the
Incinerator to remove recyclable materials and is then transported for disposal
in a local sanitary landfill.
The Company disposes of a majority of the medical waste and all of
the special waste received from customers by incineration at the Incinerator.
The Company also has non-exclusive contracts to utilize third-party disposal
facilities for contracted prices per pound of medical waste it pays to the
facilities. The majority of SDSSC's waste stream is transported to the
Incinerator through arrangements made directly by its customers with third-party
hauling companies.
In addition to generating revenue from the processing of waste
materials, the Incinerator currently sells process steam to an adjacent
industrial plant. The Incinerator has been designated as a Qualified Facility
("QF") by the United Stated Department of Energy for purposes of producing and
selling electricity under the Public Utility Regulatory Power Act ("PURPA").
PURPA requires public utilities to purchase electricity at the avoided cost of
generation from those facilities that carry a QF designation. The Incinerator
would need minor retrofitting of its boiler and installation of a turbine
generator to allow for the production and sale of electricity.
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AUTOCLAVE FACILITIES. In June 1997, the Company entered into a
management agreement to operate an autoclave facility for the treatment of
medical waste in Marcus Hook, Pennsylvania. In November 1997, the Company
purchased the 2.9 acre industrial site, together with related autoclave
equipment used at such site, from K.S. Processing Company, Inc. (the "KS
Facility")
The KS Facility consists of two (2) 25 ton per day autoclaves, a
10,000 square foot processing center and a 2,400 square foot administrative
building. The KS Facility receives medical waste from generators located
throughout New York, New Jersey, Connecticut, Pennsylvania, Maryland and
Virginia. The KS Facility currently operates at full capacity. The KS Facility
is currently the only medical waste autoclave facility in Pennsylvania. The
current permitting process for medical waste treatment facilities in
Pennsylvania is a costly, time consuming and politically difficult procedure.
The Company does not anticipate that any additional autoclave or incinerator
permits will be issued by the Pennsylvania Department of Environmental
Protection in the near future.
Since April 1994, the Company has treated a portion of the medical
waste it collects its autoclave facility located in West Palm Beach, Florida.
The autoclave steam sterilizes medical waste, under pressure at a temperature of
281 degrees Fahrenheit, then feeds the sterilized waste through a shredder. The
shredder grates the product and ultimately the waste is compacted. The resulting
waste is decreased in volume by 80% and hauled to a landfill. In February 1998,
the Company installed an additional autoclave unit in West Palm Beach. The West
Palm Beach autoclave facility presently has the capacity to dispose of over 24
tons per day of infectious medical waste.
Although steam sterilization is an approved method of treating
medical waste, steam sterilization alone does not change the appearance of the
waste. If the treatment process does not change the physical appearance of
infectious waste, such waste may not be accepted by landfill operators.
Therefore, steam sterilization must be combined with a process such as shredding
or grating which renders the waste stream non-recognizable. As a result, the
Company's autoclave facilities are equipped with high speed industrial
shredders.
The Company believes existing and pending federal, state and local
regulations regarding air quality and the effects on air quality of medical
waste disposal by incineration will enhance the Company's' market position
because the Incinerator is in full compliance with all federal and state
regulations dealing with air pollution controls and its autoclave facilities do
not cause measurable air pollutants and will be more acceptable to local
residents.
ON-SITE TREATMENT OF MEDICAL WASTE.
SDS supplies, installs and oversees the operations of on-site
autoclaves at large quantity generators, typically hospitals. The autoclaves
treat the medical waste through sterilization, allowing most of such waste to be
handled and disposed of as special waste. It is estimated that the autoclaves
will reduce each hospital's medical waste by approximately 90%, thus
significantly reducing the expense of disposal both due to decreased volume and
the significant cost savings of disposing of special, versus medical waste.
Hospitals either purchase or lease the autoclave and related equipment. During
the term of the lease, or following the purchase of a unit, the Company provides
maintenance and support of the autoclave on-site and collects the treated waste
and transports it for ultimate disposal at a local landfill.
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SAFETY TRAINING.
Health care personnel have become increasingly sensitive to the risk
of contracting diseases such as AIDS and hepatitis through accidental contact
with infected patient blood. In addition, patients are increasingly demanding
that practitioners demonstrate continual vigilance against such risks.
Occupational Safety and Health Act ("OSHA") regulations require annual training
of all personnel who potentially can come in contact with blood borne pathogens.
The OSHA regulations also require documentation of procedures, clean-up plans
and training of such personnel. As a result, there has been heightened attention
by medical providers of the need to implement safeguards against such risks. SDS
has developed programs to train employees of customers in the proper methods of
handling, segregating and containerizing medical waste to reduce potential
exposure to employees. SDS instructs health care workers in the proper methods
of handling, recording and documenting their medical waste streams to comply
with local, state and federal regulations. SDS also offers to develop an
internal system for such customers to provide for the efficient management of
medical waste within the customer's facility in an effort to reduce the
customer's overall disposal costs. SDS offers consulting and review services to
medical waste generators regarding their internal medical waste collection and
control systems and to assist such generators in developing a system to provide
for the efficient management of the medical waste through the point of pickup by
SDS. Safety training and related services are not presently a significant
portion of SDS's revenues.
MEDICAL WASTE MARKET.
The Company is the second largest medical waste disposal company in
the state of Florida and the fourth largest public medical waste disposal
company based in the United States. The Company services more than 7,500 health
care facilities consisting of small, medium and large quantity generators. A
small quantity generator typically produces approximately 10 to 50 pounds of
medical waste in a month. Medium quantity generators, such as clinics,
out-patient surgical centers, dialysis centers and laboratories produce
substantially more poundage per month. Large quantity generators, such as
hospitals, can produce as much as 70,000 pounds per month, depending on the size
and types of services provided by such hospital.
Delivery of health care services within the United States is shifting
from hospitals to home care and alternate site facilities. Home care and
delivery of care in other non-acute facilities are among the fastest growing
segments of the health care industry. Cost containment pressures and new
treatment protocols will continue to move patients, including patients being
treated for infectious diseases, into non-hospital settings. As patients move
into these settings, infectious medical waste that would otherwise be handled by
hospitals must be disposed of through alternate methods. These generators
include physicians, dentists, out-patient clinics, dialysis clinics,
laboratories, home health agencies, and other organizations involved in the
medical profession. For most of these generators, it would be unrealistic to
treat and dispose of their medical waste by themselves. By contracting with the
Company, these generators can pay a small monthly fee and let the Company handle
and dispose of their medical waste.
COMPANY MARKETING. The Company's marketing strategies and activities
focus principally on metropolitan areas because they represent the greatest
concentration of medical waste generators. This emphasis results in higher
revenue potential and reduced transportation costs per pick-up. The Company
believes that its full service capability using alternative technologies to
solve all of its customers' medical waste disposal needs enhances its ability to
market its services to customers. This approach is supported by the Company's
emphasis on sharing cost savings with its
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customers, responsiveness to customer needs, competitive pricing and superior
service with radio-dispatched trucks.
The Company's Incinerator competes in the marketplace on the basis of
quality service and reasonable pricing. Emphasis is now being placed on the
development of special waste streams, as well as, increased medical waste
customers. The Company recently expanded its incineration sales force and is
aggressively penetrating the non-hazardous industrial/residual waste and
pharmaceutical waste markets.
The Company's Marcus Hook autoclave facility is strategically located
in eastern Pennsylvania to most of the major metropolitan markets in the
northeast United States. As such the transportation costs of most haulers is
sufficiently lower to attract such haulers to bring their waste to the facility.
The Company's west Palm Beach autoclave facility is located close to SDS's
Florida customers, which allows for lower operating costs to the Company. This
gives SDS the advantage of keeping prices low enough to attract customers in the
region.
The company markets its collection services directly to the waste
generator, primarily hospitals, clinics, medical and dental offices,
veterinarians, laboratories, funeral homes, home health agencies and similar
health care providers. Disposal agreements are negotiated individually with each
customer. Although each of the Company's subsidiaries have standard forms of
agreement, terms vary depending on the number of containers, frequency of pick
up and volume of and type of waste. Disposal agreements typically include
provisions relating to types of containers, frequency of collection, pricing,
disposal and documentation for tracking purposes. Each agreement also specifies
the customers' specific obligation for packaging in proper containers before the
Company will accept the waste. Most disposal agreements for small and medium
quantity generators are for a period of one to three years, with automatic
annual renewals, although customers may terminate on written notice upon payment
of a penalty. Most hospital contracts are for one to three years to five years,
with automatic renewal options and, with the exception of autoclave sterilizer
sales, a sixty (60) day right to cancellation, without penalty.
DISCONTINUED OPERATIONS.
On January 30, 1998, the Company sold 100% of the capital stock of
Kover to MPK Holdings, Ltd., an Ohio limited liability company ("MPK"). As such,
Kover's operations are classified as "discontinued Operations" in the Company's
consolidated financial statements. MPK is wholly owned by Phillip W. Kubec and
Melissa Kubec, his wife (the "Kubecs"). Mr. Kubec was the president and chief
executive officer of Kover and a director of the Company. The Company received
aggregate consideration for the sale of Kover of $2,700,000, payable $1.2
million in cash at closing and the balance of $1.5 million in promissory notes.
The Company received two promissory notes, one for $960,000 from MPK (the "MPK
Note") and one for $540,000 from Kover (the "Kover Note"). The MPK Note is
payable interest only monthly at the rate of 8.25% per annum, with the principal
balance due at the end of five years. The Kover note is payable interest only
monthly at the rate of 8.25% per annum with the principal due at the end of
seven (7) years. The MPK Note is guaranteed by Kover and the Kubecs and is
secured by a pledge of 100% of the capital stock of Kover. The Kover Note is
guaranteed by MPK. The MPK and Kover Notes are subordinate to $1.6 million in
financing received by MPK. The Kubec Guarantee is secured by a pledge of 20,000
shares of Common Stock of the Company owned by the Kubecs.
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Kover is engaged in the business of offering, selling and servicing
franchises for commercial building cleaning services through the trade name
"Coverall Cleaning Concepts". Kover is a service franchiser of Coverall North
America, Inc. ("CNA") in the metropolitan areas of Cleveland, Ohio and South
Florida. Kover is a master franchisee of CNA in the metropolitan areas of
Cleveland and South Florida. Kover is required to pay CNA royalty fees of three
to four and one-half percent of monthly revenues. Kover uses the "Coverall"
trade name, design and business plan to conduct and promote its independent
business of offering, selling and servicing janitorial franchises. Most cleaning
services are provided to commercial customers through independent franchisees.
In December 1995, the Company decided to change its focus, efforts
and resources from the janitorial franchise segment to the medical waste
management segment. In April 1996, the Company assigned Kover's Pittsburgh
master franchise and sold certain notes receivables from franchises, accounts
receivable, inventory, and operating and office equipment related to Kover's
Pittsburgh franchise to a third party. In January 1998, the Company completed
the sale of 100% of Kover to Mr. Kubec.
Kover sells franchises for janitorial services in the metropolitan
territories of South Florida and Cleveland. Franchisees typically are
individuals or families who desire to operate their own business with low
capital requirements. Franchisees purchase franchises for cleaning contracts
varying from as little as $100 to as great as $9,890 in monthly revenues.
Initial franchise fees paid to Kover are based upon the anticipated monthly
gross billings of the cleaning contracts. Kover receives on-going royalty fees
of three to five percent of each franchisee's monthly billings and a management
fee of seven percent to ten percent of monthly billings. Kover may also receive
sales and marketing fees or special services finders fees on certain
non-recurring contracts.
Kover obtains cleaning contracts for assignment to the franchisee
equivalent to the size of the franchise purchased. These customers may include
medical office buildings, professional offices, banks, restaurants, corporate
offices or any other commercial customers in need of regular cleaning. If the
cleaning contract is terminated within the first twelve (12) months (other than
due to the franchisee's inability to perform), Kover is obligated to replace the
contract with a different contract. If a franchisee is terminated, the cleaning
contract is reassigned to a new or existing franchisee.
A franchisee assigned to a cleaning contract provides all janitorial
services under the "Coverall" trade name. Each franchisee operates as an
independent contractor. Franchisees are not obligated to purchase or lease from
Kover or its designees, any goods, services, supplies, equipment or inventory
related to the establishment or operation of the franchise business.
During the term of the franchise agreement, Kover provides billing
and collection services for the cleaning contracts. Kover collects all monthly
billing amounts from the cleaning customers which are paid over to the
franchisee after deduction of Kover's royalty fee, the management fee and the
monthly payment of the financed portion of the initial franchise fee, as well as
any applicable sales and marketing, advertising and transfer fees, equipment
lease payments or other advances. Kover also provides additional on-going
training and the introduction of new methods and materials through personal
consultation and/or group seminars.
BUSINESS DEVELOPMENT ACTIVITIES
Over the last two years, the Company has experienced dramatic growth
in its medical waste operations. Growth has been primarily achieved through
acquisitions of existing businesses.
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In June 1994, the Company purchased 100% of the capital stock of
Kover. At the time of the acquisition, Kover was wholly-owned by Phillip W.
Kubec, its president and chief executive officer. Kover was sold in January
1998. See "Discontinued Operations" above.
In October 1996, the Company purchased the Incinerator in South
Carolina which is permitted to treat municipal, medical and special waste which
the Company receives from generators throughout the eastern United States. SDSSC
primarily focuses on the treatment of medical waste and to a lesser degree
special waste. See "Disposal of Medical Waste" above.
In September 1997, the Company purchased substantially all of the
assets and business of Environment Waste Reductions, Inc. a Georgia corporation
("EWR") for $1,687,000 in cash. EWR was a debtor-in-possession in a bankruptcy
proceeding under Chapter 11 for the Northern District of Georgia. The assets
purchased by the Company consisted primarily of accounts and note receivables,
inventory and supplies, equipment, vehicles, machinery, furniture, fixtures,
leasehold improvement, real property and intangible assets used in connection
with the collection of medical waste from generators located in Atlanta,
Savannah and Augusta, Georgia and Lebanon, Tennessee. EWR also operated three
transfer stations in Georgia and one in Tennessee, which were transferred to the
Company. The Company also received an assignment of all contractual rights
relating to the operation of EWR's business and its customers.
In November 1997, the Company purchased the KS Facility and certain
of the assets of Bonham Management Group, Inc. ("BMG"), which had a management
agreement to operate the KS Facility. The company paid aggregate consideration
of $1.4 million for the KS Facility and $850,000 in cash and 200,000 shares of
the Company's common stock for the BMG assets and a non-competition agreement
from BMG's principal, William F. Bonham.
Also in November 1997, the Company purchased 100% of the capital
stock of Incendere form Republic Industries, Inc. Incendere is in the medical
waste management services business and collects medical waste from generators
located in the states of Delaware, Georgia, Maryland, New Jersey, North
Carolina, Pennsylvania, South Carolina and Virginia. Incendere's assets include
accounts receivables, inventory and supplies, equipment, vehicles, machinery,
furniture, fixtures, leasehold improvements, leases of real property and
intangible assets used in connection with the collection of medical waste. The
purchase price for Incendere amounted to $12.0 million in cash Republic agreed
to assume and satisfy all liabilities of Incendere incurred prior to the closing
other than accounts payables and certain designated obligations.
GOVERNMENT REGULATION
The Company operates within the medical waste disposal industry,
which is subject to extensive local, state and federal laws. This statutory and
regulatory framework imposes compliance burdens and risks on the Company,
including requirements to obtain and maintain government permits. The transport,
treatment and disposal of medical waste is subject to packaging, labeling,
handling, notice and reporting requirements, as well as requirements pertaining
to transporter registration, transportation handling procedures and the
preparation of shipping papers. The treatment and disposal of municipal and
special waste are also subject to extensive government regulation. State and
local regulations vary from location to location. The Company believes that it
is currently in compliance in all material respects with all applicable laws and
regulations governing its business and has all appropriate government permits to
operate its existing business, including those required for the operation of its
incineration and facility and transfer stations. However, the
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<PAGE> 12
addition of new, or amendments to existing, statutes and regulations could
require the Company to continually modify its methods of operations at costs
that could be substantial.
FEDERAL REGULATION.
The Occupational Safety and Health Act ("OSHA") gives the federal
government the authority to regulate the management of infectious medical waste.
OSHA regulations attempt to limit occupational exposure to blood and other
potentially infectious materials, but do not actually cover the disposal of
medical waste. These regulations target all industries in which employees could
reasonably be expected to come in contact with blood borne pathogens. The
regulations define infectious materials to include semen, vaginal secretions,
cerebrospinal fluids, synovial fluid, pleural fluid, pericardial fluid,
peritoneal fluid, amniotic fluid, saliva in dental procedures, any body fluid
visibly contaminated with blood and all body fluids in situations where it is
difficult to differentiate among body fluids. The definition also includes any
unfixed tissue or organ, other than intact skin from a human (dead or alive),
human immune-deficiency virus (HIV) and hepatitis B virus. The regulations
require employers to identify in writing tasks and procedures, as well as job
classifications, where occupational exposure to blood may occur. Employers must
set forth a schedule for implementing procedures for employees to minimize risk
of contamination. Employers are required to offer such employees vaccinations
for hepatitis B virus and must keep records concerning such employees' medical
histories.
The Resource Conservation and Recovery Act of 1976 ("RCRA")
established a regulatory program administered by the federal Environmental
Protection Agency (the "EPA") for the generation, storage, transportation and
disposal of hazardous waste. The general statutory definition of hazardous waste
would provide the EPA with the authority to regulate infectious medical wastes
as hazardous wastes. However, to date, the EPA has not designated infectious
medical waste as a hazardous waste and it is not presently regulated as such.
The EPA has developed and issued informal guidelines outlining practical
approaches to infectious waste management.
The interstate transport of medical waste is subject to regulation by
the United States Department of Transportation ("DOT") pursuant to the Hazardous
Material Transportation Act ("HMTA") and pertinent regulations. Pursuant to the
HMTA, the transport of medical waste will, depending on its composition, be
subject to packaging, labeling, notice and reporting requirements, as well as
requirements pertaining to transporter registration, transportation procedures
and the preparation of shipping papers. Strict penalties may be assessed for
violations of the HMTA and its regulations. The HMTA does not cover the
operation of an autoclave.
The company's Incinerator in South Carolina is required to comply
with the air emissions standards of the Federal Clean Air Act, as amended (the
"Clean Air Act"). The Clean Air Act establishes, among other things,
comprehensive air permitting and enforcement programs. The Clean Air Act also
provides for specific performance standards for medical and infectious waste
incinerators. Pursuant to the Clean Air Act, the EPA has promulgated extensive
effluent and water quality standards as well as permitting requirements for
industrial discharges to the waters of the United States.
FLORIDA LEGISLATION. The Florida Department of Health and
Rehabilitative Services ("HRS") has authority over the generation, storage,
treatment and transfer of medical waste. The Florida Department of Environmental
Protection ("DEP") has authority over off-site transportation, on-site
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incineration and final disposal facilities. The DER has specific authority over
the operation of alternate medical waste treatment facilities, such as the
Commercial Autoclave.
Each generator of bio-hazardous waste is required to prepare,
maintain and implement a written plan to identify and handle all such waste
within its facility, as well as provide employee training programs. Such plan
must outline the procedures for on-site segregation, handling, labeling, storage
and treatment of waste generated by the facility. All bio-hazardous waste
management records, including any documentation provided by the transporter,
must be maintained for three years and made available for inspection by HRS upon
request. All on-site storage of bio-hazardous waste must be in a designated area
away from the general traffic flow pattern and be accessible only to authorized
personnel. No bio-hazardous waste generator may store such waste on-site for any
period in excess of thirty days. All containers used for storage must be labeled
with the name, address and phone number of the generator if it is to be
transported to a disposal site. Violations of the regulations may be prosecuted
as criminal offenses.
The Company's autoclave in West Palm Beach, Florida is regulated by
the DEP. The DEP issues permits for facilities to treat bio-hazardous waste.
Bio-hazardous waste must be treated within thirty (30) days of collection from a
generator. The DEP permits treatment by the autoclave, subject to specific
operating and log keeping requirements. Bio-hazardous waste treated through
autoclaving methods in accordance with the regulations may be disposed of at a
landfill in the same manner as solid waste.
PENNSYLVANIA REGULATION. The Company's operations in the Commonwealth
of Pennsylvania, including the operation of its autoclave facility in Marcus
Hook, is regulated by the Pennsylvania Department of Environmental Protection
(the "PADEP"). Among other things, the PADEP has promulgated regulations for the
collection and transport of medical waste. Regulations cover the method of
transport, washing of containers and the types and sizes of containers used for
the collection, storage and transportation of medical waste.
The PADEP has also formulated regulations regarding the operation of
treatment and disposal facilities. The Company's Marcus Hook autoclave facility
is subject to operating procedures and permitting requirements. The facility is
also subject to periodic inspections by the PADEP.
SOUTH CAROLINA LEGISLATION. The South Carolina Department of Health
and Environmental Control ("DHEC") has authority over the generation, storage,
treatment and transfer of medical waste pursuant to the state Infectious Waste
Management Act. DHEC requires the profiling of special waste and daily spot
inspections of manifests, incoming vehicles and plant operations. both the
company's Incinerator and its transportation operations are regulated by DHEC in
the State of South Carolina. regulations specify packaging, labeling and storage
and transportation of medical waste prior to its disposal. the DHEC has also
promulgated standards for the operation of treatment facilities including
incinerators.
State legislation presently restricts the Incinerator's capacity for
medical waste to 100 tons per day. The Company is permitted to accept special
and municipal waste to the full extent of its overall permitted capacity of 200
tons of waste per day
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<PAGE> 14
COMPETITION
The Company comprises the second largest medical waste management
provider in the State of Florida and the fourth largest public medical waste
management company based in the United States. The Company faces intensive
competition in its market from national, regional and local competitors. Several
other competitors, while not national, have significant regional recognition and
market share. Other competitors are local in origin. Such national public
competitors are Browning-Ferris Industries, Inc., WMX Technologies, Inc., USA
Waste Services, Inc. and Stericycle, Inc. The Company also competes against
alternative waste disposal technologies and against generators who have their
own incineration or other treatment facilities, such as some hospitals. The
Company will likely encounter intense competition from national, regional and
local companies in each market into which they may expand.
The Company believes that the principal competitive factors in the
medical waste industry are price, reliability and reputation, timely service,
ability to offer alternative technologies and to help customers work within an
increasingly regulated environment. The Company believes it is able to compete
effectively because of its ability to deliver timely, reliable, environmentally
sound services at a reasonable price. The Company believes that sales of its
on-site treatment equipment will allow it to more quickly penetrate new
geographic markets, as well as provide significant reduction of expenses for
large quantity generators.
POTENTIAL LIABILITY AND INSURANCE
The medical waste disposal industry involves potentially significant
risks of statutory, contractual, tort and common law liability. Potential
liability could involve, for example, claims for clean-up costs, personal
injury, or damage to the environment, claims of employees, customers or third
parties for personal injury or property damage occurring in the course of the
Company's operations, or claims alleging negligence or professional errors or
omissions in the planning or performance of work. The Company could also be
subject to fines in connection with violations of regulatory requirements. The
Company attempts to operate safely and prudently and has not had any material
violations to date of which it is aware.
The Company carries liability and casualty insurance coverage which
it considers sufficient to meet regulatory and customer requirements and to
protect the Company's employees, assets, and operations. The availability of
liability insurance within the waste industry has been adversely affected by the
constrained market for casualty and environmental insurance. In the future,
insurance that might be available may be at significantly increased premiums
with less extensive coverage. If the Company is unable to obtain adequate
insurance coverage at a reasonable cost, it may become exposed to potential
liability claims. In such event, a successful claim, if of sufficient magnitude,
could have a material adverse effect on the Company's financial condition.
SUPPLIES
The Company purchases its medical waste equipment and supplies,
including containers, from many sources. The Company has not experienced any
difficulty in obtaining equipment or supplies and alternative sources are
readily available.
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<PAGE> 15
EMPLOYEES
As of December 31, 1997, the Company had approximately 250 full time
employees, including corporate officers, sales and customer service personnel
and office and clerical employees. SDSPA's employees are covered by a collective
bargaining agreement with the united Steelworkers of America, AFL-CIO. None of
the Company's other employees are represented by a labor organization.
Management considers its relationship with its employees to be satisfactory.
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<PAGE> 16
ITEM 2. DESCRIPTION OF PROPERTY.
SDSSC owns its principal offices and plant located in Hampton, South
Carolina. The facility is situated on approximately ten acres of industrial
property. The facility includes a 30,000 square foot process building, a 3,000
square foot administrative building and a 5,000 square foot truck maintenance
building. The process portion of the facility is in a fully enclosed fenced
area, equipped with a truck scale, video camera system and radiation monitors to
provide for monitoring of all waste received as the facility. The facility is
subject to a $2.62 million mortgage which is held by the prior owner. The
mortgage is payable over a four year period and matures in October 2000. The
facility is in good condition except for the roof of the ash pit which is being
replaced.
The Company owns a 2.9 acre industrial site in Marcus Hook,
Pennsylvania which consists of two (2) 25 ton per day autoclaves, a 10,000
square foot processing center and a 2,400 square foot administrative building.
The property was acquired in November 1997. The facility is subject to a 500,000
purchase money mortgage in favor of the prior owner. The mortgage is payable
over five(5) years without interest. The facility is in good condition
The Company operates two autoclaves in West palm Beach, Florida in
approximately 8,000 square feet of leased property adjacent to the Company's
West Palm Beach transfer station.
The Company maintains its principal offices in Miami Lakes, Florida
where the Company rents approximately 3,300 square feet. This location is used
for executive offices, billing, sales and customer service. The Company also
leases approximately 5,000 square feet in Opa Locka, Florida where it maintains
certain operations and storage of equipment containers and vehicles. The Company
operates 11 transfer stations located in various parts of the eastern United
States.
All of the Company's leased facilities are leased from unaffiliated
third parties. The Company does not anticipate any difficulty in locating
additional or alternate leased properties if these properties become unavailable
for any reason.
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<PAGE> 17
ITEM 3. LEGAL PROCEEDINGS.
Prior to July 1, 1997, the State of South Carolina restricted the
Company's incineration facility's permitted incineration capacity for medical
waste to the greater of (i) 50 tons per day or (ii) on a monthly basis of 1/12
of the estimated amount of medical waste generated within the State of South
Carolina within on year. The prior owner of the facility instituted litigation
against the State of South Carolina contesting the state's imposition of the
limitation, as well as certain provisions of the South Carolina Infectious Waste
Management Act and the regulations promulgated thereunder. At the trail level,
the Company's prior owner was successful in its challenge to certain fee
requirements under the regulations. However, it was not successful in having the
volume limitation ruled unconstitutional. When the Company purchased the
facility, it continued the litigation on appeal. In June of 1997, the Company
and the State of South Carolina entered into a settlement agreement, whereby the
South Carolina State Legislature approved legislation removing the limitation on
medical waste and the Company dismissed all litigation related to the matter.
Effective July 1, 1997, the incinerator is now permitted to incinerate up to its
full 100 ton per day permitted capacity of medical waste.
The Company is subject to claims and suits in the ordinary course of
business. The Company is not involved in any material litigation and is not
aware of any potential claims which would give rise to material liability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during
the three months ended December 31, 1997.
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<PAGE> 18
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded in the over-the-counter market
and prices are quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") Small Cap Market under the symbol "MWDS."
The following table sets forth the high and low bid information for the
Company's common stock for each quarter for the last two fiscal years. The
quotations provided below reflect inter-dealer prices, without retail markups,
mark down or commission and may not represent actual transactions.
FISCAL 1996 HIGH LOW
-------- ---------
Quarter ending March 31, 1996 $ 3.25 $ 2.00
Quarter ending June 30, 1996 4.75 2.25
Quarter ending September 30, 1996 4.88 2.75
Quarter ending December 31, 1996 4.63 2.63
FISCAL 1997
Quarter ending March 31, 1997 $ 4.13 $ 3.00
Quarter ending June 30, 1997 4.25 2.88
Quarter ending September 30, 1997 4.69 3.63
Quarter ending December 31, 1997 5.13 3.88
On March 27, 1998 the average bid and asked price of the common stock
as reported on NASDAQ was $4.83. As of that date, the Company had approximately
1,204 common stockholders of record.
DIVIDENDS
The Company has never paid any cash dividend on its common stock and
does not anticipate paying cash dividends in the foreseeable future. The payment
of dividends by the Company will depend on its earnings, financial condition and
other business and economic factors affecting the Company at that time which the
Board of Directors may consider relevant. The Company presently intends to
retain any earnings to provide for the development and growth of the Company.
SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
On November 7, 1997, the Company sold an aggregate of 551,725 shares
of common stock, $.001 par value and common stock purchase warrants to purchase
an aggregate of 20,064 shares of common stock pursuant to Regulation S as
promulgated pursuant to the Securities Act of 1933, as amended. The securities
were sold for cash to the following entities:
NUMBER OF COMMON STOCK
SHARES OF PURCHASE
NAME COMMON STOCK WARRANTS
- ----------------------- ------------ ------------
Lancer Voyager Fund 151,725 5,518
Lancer Offshore, Inc. 400,000 14,546
------- ------
Total 551,725 20,064
======= ======
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<PAGE> 19
Each warrant entitles the holder to purchase one share of common
stock at a purchase price of $3.625 per share until November 6, 1997.
Total offering proceeds from the sale of common stock and warrants
pursuant to Regulation S was $2,000,000. Taglich Brothers, D'Amedeo, Wagner &
Company, Incorporated served as the placement agent in connection with the
offering and received a commission of $135,000. In addition, Taglich Brothers,
D'Amedeo, Wagner & Company, Incorporated received warrants to purchase 135,000
shares of common stock. Each warrant entitles the holder to purchase one share
of common stock at $5.00 until November 6, 1997. The net proceeds of the
Regulation S offering described herein were used to pay a portion of the
purchase price for Incendere.
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<PAGE> 20
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH 1996
GENERAL. In 1997, revenues increased by $8.7 million from 1996.
This increase results from an acquisition in the fourth quarter of 1996 and
three acquisitions during the second half of 1997. The Consolidated Statements
of Operations have been reclassified to reflect the discontinued janitorial
segment. The information presented below only relates to the Company's
continuing medical waste operations.
In 1997, the Company focused on becoming the largest independent
medical waste company east of the Mississippi River. The Company continued to
expand vertically, through the purchase of additional medical waste treatment
facilities and horizontally through the acquisition of three medical waste
hauling operations.
REVENUES. Revenues for the year ended December 31, 1997 increased
by $8.7 million from 1996. This increase results from an acquisition in the
fourth quarter of 1996 and three acquisitions during the second half of 1997.
OPERATING COSTS. This increase results from an acquisition in the
fourth quarter of 1996 and three acquisitions during the second half of 1997.
Overall, the Company reduced operating costs in 1997 as a percentage of revenue
by taking advantage of the cost synergies of its acquisitions.
ADMINISTRATIVE AND SELLING EXPENSES. The Company reduced
administrative and selling expenses in 1997 as a percentage of revenue by taking
advantage of the cost synergies of its acquisitions.
OPERATING PROFIT. Operating profit for the year ended December 31,
1997 amounted to $1,066,738. This increase results from an acquisition in the
fourth quarter of 1996 and three acquisitions during the second half of 1997.
OTHER, INCOME (EXPENSE). The increase is primarily due to interest
expense on the Debentures, the Company's line of credit and term loans with its
bank and the note payable - Chambers.
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<PAGE> 21
GAIN FROM INSURANCE SETTLEMENT. On June 1, 1997, a fire occurred at
the Company's incineration facility in Hampton, South Carolina. Damaged occurred
in various parts of the facility, causing the facility to shut down operations.
During the shut down period, the Company continued to accept medical waste,
repackage such waste and route the waste to other facilities for disposal,
including the autoclave facility managed by the Company in Marcus Hook,
Pennsylvania. The plant reopened on June 30, 1997. Repairs on the facility were
completed and the facility became fully operation in August 1997. In August
1997, the Company reached a settlement with one of its insurance companies for
approximately $3.3 million. After deducting $1.9 million in rebuilding and
incremental costs related to the fire, the Company recorded a $1.4 million gain
from settlement for the year ended December 31, 1997.
PROVISION FOR INCOME TAXES. The 1997 provision for income taxes is
primarily due to the gain on fire, offset partially by the recognition of net
operating loss carry forwards. There was no net provision for income taxes for
the year ended December 31, 1996, due to the net operating loss carryforwards.
DISCONTINUED OPERATIONS, NET OF TAX. Discontinued Operations, net
of tax, decreased primarily due to lower sales volume at Kover in 1997 as
compared to 1996. Kover was sold in January 1998 and no material gain or loss
resulted.
NET INCOME. Net income for the year ended December 31, 1997
increased primarily due to the 1997 settlement with the Company's insurance
company pertaining to the fire in Hampton, S.C. and the Company's three 1997
acquisitions; a full twelve months results of SDSSC in 1997, which was acquired
in October 1996.
YEAR 2000 COMPUTER ISSUES
Computer programs have typically abbreviated dates by eliminating the first two
digits of the year under the assumption the these to digits would be 19. As the
year 2000, approaches, these systems may not be able to recognize current dates.
The Company has reviewed its computer programs as they relate to electronic
exchanges with customers and suppliers and has adopted a Year 2000 Plan that
will be carried out during 1998. The Company does not expect its implementation
to have a material effect on the Company's earnings or liquidity.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of cash during 1997 has primarily been the
proceeds from the issuance of debentures, common stock, preferred stock and bank
borrowings. Operating activities used cash, primarily from increases in accounts
receivable and increases in other assets. The cash used in Investing activities
was principally due to the acquisition of the SDSGA, SDSPA and SDSVA. Financing
activities provided cash, principally due to proceeds from debentures, common
stock, preferred stock and bank financing. In addition, the gain from Settlement
with the Company's insurance company pertaining to the fire in Hampton, S.C.
fire loss had a significant effect on operating activities.
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<PAGE> 22
At December 31, 1997 the Company had a line of credit with a bank
for $4,000,000. The line of credit is a demand note and bears interest at prime
plus 1%. Interest is payable monthly. At December 31, 1997, the Company had
$3,703,618 in outstanding borrowings under the line. Substantially all of the
Company's assets are collateralized for the loan. In addition, the Company
entered into a $5 million term loan, with its bank. The term loan bears interest
at a rate of prime plus 1%, and is payable $83,333 in principle plus interest
monthly with a balloon payment on April 30, 1999. In January 1998, the line of
credit was reduced to $3 million and the term loan was increased to $6 million.
During the first quarter of 1996, the Company entered into an
agreement with a leasing company, whereby the Company assigned with recourse two
of the five on-site equipment leases it obtained. The terms of the agreement
provide for a rate of prime plus 2% and the collateralizing of certain on-site
equipment. The Company received $290,483, under this arrangement. During 1997,
the Company did not enter into any such leasing agreement.
Warrants to purchase 424,000 shares of common stock
were exercised during 1996 for aggregate cash proceeds of $986,000.
On October 15, 1996, the Company purchased certain assets of
Chambers. The assets purchased consisted primarily of real estate and
improvements comprising a waste incineration facility, together with all of the
equipment, vehicles, machinery, supplies and inventory associated with such
incinerator facility (the "Facility"). Chambers operated the Facility as a waste
disposal incinerator facility for solid, medical and special waste prior to the
closing. Since the closing the Company has focused on the incineration of
medical and special waste. The purchase price for the Facility amounted to $3.6
million, payable $1 million in cash at closing and the issuance of a $2.6
million four year non-interest bearing promissory note. The cash portion of the
purchase price was paid out of cash on hand and available borrowing under the
Company's working capital line of credit.
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<PAGE> 23
On February 13, 1997, the Company completed a private placement of
10% Convertible Redeemable Debentures due July 1, 2000 ("the Debentures"),
raising net proceeds of approximately $2.7 million. The Debentures are
convertible into shares of common stock at the holder's option any time prior to
redemption or maturity at a conversion price of $2.925 in principal amount for
each share of common stock. At December 31, 1997 the Company had $1,660,480
in Debentures outstanding. A portion of the proceeds from the Debentures was
used to reduce the outstanding balance on the Company's line of credit.
On June 1, 1997, a fire occurred at the Company's incineration
facility in Hampton, South Carolina. Damage occurred in various parts of the
facility, causing the facility to shut down operations. During the shut down
period, the Company continued to accept medical waste, repackage such waste and
route the waste to other facilities for disposal, including the autoclave
facility managed by the Company in Marcus Hook, Pennsylvania. The plant reopened
on June 30, 1997. Repairs on the facility were completed and the facility became
operational August 1997. In August 1997, the Company reached a settlement with
one of its insurance companies for approximately $3.3 million. After deducting
$1.9 million in rebuilding and incremental costs related to the fire, the
Company recorded a $1.4 million gain from insurance settlement fire for the year
ended December 31, 1997.
On September 25, 1997, the Company purchased substantially all of
the assets and business of EWR for $1.7 million payable in cash at closing. The
Company had provided a $200,000 line of credit to EWR prior to the purchase. The
outstanding balance on the line of credit of $200,000 was added to the purchase
price. The purchase price was paid out of cash on hand and available borrowings
under the Company's working capital line of credit with its Bank.
On November 10, 1997, the Company purchased certain assets of BMG
for $850,000 in cash and 200,000 shares (valued at $5 per share) of Company
common stock. The Company received credits at closing amounting to $250,000 for
necessary repairs and maintenance at the autoclave facility, as well as
miscellaneous credits for advances made under the management agreement. The cash
portion of the purchase price was paid from the net proceeds of a private
placement of Series A preferred stock. In a related transaction, in November
1997, the Company purchased the real property and certain assets of the
autoclave facility from an unrelated third party. The Company paid aggregate
consideration of $1.4 million, consisting of $900,000 in cash at closing and a
$500,000 purchase money note secured by the real property. The purchase money
note is payable monthly over five years without interest. The cash portion of
the purchase price was paid from the net proceeds of private placement of 9%
Convertible Redeemable Series A Preferred Stock "the Series A Preferred Stock".
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<PAGE> 24
On November 7, 1997, the Company purchased 100% of the capital
stock of Incendere for $12 million, payable in cash, with $10 million paid at
closing and $2 million held in escrow pending the determination of revenues of
Incendere for the four month period prior to the closing. The determination date
was February 1998, at which time the escrow balance was released to the seller.
In this connection, the Company anticipates no material changes resulting from
the determination of revenues as referred to above. The purchase price was paid
from a $4 million equity financing consummated on November 7, 1997, of which $2
million was part of the proceeds of the offering described below, cash on hand
and available borrowings under the Company's line of credit and a term loan with
a bank, described above.
On January 30, 1998, the Company sold 100% of the capital stock of
Kover to MPK Holdings, Ltd., an Ohio limited liability company ("MPK"). MPK is
wholly owned by Philip W. Kubec and Melissa Kubec, his wife (the "Kubecs"). Mr.
Kubec was the president and chief executive officer of Kover and a director of
the Company. The Company received aggregate consideration for the sale of Kover
of $2.7 million payable $1.2 million in cash at closing and the balance of $1.5
million in promissory notes. The $1.2 million cash was used to pay down the
Company's line of credit with its bank discussed above. The Company received two
promissory notes, one for $960,000 from MPK (the "MPK Note") and one for
$540,000 from Kover (the "Kover Note"), The MPK Note is payable interest only
monthly at the rate of 8.25% per annum, with the principal balance due at the
end of five years. The Kover note is payable interest only monthly at the rate
of 8.25% per annum with the principal due at the end of seven years. The MPK
Note is guaranteed by Kover and the Kubecs and is secured by a pledge of 100% of
the capital stock of Kover. The Kover Note is guaranteed by MPK. The MPK and
Kover Notes are subordinate to $1.6 million in financing receive by MPK. The
Kubec Guarantee is secured by a pledge of 20,000 shares of common stock of the
Company owned by the Kubecs. The Company believes that the sale of Kover will
not have a material effect on the Company's liquidity and that Kover's
operations will be able to service such debt.
During September 1997 and October 1997, the Company completed a
private placement of the "Series A Preferred Stock" raising net proceeds of
approximately $3.9 million.
In November 1997, the Company sold an aggregate of 1,600,002 shares
pursuant to Regulation S as promulgated pursuant to the Securities Act of 1933
as amended, raising net proceeds of approximately $5.4 million.
The Company plans to expand and make improvements at the SDSSC
incinerator during 1998 for approximately $1.2 million. This expansion will be
financed through new long term financing and internally generated working
capital.
The Company also intends to acquire other companies in the medical
waste business during 1998. These acquisitions are expected to be financed
through the issuances of equity securities and other sources of borrowings.
The Company believes that it has sufficient working capital and
will be able to meet its current obligations from cash flows during the next
twelve months.
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<PAGE> 25
IMPACT OF INFLATION. Although inflation has slowed in recent years,
it is still a factor in our economy and the Company continues to seek ways to
mitigate its impact. To the extent permitted by competition, the Company passes
increased costs on to its customers by increasing sales prices over time. In
addition, the Company places all of its major supplier purchases out to bid.
This supplier bid process has resulted in a ten year agreement with a
waste-to-energy plant at extremely competitive pricing, as well as, other
savings to the Company.
NEW FASB PRONOUNCEMENTS. The Company is required to implement FAS
No. 130 "Reporting Comprehensive Income" in fiscal 1998. FAS No. 130 establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting form investments by owners and distributions to
owners. Among other disclosures, FAS No. 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income to be reported in a financial statement that displays with
the same prominence as other financial statements.
Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related Information, supersedes
SFAS No. 14, Financial Reporting for Segments of a Business Enterprise. SFAS
131 establishes standards for the way that public companies report
information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS 131 defines operating segments as components of a company
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
These new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative financial
information for earlier years to be restated. Due to the recent issuance of
these standards, management has been unable to fully evaluate the impact, if
any, they may have on future financial statement disclosures.
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<PAGE> 26
ITEM 7. FINANCIAL STATEMENTS.
Index to Consolidated Financial Statements
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PAGE
<S> <C>
Report of Independent Certified Public Accountants.......................................... 27
Consolidated Balance Sheet as of December 31, 1997
and 1996................................................................................. 28
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996............................................................... 29
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997 and 1996............................................................... 30
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996............................................................... 31
Notes to Consolidated Financial Statements.................................................. 32
</TABLE>
- 26 -
<PAGE> 27
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Med/Waste, Inc.
We have audited the accompanying consolidated balance sheets of Med/Waste, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Med/Waste, Inc.
and subsidiaries at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Miami, Florida
March 25, 1998
BDO Seidman, LLP
- 27 -
<PAGE> 28
Med/Waste, Inc. and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS (NOTE 5)
Current assets:
Cash and cash equivalents $ 984,708 $ 81,820
Accounts receivable, net of allowances of $108,000
and $16,000 5,525,528 1,180,800
Current portion of notes receivable from autoclaves (note 15) -- 43,000
Net assets of discontinued operations (note 8) 2,632,909 2,284,014
Inventories 238,653 183,831
Prepaid expenses and other (Note 9) 735,779 163,619
------------ ------------
Total current assets 10,117,577 3,937,084
Notes receivable from autoclaves net of current portion
(note 15) -- 263,000
Property, plant and equipment, net (note 3) 10,636,803 4,926,157
Excess of purchase price over net assets acquired,
net of accumulated amortization of $68,000 11,919,106 --
Other assets (note 4) 2,095,578 481,098
------------ ------------
Total assets $ 34,769,064 $ 9,607,339
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 2,511,280 $ 1,282,998
Current portion of notes payable and debentures (note 5) 4,094,861 894,599
Current portion of capital lease obligations (note 10) 397,371 149,007
Income tax payable (note 9) 116,000
Customer deposits 23,640 38,564
------------ ------------
Total current liabilities 7,143,152 2,365,168
Capital lease obligations, less current portion (note 10) 502,239 377,189
Notes payable and debentures less current portion (note 5) 8,496,605 2,180,615
Deferred income tax liability (note 9) 702,000 --
------------ ------------
9,700,844 2,557,804
Commitments and contingencies (note 12)
Shareholders' equity (notes 2, 6, 7, 14 and 17):
Preferred stock, $.10 par value; 1,000,000 shares
authorized; none outstanding -- --
Preferred stock, .01 par value; 60,000 shares
authorized, 42,969 outstanding
($100 per share liquidation preference) 430 --
Common stock, $.001 par value; 10,000,000 shares
authorized; 4,629,699 and 2,328,499
shares issued and outstanding 4,630 2,329
Additional paid-in capital 18,625,685 6,870,430
Warrant subscriptions receivable (258,003) (288,003)
Deficit (417,017) (1,869,732)
------------ ------------
17,955,725 4,715,024
Less cost of treasury stock: 11,824 shares (30,657) (30,657)
------------ ------------
Total shareholders' equity 17,925,068 4,684,367
------------ ------------
Total liabilities and shareholders' equity $ 34,769,064 $ 9,607,339
============ ============
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS.
- 28 -
<PAGE> 29
Med/Waste, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 13,547,960 $ 4,869,697
------------ ------------
Costs and expenses:
Operating costs 8,914,359 3,407,083
Administrative and selling expenses 3,378,939 1,958,416
Amortization of intangibles 187,924 43,819
------------ ------------
Total 12,481,222 5,409,318
------------ ------------
Operating profit (loss) 1,066,738 (539,621)
Gain from insurance settlement (note 16) 1,357,376 --
Other income (expense), net (378,622) 210,535
------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 2,045,492 (329,086)
Income tax (benefit) (note 9) 627,768 (134,527)
------------ ------------
Income (loss) from continuing operations 1,417,724 (194,559)
Discontinued operations, net of $71,000
and $134,527 taxes (note 8) 131,671 409,885
------------ ------------
NET INCOME $ 1,549,395 $ 215,326
Preferred stock dividend 96,680 --
------------ ------------
Net income available to common shareholders $ 1,452,715 $ 215,326
============ ============
Earnings (loss) per share - basic
From continuing operations $ .52 $ (.10)
Discontinued operations, net of taxes .05 .20
------------ -----------
$ .57 $ .10
============ ============
Weighted Average number of common shares
outstanding-basic 2,559,905 2,043,065
Earnings (loss) per share - diluted:
From continuing operations $ .38 $ (.08)
Discontinued operations, net of taxes .05 .17
------------ ----------
$ .43 $ .09
============ ============
Weighted Average number of common shares
outstanding - diluted 3,922,848 2,374,118
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
- 29 -
<PAGE> 30
Med/Waste, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at January 1, 1996 -- 1,903,588 $1,904
Issuance of common shares
for exercise of private
placement warrants -- -- 424,000 424
Warrant subscriptions receivable --
Issuance of common shares
for services -- -- 911 1
Net income for the year -- -- -- --
------- --- --------- ------
Balance at December 31, 1996 2,328,499 $2,329
Conversion of debentures into
common shares -- -- 458,000 458
Issuance of preferred shares 429,690 430 -- --
Issuance of common stock pursuant
to Regulation S -- -- 1,600,000 1,600
Issuance of stock for services -- -- 3,200 3
Issuance of stock for BMG
acquisition -- -- 200,000 200
Proceeds from stock subscription -- -- -- --
Exercise of options -- -- 40,000 40
Net income for the year -- -- -- --
Dividends
------- --- --------- ------
TOTAL 429,690 430 4,629,699 $4,630
======= === ========= ======
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL WARRANT TOTAL SHARE-
PAID IN SUBSCRIPTIONS TREASURY HOLDERS'
CAPITAL RECEIVABLE DEFICIT STOCK EQUITY
---------- ------------- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 5,882,837 -- $ (2,085,058) $ (30,657) $ 3,769,026
Issuance of common shares
for exercise of private
placement warrants 985,842 -- -- -- 986,266
Warrant subscriptions receivable -- (288,003) -- -- (288,003)
Issuance of common shares
for services 1,751 -- -- -- 1,752
Net income for the year -- -- 215,326 -- 215,326
------------ -------- ------------ ------------ ------------
Balance at December 31, 1996 $ 6,870,430 (288,003) $ (1,869,732) $ (30,657) $ 4,684,367
Conversion of debentures into
common shares 1,339,520 -- -- -- 1,339,978
Issuance of preferred
shares 3,885,806 -- -- -- 3,886,236
Issuance of common stock pursuant
to Regulation S 5,416,922 -- -- -- 5,418,522
Issuance of stock for services 11,997 -- -- -- 12,000
Issuance of stock for BMG
acquisition 999,800 -- -- -- 1,000,000
Proceeds from stock subscription -- 30,000 -- -- 30,000
Exercise of options 101,210 -- -- -- 101,250
Net income for the year -- -- 1,549,395 -- 1,549,395
Dividends (96,680) (96,680)
------------ -------- ------------ ------------ ------------
TOTAL $ 18,625,685 (258,003) $ (417,017) $ (30,657) $ 17,925,068
============ ======== ============ ============ ============
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
- 30 -
<PAGE> 31
Med/Waste, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings from continuing operations $ 1,417,724 $ (194,559)
Adjustments to reconcile net earnings to
net cash (used) in operating activities,
Gain from insurance settlement
net of effects of acquisitons: (1,357,376)
Depreciation and amortization $ 601,501 $ 280,019
Discontinued operations
Provision for doubtful notes and accounts
receivable $ 97,964 $ 33,486
Issuance of stock for services $ 12,000 $ --
Changes in operating assets and liabilities;
net of assets acquired:
(Increase) in accounts receivable $ (2,038,010) $ (861,824)
(Increase) in notes receivables $ (220,000) $ (374,000)
(Increase) in inventories $ (54,822) $ (46,899)
(Increase) in prepaid expenses $ (451,160) $ (46,887)
(Increase) in net assets of discontinued
activities $ (348,895) $ (828,194)
(Increase) in other assets $ (1,734,433) $ ( 48,312)
(Decrease) Increase in accounts payable and
accrued expenses $ (373,860) $ 428,269
(Decrease) Increase in customer deposits $ (14,924) $ 5,297
Increase (decrease) in income tax payable $ 818,000 $ --
------------ ------------
Net cash (used in) operating activities $ (3,206,291) $ (1,243,719)
INVESTING ACTIVITIES:
Proceeds from settlement with insurance company $ 3,318,600
Acquisition of businesses $(17,531,683) $ (831,254)
Purchase of operating equipment $ (4,610,725) $ (211,646)
Sale of fixed income investments $ 0 $ 750,238
Other, Net $ 0 $ 66,340
------------ ------------
Net cash used in investing activities $(16,239,558) $ (226,322)
FINANCING ACTIVITIES:
Additions to notes payable $ 252,806 $ --
Payments on notes payables $ (196,307) $ (61,243)
Additions to long term debt $ 13,802,267 $ 793,924
Payments on long term debt $ (4,286,015) $ --
Issuance of common and preferred stock $ 10,745,986 $ 698,263
Payment of stock subscription receivable $ 30,000 $ --
------------ ------------
Net cash provided by financing activities $ 20,348,737 $ 430,944
------------ ------------
Net increase in cash and cash equivalents $ 902,888 $ (39,097)
Cash and cash equivalents at beginning of period $ 81,820 $ 120,917
----------- ------------
Cash and cash equivalents at end of period $ 984,708 $ 81,820
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 263,532 $ 111,227
============ ===========
Notes and payables for acquisition of SDSSC -- $ 2,770,249
============ ===========
Issuance of common stock for notes receivable -- $ 288,003
============ ===========
Shares issued in connection with acquisitions
of BMG, Inc. $ 1,000,000 --
============ ===========
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS.
- 31 -
<PAGE> 32
Med/Waste, Inc. And Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Med/Waste, Inc. (the "Company") is a holding company which, through its
subsidiaries, is engaged in the businesses of medical waste management. The
medical waste management operations are conducted through Safety Disposal
System, Inc. ("SDS") Safety Disposal System of South Carolina, Inc. ("SDSSC"),
Safety Disposal System of Pennsylvania, Inc. ("SDSPA"), Safety Disposal System
of Georgia, Inc. ("SDSGA") and Safety Disposal System of Virginia, Inc.
("SDSVA"), collectively referred to as the "Waste Companies".
The Company was incorporated in November 1991 under the laws of the State of
Delaware. In March 1992, the Company purchased 100% of the capital stock of SDS.
In June 1994, the Company acquired 100% of the capital stock of Kover which was
later sold by the Company subsequent to year-end 1997. The commercial cleaning
services operation, which is shown as a discontinued operation of the Company,
was conducted through The Kover Group, Inc. ("Kover"). In October 1996, the
Company, through its wholly-owned subsidiary SDSSC, purchased certain
incineration related assets of Chambers Medical Technologies of South Carolina,
Inc., a South Carolina company ("Chambers"). In September 1997, the Company,
through SDSGA, acquired substantially all of the assets and business of
Environmental Waste Reductions, Inc. ("EWR"), a medical waste hauler in Georgia
and Tennessee. In November 1997, the Company through SDSVA, acquired 100% of the
capital stock of Incendere, Inc. ("Incendere"), a medical waste hauler with
operations in Pennsylvania, Virginia, South Carolina and North Carolina. In
November 1997, the Company through SDSPA, purchased certain assets of Bonham
Management Group, Inc. ("BMG") and in a related transaction purchased the real
property and certain assets of an autoclave facility from a third party in
Pennsylvania.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions
are eliminated.
- 32 -
<PAGE> 33
Med/Waste, Inc. And Subsidiaries
Notes to Consolidated Financial Statements (continued)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an initial
maturity of three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are accounted for under the First-in-First-out (FIFO)
method of accounting.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost. Depreciation is
provided on the straight-line method over the estimated useful lives of
the assets, which range from 5 to 30 years.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
Excess of purchase price over net assets acquired consists of goodwill
amortized over a useful life of forty years. The Company continually
evaluates the carrying value of its intangible assets. Impairments are
recognized when the expected future operating cash flows to be derived
from such intangible assets are less than their carrying values.
OTHER ASSETS
The Company capitalizes certain pre-acquisition and financing costs
into other assets. Pre-acquisition costs incurred on successful
acquisitions are allocated to net assets acquired and financing costs
are amortized over the life of the underlying agreements.
Pre-acquisition costs incurred on unsuccessful acquisitions are charged
to expense. Amortization on intangible assets has been provided based
on the straight-line method over the useful lives of respective assets.
Impairments are recognized when the expected future operating cash
flows to be derived from such intangible assets are less than their
carrying values.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash and
cash equivalents, accounts receivable, notes receivable, accounts
payable, accrued expenses and notes payable and debentures. The
carrying amounts of such financial instruments as reflected in the
consolidated balance sheets approximate their estimated fair value as
of December 31, 1997 and 1996. The estimated fair value is not
necessarily indicative of the amounts the Company could realize in a
current market exchange or of future earnings or cash flows.
- 33 -
<PAGE> 34
Med/Waste, Inc. And Subsidiaries
Notes to Consolidated Financial Statements (continued)
INCOME TAXES
Income taxes are accounted for using the liability approach under the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes".
NET INCOME AVAILABLE PER COMMON SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share." SFAS
No. 128 (the "Statement") establishes standards for computing and
presenting earnings per share ("EPS"). This Statement replaces the
presentation of primary EPS with a presentation of basic EPS and
requires dual presentation of basic and diluted EPS on the face of the
statement of operations for all entities with complex capital
structures. This Statement also requires a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. The statement requires
restatement of all prior period EPS data presented, accordingly, all
prior periods have been restated.
NEW FASB PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, establishes standards for reporting and display
of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS No. 130 requires that all items
that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other
financial statements.
Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related Information,
supersedes SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public
companies report information about operating segments in annual
financial statements and requires reporting of selected information
about operating segments in interim financial statements issued to the
public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. SFAS 131
defines operating segments as components of a company about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
These new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
financial information for earlier years to be restated. Due to the
recent issuance of these standards, management has been unable to
fully evaluate the impact, if any, they may have on future financial
statement disclosures.
- 34 -
<PAGE> 35
Med/Waste, Inc. And Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS
On October 15, 1996, the Company purchased certain assets of Chambers. The
assets purchased consisted primarily of real estate and improvements comprising
a waste incineration facility, together with all of the equipment, vehicles,
machinery, supplies and inventory associated with such incinerator facility (the
"Facility"). The purchase price for the Facility amounted to $3.6 million
payable $1 million in cash at closing and the issuance of a $2.62 million four
(4) year non-interest bearing promissory note. The Company received certain
credits against the cash portion of the purchase price for repairs, taxes and
similar items.
On September 25, 1997, the Company purchased substantially all of the assets and
business of EWR for $1,687,000 payable in cash at closing. The Company had
provided a $200,000 line of credit to EWR prior to the purchase. The outstanding
balance on the line of credit of $200,000 was added to the purchase price. The
cost of the acquisition was allocated to the tangible and intangible assets and
resulted in $50,000 allocated to permits and $1,577,992 as excess of purchase
price over net assets acquired for the EWR acquisition.
On November 10, 1997, the Company purchased certain assets of BMG for $850,000
in cash and 200,000 shares of Company common stock, valued at $5 per share, the
then market value. The Company received credits at closing amounting to $250,000
for necessary repairs and maintenance at the autoclave facility, as well as
miscellaneous credits for advances made under the management agreement described
below. The cost of the acquisition was allocated to the tangible and intangible
assets and resulted in $50,000 allocated to permits and $1,973,040 as excess of
purchase price over net assets acquired for the BMG acquisition.
In a related transaction, on November 6, 1997, the Company purchased the real
property and certain assets of the autoclave facility from an unrelated third
party. The Company paid $1.4 million, consisting of $900,000 in cash at closing
and a $500,000 purchase money note secured by the real property.
On November 7, 1997, the Company purchased 100% of the capital Stock of
Incendere for $12.0 million, payable in cash, with $10.0 million paid at closing
and $2.0 million held in escrow pending the determination of revenues of
Incendere for the four month period prior to the closing. The cost of the
acquisition was allocated to the tangible and intangible assets and resulted in
$1,100,000 as customer lists and trademarks and $7,879,968 as excess of purchase
price over net assets acquired for the Incendere acquisition.
The following summarized unaudited pro forma consolidated results of operations
have been prepared as if the acquisition of SDSVA, SDSGA and SDSPA had occurred
at the beginning of 1996 and includes pro forma adjustments for interest,
depreciation and amortization:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
REVENUES $ 25,683,502 $ 20,421,284
NET INCOME (LOSS) from continuing
operations $ $ (4,690,992)
Discoutinued operations
Net income
As reported:
Pro-forma:
Earnings (loss) per share - basic
From continuing operations $ $ (2.30)
Discontined operations, net of taxes .08 .20
------------ ------------
$ $ (2.10)
Weighted Average number of common share ------------ ------------
outstanding-basic 2,559,905 2,043,065
Earnings (loss) per share - diluted:
From continuing operations $ $ (2.30)
Discontined operations, net of taxes .05 .20
------------ ------------
Weighted Average number of common share $ .12 $ (2.10)
outstanding - diluted ------------ ------------
3,922,648 2,043,065
</TABLE>
- 35 -
<PAGE> 36
Med/Waste, Inc. And Subsidiaries
Notes to Consolidated Financial Statements (continued)
The acquisitions discussed above were accounted for under the purchase method of
accounting and their respective operations have been included in the Company's
consolidated financial statements since the date of each acquisition or from
when operating control was obtained by the Company, if earlier. The pro forma
consolidated results do not purport to be indicative of results that would have
occurred had the acquisition been in effect for the periods presented, nor do
they purport to be indicative of the results that will be obtained in the
future.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land $ 416,000 $ 230,000
Building 1,988,541 300,000
Incinerator and autoclaves 3,992,099 3,498,186
Operations equipment 4,161,353 --
Equipment under capital leases 462,959 555,021
Computer, office and other equipment 706,838 872,758
------------ ------------
Total 11,727,790 5,455,965
Less accumulated depreciation (1,090,987) (529,808)
------------ ------------
Net property, plant and equipment $ 10,636,803 $ 4,926,157
============ ============
</TABLE>
Depreciation expense aggregated $576,953 and $349,749 for 1997 and 1996,
respectively.
4. OTHER ASSETS
Other assets consist of the following at December 31:
1997 1996
---------- ----------
Customer lists $1,669,860 $ 618,616
Deferred pre-acquisition costs 435,017 --
Other 262,701 82,482
---------- ----------
$2,367,578 $ 701,098
Less accumulated amortization (272,000) (220,000)
---------- ----------
$2,095,578 $ 481,098
========== ==========
Substantially all of the accumulated amortization pertains to the customer
lists.
- 36 -
<PAGE> 37
Med/Waste, Inc. And Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Notes Payable and Debentures
Notes payable and debentures consist of the following at December 31:
1997 1996
----------- -----------
Note payable - Chambers (1) $ 2,173,485 $ 2,262,821
Term loan (2) 6,000,000 --
Line of credit (2) 2,703,618 723,000
Debentures (3) 1,327,096 --
Note payable (4) 387,267 --
Other -- 17,393
----------- -----------
Total 12,591,466 3,003,214
Less current portion 4,094,861 894,599
----------- -----------
Total $ 8,496,605 $ 2,180,615
=========== ===========
The minimum annual debt payments for the next five years required under the
terms of the notes payable and debentures are as follows:
1998 $ 4,095,000
1999 5,881,000
2000 2,463,000
2001 78,000
2002 74,000
-----------
$12,591,000
===========
During 1997 and 1996 interest expense aggregated $598,000 and $109,000,
respectively.
(1) The note is non-interest bearing and is payable quarterly. The note is
reflected, net of approximately $236,515 unamortized discount. The
discount is based on an imputed interest rate of 6% (based on the
prevailing tax exempt interest rate available to the Company). The note is
secured by certain property and equipment (net book value $3.1 million)
and an assignment of revenues and profits. The Company is required to make
prepayments during the first two years, if it burns at least 72 million
pounds of waste. The prepayments shall reduce the principal payments due
in the fourth year of the note and under no event shall exceed $700,000
per year. No such prepayments were required during 1996 or 1997
- 37 -
<PAGE> 38
Med/Waste, Inc. And Subsidiaries
Notes to Consolidated Financial Statements (continued)
(2) The Company has a line of credit with a bank for $4 million. The line of
credit is a demand note and bears interest at prime plus 1% (9.5% at
December 31, 1997). Interest is payable monthly. At December 31, 1997, the
Company had $3.7 million in outstanding borrowings under the line.
Substantially all of the Company's assets, except for the SDSSC
incinerator facility, are collateralized for the loan. The loan requires
the Company to maintain minium levels of liquidity, profitability and net
tangible worth. In addition, the Company entered into a $5 million term
loan, with the bank. The term loan bears interest at a rate of prime plus
1% (9.5 % at December 31, 1997). Principal is payable at $83,333 monthly
plus interest with a balloon payment due on April 30, 1999. In January
1998, the line of credit was reduced to $3 million and the term loan was
increased to $6.0 million. In this connection, the interest rate and the
principal payments remained unchanged, however a balloon payment was
increased to $4.7 million due April 30, 1999. Accordingly, the $1 million
of short-term debt has been reclassified to long-term debt.
(3) On February 13, 1997, the Company completed a private placement of 10%
Convertible Redeemable Debentures due July 1, 2000 ("the Debentures"),
raising net proceeds of approximately $2.7 million. Interest is payable
semi-annually on July 1 and January 1. The Debentures are subordinated to
the other debt of the company. The Debentures are convertible into shares
of common stock at the holder's option any time prior to redemption or
maturity at initial conversion price of $3.25 in principal amount for each
share of common stock. The conversion price was subsequently changed to
$2.925. During 1997, approximately $1.3 million of the Debentures were
converted into 458,000 shares of common stock. At December 31, 1997 the
Company had $1,327,096 in Debentures outstanding shown net of $333,384 in
unamortized bond issue costs. A portion of the proceeds from the
Debentures was used to reduce the outstanding balance on the Company's
line of credit.
(4) On November 6, 1997, the Company, issued a $500,000 purchase money note
secured by real estate. The note is payable monthly over five years and is
reflected, net of a $104,400 discount. The discount is based on an imputed
interest rate of 10%.
6. STOCK WARRANTS
In January 1977, October 1977 and November 1997, the Company issued an aggregate
of 273,848 warrants to its placement agent in connection with the issuance of
the Debentures and the Series A Preferred Stock. Such warrants have exercise
prices which range from $2.925 to $5.00 per share.
In November 1997, the Company issued an aggregate of 58,185 warrants to its
underwriter in connection with the sale of common stock pursuant to Regulation S
as promulgated pursuant to the Securities Act of 1933, as amended. Such warrants
have an exercise price of $3.625. In connection therewith, the Company issued
25,000 warrants to a consulting firm for investment banking services at the then
fair market value of the underlying stock. Such warrants have an exercise price
of $4.25 per share.
In connection with the above, the exercise price of each warrant equals the fair
value of the Company's common stock on the date of grant and the warrants'
maximum term is five years.
- 38 -
<PAGE> 39
7. STOCK OPTIONS
The Company has three stock option plans (a) the 1993 Employee Stock Option Plan
(the "1993 Plan") (b) the Directors Stock Option Plan (the "Directors Plan"),
(the "Directors Plan, (c) and the 1996 Employee Stock Option Plan (the "1996
Plan").
Under the Directors Plan, as amended, each non-employee director receives
automatic non-discretionary grants of options on June 2 of each year. On each
grant date, each non-employee receives options to purchase 3,000 shares of
common stock for service on the board, additional options to purchase 3,000
shares of common stock for service on each committee of the board, other than
the executive committee and additional options to purchase 3,000 shares for
service as chairman of a committee other than the executive committee.
Non-employee directors receive options to purchase 6,000 shares for service on
the executive committee and an additional 6,000 as chairman of the executive
committee. In June 1997 and 1996, the Company granted options to purchase
57,000 and 137,500 shares of common stock, respectively. Each option has a term
of five years and is exercisable commencing six months following the date of
grant.
All officers and employees are eligible for grants of options under the 1993
and 1996 Plans, which are administered by a stock option committee which has
the discretion to determine to whom, the amount, exercise prices, exercise
terms and all other matters relating to the grant of options under such plans.
Options to purchase 20,000 and 25,000 shares were granted under the 1993 Plan
in 1997 and 1996 at the then fair market value of the underlying shares. As of
December 31, 1996 options to purchase 16,250 shares under the 1993 Plan were
exercised, and options to purchase 665,425 shares were outstanding at exercise
prices ranging from $2.125 to $4.3125 per share. Options to purchase an
aggregate of 400,000 shares were granted under the 1996 Plan in 1997 and 1996,
respectively, at the then fair market value of the underlying shares. As of
December 31, 1996 options to purchase 400,000 shares were outstanding under the
1996 Plan. All options granted under the 1993 and 1996 Plan vest 25% at the
time of the grant and an additional 25% on each anniversary date thereafter.
The exercise price of all options granted by the Company since inception was
the closing market price of the underlying common stock on the grant date.
At December 31, 1997, options granted under the Directors Plan, as amended the
1993 Plan and the 1996 Plan were accounted for under APB Opinion 25, "Accounting
for Stock Issued to Employees", and related interpretations in accounting for
the plans. Under APB Opinion 25, because the exercise price of the Company's
stock option plans equal the market price of the underlying stock on the date of
grant, no compensation cost is recognized.
- 39 -
<PAGE> 40
FASB Statement 123, "Accounting for Stock-Based Compensation", requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in FASB
Statement 123. For purposes of this disclosure, the Company estimates the fair
value of each stock option at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average assumptions in 1997 and
1996, respectively: no dividends; expected volatility of 25% and 49%,
respectively, risk-free interest rates of 6% and expected lives of two years.
Under the accounting provisions of FASB Statement 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996
------------- -----------
<S> <C> <C>
AS REPORTED
Net income (loss) from Continuing Operations $ 1,417,724 $ (295,508)
Net Income from Discontinued Operations,
net of $71,000 and $34,000 of taxes $ 131,671 $ 249,445
Net Income $ 1,549,395 $ 215,326
PRO FORMA
Net income (loss) from Continuing Operations $ 1,345,745 $ (345,068)
Net Income from Discontinued Operations,
net of $71,000 and $34,000 of taxes $ 131,671 $ 510,834
Net Income $ 1,477,416 $ 165,766
AS REPORTED - BASIC
Earnings (loss) per share - basic
From continuing operations $ 0.52 $ (.10)
Discontinued operations, net of taxes 0.05 .20
------------ ------------
Earnings per share $ 0.57 $ 0.10
============ ============
PRO FORMA - BASIC
Earnings (loss) per share - basic
From continuing operations $ 0.49 $ (.14)
Discontinued operations, net of taxes 0.05 .20
------------ ------------
Earnings per share $ 0.54 $ .06
============ ============
AS REPORTED - DILUTED
Earnings (loss) per share - diluted
From continuing operations $ 0.38 $ (.12)
Discontined operations, net of taxes 0.05 0.22
------------ ------------
Earnings per share $ 0.43 $ 0.10
============ ============
PRO FORMA - DILUTED
Earnings (loss) per share - diluted
From continuing operations $ 0.32 $ (.08)
Discontinued operations, net of taxes 0.03 .17
------------ ------------
Earnings per share $ 0.35 $ 0.07
============ ============
</TABLE>
- 40 -
<PAGE> 41
Med/Waste, Inc. And Subsidiaries
Notes to Consolidated Financial Statements (continued)
A summary of the status of the Company's three stock option plans as of December
31, 1997 and 1996, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996
1997 SHARES WEIGHTED-AVG. 1996 SHARES WEIGHTED-AVG.
(000) EXERCISE PRICE (000) EXERCISE PRICE
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
OUTSTANDING AT
BEGINNING OF YEAR 1,369 $2.60 1,001 $2.48
GRANTED 372 $3.57 368 $2.93
----------- -------------- ----------- --------------
OUTSTANDING AT YEAR-
END 1,741 $2.81 1,369 $2.60
----------- -------------- ----------- --------------
OPTIONS EXERCISABLE
AT YEAR-END 1,263 $2.63 1,063 $2.52
WEIGHTED-AVERAGE
FAIR VALUE OF
OPTIONS GRANTED
DURING THE YEAR $.53 $.32
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER WEIGHTED- WEIGHTED- NUMBER AVERAGE
RANGE OF OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT EXERCISE PRICE
EXERCISE PRICES 12/31/97 REMAINING EXERCISE PRICE 12/31/97 (EXERCISABLE
- --------------- (000) CONTRACTUAL LIFE (ALL OPTIONS) (000) OPTIONS ONLY)
-------------- ----------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$2.13 to $3.00 1,343 2.1 years $2.41 1,084 $2.44
$3.01 to $5.19 398 2.8 years $4.15 179 $3.75
-------------- ----------------- ---------------- --------------- --------------
1,741 2.2 years $2.81 1,263 $2.63
============== ================= ================ =============== ==============
</TABLE>
- 41 -
<PAGE> 42
8. DISCONTINUED OPERATIONS, NET OF TAX.
In January 1998, the Company sold 100% of the common stock of Kover as a result
of the sale, the Company does not expect any material gain or loss. Earnings
from the discontinued janitorial segment amounted to $131,671 in 1997 and
$409,885 in 1996, net of applicable income taxes and are shown separately in the
Consolidated Statements of Operations. The results of the discontinued
operations of Kover reflect an interest allocation of approximately $140,000 in
1997 and 1996, based on the interest expense relating to debt that was
previously loaned by the Company to Kover. No general corporate overhead has
been allocated to discontinued operations.
Net assets and statement of operations highlights of Kover, the discontinued
janitorial segment at the end of each year consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ -- $ 34,234
Accounts receivable, net of allowances 657,881 656,965
Current portion of notes receivable from franchisees 1,552,698 1,110,104
Other current assets 253,213 133,917
Notes receivable from franchisees, net of current
portion 943,495 1,032,669
Property, plant and equipment 138,353 196,455
Other assets -- 38,768
Accounts payable and accrued liabilities (912,731) (919,098)
Other liabilities -- --
----------- ------------
Net assets of discontinued operations $ 2,632,909 $ 2,284,014
=========== ============
Revenues $11,470,750 $ 12,565,590
Expenses (11,268,079) (12,021,178)
----------- ------------
Income before tax provision $ 202,671 $ 544,412
Tax provision (71,000) (134,527)
----------- ------------
Discontinued operations 131,671 409,885
=========== ============
</TABLE>
As a result of the sale of Kover, the Company no longer provides commercial
cleaning services in its janitorial segment and accordingly, the Company only
operates in the medical waste management business.
- 42 -
<PAGE> 43
9. INCOME TAXES
At December 31, 1997, the Company had Federal net operating loss carryforwards
of approximately $530,000 that expire through 2010. For financial reporting
purposes, no valuation allowance at December 31, 1997 has been recognized
principally due to improved operating results and the gain on insurance
settlement (note 16). A valuation allowance of $416,000 at December 31, 1996 had
been recognized to offset the net deferred tax assets related to these
carryforwards and other deferred tax asssets. The Company has an income tax
provision of $627,768 in 1997 as a result of providing principally for the gain
on the insurance settlement. The Company did not have an income tax provision in
1996 as a result of the utilization of net operating loss carryforwards.
Realization of the benefits related to the net operating loss carryforwards may
be limited in any one year due to IRS Code Section 382, change of ownership
rules.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1997 1996
---------- ---------
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS
- ---------------------------
Allowance for bad debts 83,000 7,000
Other 38,000 0
---------- ---------
Total 121,000 7,000
---------- ---------
NONCURRENT DEFERRED TAX ASSETS & (LIABILITIES)
- ----------------------------------------------
Difference in basis of property,
plant and equipment (352,000) (131,000)
Difference in basis due to gain on
insurance settlement (555,000) 0
Net operating loss carryforwards 205,000 540,000
---------- ---------
Total (702,000) 490,000
---------- ---------
Net deferred tax asset (liability)
before valuation allowance (581,000) 416,000
Valuation allowance for net
deferred tax assets 0 (416,000)
---------- ---------
Net deferred tax asset (liability) (581,000 0
========== =========
</TABLE>
The provision (benefit) for income taxes from continuing and discontinued
operations consists of the following components:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- ------------------------
CONTINUING DISCONTINUED CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS OPERATIONS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current:
Federal $ (76,000) $ 96,000 $(130,734) $(130,734)
State 75,000 21,000 (28,942) (28,942)
--------- -------- --------- ---------
(1,000) 117,000 (159,676) 159,676
--------- -------- --------- ---------
Deferred:
Federal 515,768 (38,000) 20,592 (20,592)
State 113,000 (8,000) 4,558 (4,558)
--------- -------- --------- ---------
628,768 (46,000) 25,150 (25,150)
--------- -------- --------- ---------
$ 627,768 $ 71,000 $(134,527) $ 134,527
========= ======== ========= =========
</TABLE>
The reconciliation between the provision for income taxes and the amount which
results from applying the federal statutory tax rate of 34% to loss before
income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------- ------------------------
CONTINUING DISCONTINUED CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS OPERATIONS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income tax expense (credit) at statutory
federal rate $ 695,000 $69,000 $(111,889) $ 185,100
State taxes, net of federal benefit 125,000 8,000 (25,424) 25,424
Utilization of net operating loss carryforwards 0 0 0 (78,000)
Non-deductible expenses 24,768 3,000 2,786 2,003
Alternative minimum tax 20,000 0 0 0
Reversal of valuation allowance (237,000) (9,000) 0 0
--------- ------- --------- ---------
$ 627,768 $71,000 $(134,527) $ 134,527
========= ======= ========= =========
</TABLE>
- 43 -
<PAGE> 44
10. LEASES
The Company leases office and warehouse space and transportation and equipment
under various operating leases that extended through 2002. These leases, some of
which may be renewed for periods ranging from one to four years, require the
Company to pay for certain operating expenses. The Company's rent expense for
the years ended December 31, 1997 and 1996, amounted to $192,006 and $109,863,
respectively.
Future minimum payments, by year and in the aggregates under capital and
noncancellable operating leases with initial or remaining terms of one year or
more years are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ---------
<S> <C> <C>
1998 $ 438,230 $ 274,834
1999 352,441 198,399
2000 161,822 158,212
2001 11,957 102,386
2002 and thereafter -- 74,069
----------- ---------
Total minimum lease payments remaining $ 964,450 $ 807,900
Less amount representing interest 64,840 =========
-----------
Present value of net minimum lease
payments 899,610
===========
Capital lease obligations-current portion 397,371
===========
Capital lease obligations-long term portion $ 502,239
===========
</TABLE>
11. RELATED PARTY TRANSACTIONS
During 1997 and 1996, the Company paid a law firm, in which the Chairman of the
Board is a partner, $171,298 and $127,267, respectively, for services in
assisting with the acquisitions of SDSGA, SDSPA, SDSVA and various other
corporate legal matters. On August 31, 1996, warrants to purchase 120,004 shares
of common stock were exercised by three directors through the issuance of
promissory notes aggregating $288,003. The promissory notes are collateralized
by the common stock issued, bear interest at 8% a year and are payable $10,000
in principal plus accrued interest on March 31, of each year for a period of
five years, with the remaining principal balance together with accrued interest
payable at the end of five years and are recorded as a reduction to
shareholders' equity in the accompanying 1997 Consolidated Balance Sheets.
On January 30, 1998, the Company sold 100% of the capital stock of Kover to MPK
Holdings, Ltd., an Ohio limited liability company ("MPK"). MPK is wholly owned
by Phillip W. Kubec and Melissa Kubec, his wife. Mr. Kubec was the president and
chief executive officer of Kover and a director of the Company.
- 44 -
<PAGE> 45
12. COMMITMENTS AND CONTINGENCIES
The medical waste disposal industry involves potentially significant risks of
statutory, contractual, tort and common law liability. Potential liability could
involve, for example, claims for clean-up costs, personal injury, or damage to
the environment, claims of employees, customers or third parties for personal
injury or property damage occurring in the course of the Company's operations,
or claims alleging negligence or professional errors or omissions in the
planning or performance of work. The Company could also be subject to fines in
connection with violations of regulatory requirements. The Company attempts to
operate safely and prudently and has not had any material violations to date of
which it is aware.
The Company carries liability insurance coverage which it considers sufficient
to meet regulatory and customer requirements and to protect the Company's
employees, assets, and operations. The availability of liability insurance
within the waste industry has been adversely affected by the constrained market
for casualty and environmental insurance. In the future, insurance that might be
available may be at significantly increased premiums with less extensive
coverage. If the Company is unable to obtain adequate insurance coverage at a
reasonable cost, it may become exposed to potential liability claims. In such
event, a successful claim, if of sufficient magnitude, could have a material
adverse effect on the Company's financial condition.
The Waste Companies sell their services principally to customers on the east
coast of the United States. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral for outstanding accounts
receivable. Allowances are estimated for potential credit losses.
The Company plans to expand and make improvements at the SDSSC incinerator
during 1998 for approximately $1.2 million. This expansion will be financed
through new long term financing and internally generated working capital.
The Company, in the ordinary course of conducting its business, is subject to
various state and federal environmental requirements. In the opinion of
management, the Company is in compliance with these requirements.
13. RETIREMENT PLAN
Kover sponsors a defined contribution 401(k) plan covering substantially all of
its employees. Employer contributions are discretionary and totaled
approximately $4,204 in 1997 and $3,190 in 1996.
- 45 -
<PAGE> 46
14. SHAREHOLDERS' EQUITY
In August 1996, 424,000 common shares were issued by the Company for the
exercise of private placement warrants generating $986,266 in proceeds.
On November 7, 1997 the Company sold 1.6 million shares of common stock,
pursuant to Regulation S as promulgated pursuant to the Securities Act of 1933,
as amended, raising net proceeds of approximately $5.4 million.
Through September 23, 1997, the Company substantially completed a private
placement of 9% Redeemable Convertible Series A Preferred Stock (the "Series A
Preferred Stock") raising net proceeds of approximately $3.9 million. Each
share of Series A Preferred Stock is presently convertible at any time at the
option of the holders at the current conversion of $4.25 assuming the value of
each share of Series A Preferred Stock to $100. Each holder is entitled to
receive $100 per share in the event of liquidation any may be redeemed at the
option of the Company for a price of $7.44. The dividend provision is
cumulative.
A reconciliation of the numerator and denominator of earnings per share
follows:
<TABLE>
<CAPTION>
For the years ended 1997 1996
-------------------------------------- ------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before discontinued
operations $1,417,724 $(194,559)
Less: Preferred stock dividends 96,680 --
---------- ---------
Basic EPS
Income available to common
shareholders $1,321,044 2,559,905 0.52 $(194,559) 2,043,065 (.10)
---- ----
Effect of Dilutive Securities
Warrants 53,834 16,555
Options 499,482 314,498
Reduction of interest 163,704 808,827 --
------------------------- -----------------------
Diluted EPS
Income (loss) available to common
shareholders $1,484,748 3,922,848 0.38 $(194,559) 2,374,118 (.08)
--------------------------------- --------------------------------
</TABLE>
Options to purchase 231,250 and 137,500 shares of common stock from $3.375 to
$6.00 per share were outstanding during 1997 and 1996 respectively, but were
not included in the computation of diluted EPS because the options exercise
price was greater than the average market price of the common shares for those
years. The options, which expire from 1998 to 2002, were still outstanding at
the end of year 1997. Stock warrants of 287,284 and 91,000 shares of common
stock from $4.25 to $8.70 per share were outstanding during 1997 and 1996,
respectively, but were not included in the computation of diluted EPS because
the options exercise price was greater than the average market price of the
common shares for those years. The warrants, which expire from 1998 to 2002,
were still outstanding as of the end of year 1997.
15. SALES OF AUTOCLAVES
The Company leases equipment to customers under sales-type leases as defined in
Statement of Financial Accounting Standards No. 13, "Accounting for Leases."
During 1996, such leases were sold to third parties; no such sales occurred in
1997. The current portion of the net investment in sales-type leases is included
in accounts receivable in 1997 and "Current portion of notes receivable from
autoclaves" and the long-term portion is included in "Notes receivable from
autoclaves, net of current" in 1996. The components of the net investment in
sales-type leases aggregated $527,000 in 1997 and $306,000 in 1996.
These notes are from autoclave sales in 1996 and are non-interest bearing and
were discounted to a leasing company at rates of 9% to 9.75%. The outstanding
amount of receivables sold to and proceeds received from independent third
parties with recourse was $290,483 in 1996 and none in 1997. The Company has
estimated that no obligation under the recourse provisions exist based on the
excellent credit rating of the autoclave customers.
- 46 -
<PAGE> 47
16. GAIN FROM INSURANCE SETTLEMENT
On June 1, 1997, a fire occurred at the Company's incineration facility in
Hampton, South Carolina. Damaged occurred in various parts of the facility,
causing the facility to shut down operations. During the shut down period, the
Company continued to accept medical waste, repackage such waste and route the
waste to other facilities for disposal, including the autoclave facility in
Marcus Hook, Pennsylvania. The plant reopened on June 30, 1997. Repairs on the
facility were completed and the facility became fully operation in August 1997.
In August 1997, the Company reached a settlement with one of its insurance
companies for approximately $3.3 million. After deducting $1.9 million in
rebuilding and incremental costs related to the fire, the Company recorded a
$1.4 million gain on fire for the year ended December 31, 1997.
17. SUBSEQUENT EVENT - SALE OF KOVER
On January 30, 1998, the Company sold 100% of the common stock of Kover to MPK.
The selling price approximated the book value of Kover, accordingly no material
gain or loss is expected in 1998.Mr. Kubec was the president and chief executive
officer of Kover and a director of the Company. The Company received aggregate
consideration for the sale of Kover of $2.7 million, payable $1.2 million in
cash at closing and the balance of $1.5 million in promissory notes. The Company
received two promissory notes, one for $960,000 from MPK (the "MPK Note") and
one for $540,000 from Kover (the "Kover Note"), The MPK Note is payable interest
only monthly at the rate of 8.25% per annum, with the principal balance due at
the end of five years. The Kover note is payable interest only monthly at the
rate of 8.25% per annum with the principal due at the end of seven years. The
MPK Note is guaranteed by Kover and the Kubecs and is secured by a debt pledge
of 100% of the capital stock of Kover. The Kover Note is guaranteed by MPK. The
MPK and Kover Notes are subordinate to $1.6 million in financing received in
January 1998 by MPK. The Kubec Guarantee is secured by a pledge of 20,000 shares
of common stock of the Company owned by the Kubecs. The Company did not
guarantee any of the buyers debt. The Company believes that the buyer will be
able to service the debt from the operations of Kover.
In January 1998, the Company's bank borrowings were reduced by $1.2 million from
the proceeds resulting from the Sale of Kover.
- 47 -
<PAGE> 48
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information contained under the caption "Directors and Executive
Officers" appearing in the Company's definitive proxy statement relating to the
Company's 1998 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission (the "Annual Proxy Statement") within 120 days following
December 31, 1997 is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information contained under the caption "COMPENSATION" appearing
in the Annual Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the caption "STOCK OWNERSHIP"
appearing in the Annual Proxy Statement is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "CERTAIN TRANSACTIONS" appearing in
the Annual Proxy Statement is incorporated herein by reference.
- 48 -
<PAGE> 49
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Index
2.1 Agreement and Plan of Reorganization dated January 27, 1992 by
and among Med/Waste, Inc., Safety Disposal Systems, Inc., Robert Grover,
Trustee, Sherwin Stauber, Trustee and Marvin Weinstein, Trustee [Incorporated by
reference to the Company's Registration Statement on Form SB-2, File No.
33-67684
2.2 Agreement and Plan of Reorganization dated June 15, 1994 by and
between Med/Waste, Inc., and Phillip W. Kubec. [Incorporated by reference to the
Company's Form 8-K, dated June 28, 1994, File No. 0-22294].
2.3 Amendment to Agreement and Plan of Reorganization dated June 28,
1994 by and between Med/Waste, Inc., The Kover Group, Inc. and Phillip W. Kubec.
[Incorporated by reference to the Company's Form 8-K, dated June 28, 1994, File
No. 0-22294]
2.4 Safety Disposal Systems of South Carolina, Inc. Acquisition of
the assets of Chambers Medical Technologies of South Carolina, Inc.
[Incorporated by reference to the Company's Form 8-K dated October 15, 1996,
File No. 0-22294]
2.5 Asset Purchase Agreement dated as of September 9, 1997 by and
between Med/Waste, Inc. and Environmental Waste Reduction, Inc. [Incorporated by
reference to the Company's Form 8-K dated September 25, 1997, File No. 0-22294]
2.6 Agreement For Purchase of Real Property between Med/Waste, Inc.
and Kurt Scheuermann dated May 15, 1997. [Incorporated by reference to the
Company's Form 8-K dated November 10, 1997, File No. 0-22294]
2.7 Asset Purchase Agreement between Med/Waste, Inc. and K. S.
Processing, Inc. dated May 15, 1997 [Incorporated by reference to the Company's
Form 8-K dated November 10, 1997, File No. 0-22294]
2.8 Stock Purchase Agreement dated as of October 22, 1997 by and
between Med/Waste, Inc., Safety Disposal System of Virginia, Inc., Republic
Industries, Inc. and Incendere, Inc. [Incorporated by reference to the Company's
Form 8-K dated November 7, 1997, File No. 0-22294]
2.9 Agreement dated January 30, 1998 by and between Med/Waste, Inc.,
The Kover Group, Inc., MPK Holdings, Ltd. and Phillip W. Kubec. [Incorporated by
reference to the Company's Form 8-K dated January 30, 1998, File No. 0-22294]
3.1 Registrant's Certificate of Incorporation, as amended
[Incorporated by reference to the Company's Registration Statement on Form SB-2,
File No. 33-67684]
3.2 Certificate of Adoption of Resolutions of the Board of Directors
of Med/Waste, Inc. Amending the Med/Waste, Inc. Certificate of Incorporation to
Provide for the Designation, Preferences, Rights, Qualifications, Limitations or
Restrictions Thereof, of the Series A Preferred Stock, 9% Redeemable Convertible
Series.
- 49 -
<PAGE> 50
3.3 Registrant's Certificate of Adoption of Resolutions of the Board
of Directors of Med/Waste, Inc. Amending the Designation, Preferences, Rights,
Qualifications, Limitations or Restrictions Thereof, Of the Series A Preferred
Stock, 9% Redeemable Convertible Series.
3.4 Registrant's By-Laws [Incorporated by reference to the Company's
Registration Statement on Form SB-2, File No. 33-67684]
4.1 Form of Representatives' Warrant Agreement [Incorporated by
reference to the Company's Registration Statement on Form SB-2, File No.
33-67684]
4.2 Form of Common Stock Certificate [Incorporated by reference to
the Company's Registration Statement on Form SB-2, File No. 33-67684]
4.3 Med/Waste, Inc., Safety Disposal System, Inc., The Kover Group,
Inc., Safety Disposal System of South Carolina, Inc. 10% Convertible Redeemable
Debenture Due July 1, 2000, aggregate principal amount of $3,000,000.
10.1 Employment Agreement by and between Med/Waste, Inc. and Daniel
Stauber dated January 1, 1996 [Incorporated by reference to the Company's 1995
Form 10-KSB, File No. 0-22294]
10.2 Employment Agreement by and between Med/Waste, Inc. and Milton
J. Wallace dated January 1, 1996
10.3 Employment Agreement by and between Med/Waste, Inc. and Michael
D. Elkin dated October 1, 1996
10.4 Employment Agreement by and between Med/Waste, Inc. and William
F. Bonham dated June 1, 1997
10.5 1993 Employee Stock Option Plan [Incorporated by reference to
the Company's Registration Statement on Form SB-2, File No. 33-67684]
10.6 Directors Stock Option Plan [Incorporated by reference to the
Company's Registration Statement on Form SB-2, File No. 33-67684]
10.7 1996 Employee Stock Option Plan [Incorporated by reference to
the Company's Proxy Statement for the 1996 Annual Stockholders' Meeting, File
No. 0-22294]
10.8 Employment Agreement by and between The Kover Group, Inc. and
Phillip W. Kubec dated June 28, 1994 [Incorporated by reference to the Company's
1994 Form 10-KSB, File No. 0-22294]
10.9 Service Franchise Agreements dated October 14, 1986 by and
between The Kover Group, Inc. and Coverall North America, Inc. (Ohio)
[Incorporated by reference to the Company's 1994 Form 10-KSB, File No. 0-22294]
10.10 Service Franchise Agreements dated December 7, 1988 by and
between The Kover Group, Inc. and Coverall North America, Inc. (South Florida)
[Incorporated by reference to the Company's 1994 Form 10-KSB, File No. 0-22294]
- 50 -
<PAGE> 51
10.11 Service Franchise Agreements dated February 1, 1988 by and
between The Kover Group, Inc. and Coverall North America, Inc. (Pittsburgh)
[Incorporated by reference to the Company's 1994 Form 10-KSB, File No. 0-22294]
10.12 Addendum to Service Franchise Agreement dated May 15, 1992 by
and between Coverall North America, Inc. and The Kover Group, Inc. (Palm Beach,
Martin, St. Lucie and Indian River Counties) [Incorporated by reference to the
Company's 1994 Form 10-KSB, File No. 0-22294]
10.13 Special Addendum to Service Franchise Agreements dated August
15, 1992 by and between Coverall North America, Inc. and The Kover Group, Inc.
(Extension of all Service Franchise Agreement to January 1, 2010) [Incorporated
by reference to the Company's 1994 Form 10-KSB, File No. 0-22294]
21 Subsidiaries
27 Financial Data Schedules
(b) Form 8-K
The following Form 8-K's were filed during the last quarter of the
fiscal year ended December 31, 1996:
(a) Chambers October 1996
(b) Chambers Financials 1996
- 51 -
<PAGE> 52
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act, the
registrant caused this report to be signed on behalf by the undersigned,
thereunto duly authorized.
MED/WASTE, INC., a Delaware corporation
Dated: March 30 , 1998 By: /s/ Daniel A. Stauber
--------------------------------
DANIEL A. STAUBER, President/
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Milton J. Wallace
- -------------------------------
MILTON J. WALLACE Chairman of the Board of Directors March 30, 1998
/s/ Daniel A. Stauber
- -------------------------------
DANIEL A. STAUBER Director/President/Chief Executive Officer March 30, 1998
/s/ Arthur G. Shapiro, M.D.
- -------------------------------
ARTHUR G. SHAPIRO, M.D. Director March 30, 1998
/s/ Richard Green
- -------------------------------
RICHARD GREEN Director/Secretary March 30, 1998
/s/ William Dolan, D.D.S.
- -------------------------------
WILLIAM DOLAN, D.D.S. Director March 30, 1998
/s/ William F. Bonham
- -------------------------------
WILLIAM F. BONHAM Director March 30, 1998
/s/ Kendrick Meek
- -------------------------------
KENDRICK MEEK Director March 30, 1998
/s/ Michael D. Elkin
- -------------------------------
MICHAEL D. ELKIN Vice President/Chief Financial Officer March 30, 1998
</TABLE>
- 52 -
<PAGE> 1
Exhibit 3.2
CERTIFICATE
OF
MED/WASTE, INC.
I, the undersigned, DANIEL A. STAUBER, as President of MED/WASTE,
INC., a corporation organized and existing under the laws of the State of
Delaware (hereinafter referred to as the "Corporation") hereby certify and
affirm the following:
1. The name of the Corporation is MED/WASTE, INC.
2. The Board of Directors, pursuant to Section 151 of the
Delaware General Corporation laws adopted a resolution
establishing the Designation, Preferences Limitations, and
relative Rights of the Series A Preferred Stock, Callable,
Convertible Series as set forth on Exhibit "A" attached
hereto.
3. The foregoing resolution was adopted by the Board of
Directors in accordance with section 151 of the Delaware
General Corporation Laws and shall become effective and
constitutes an amendment to the Corporation's Certificate
of Incorporation upon the proper filing of this instrument
with the Delaware Secretary of State.
4. Shareholder approval is not required pursuant to the
Delaware General Corporation Laws.
IN WITNESS WHEREOF, the undersigned has execute this Certificate
of MED/WASTE, INC., this _____ day of September, 1997.
MED/WASTE, INC., a Delaware
corporation
By: /s/ Daniel A. Stauber
----------------------------
DANIEL A. STAUBER, President
I CERTIFY, that DANIEL A. STAUBER, personally known to me to be
the same persons whose names are subscribed to the foregoing instrument, this
day personally appeared before me as the President of MED/WASTE, INC., and he
acknowledged that he has executed the foregoing instrument fully and voluntarily
for the use and purpose therein expressed.
SWORN TO AND SUBSCRIBED before me this _____ day of September,
1997.
My Commission Expires: /s/ Bryan Bauman
------------------------------------
NOTARY PUBLIC, STATE OF FLORIDA
Print Name: BRYAN BAUMAN
Commission No.:
---------------------
<PAGE> 2
CERTIFICATE OF ADOPTION OF RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
MED/WASTE, INC.
AMENDING THE MED/WASTE, INC. CERTIFICATE OF INCORPORATION TO PROVIDE FOR THE
DESIGNATION, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS
THEREOF, OF THE SERIES A PREFERRED STOCK, 9% REDEEMABLE CONVERTIBLE SERIES
-----------------------------
MED/WASTE, INC., a Delaware corporation (the "Corporation"), hereby
certifies that pursuant to the authority vested in the Board of Directors of the
Corporation by the provisions of its Certificate of Incorporation, and by the
provisions of The General Corporation Law of the State of Delaware, the Board of
Directors adopted the following resolution:
RESOLVED, there is hereby created a series of preferred stock, $.10
par value, of the Corporation, consisting of 60,000 shares of the
authorized, but unissued preferred stock and designated the "Series
A Preferred Stock" (hereinafter referred to as the "Series A"); and
that to the extent that the terms, relative rights, preferences,
qualifications and limitations of the Series A are not fixed and
determined by the Articles of Incorporation of the Corporation, as
amended, they hereby are fixed and determined as follows:
SECTION 5. DIVIDENDS
(a) CUMULATIVE DIVIDENDS. From and after the date of issuance of
any shares of Series A, the holders of the Series A shall be entitled to receive
in cash, when and as declared by the Board of Directors, cumulative preferential
dividends at the rate of $9.00 per share, payable quarterly on the 2nd day of
January and the 1st days of April, July and October in each year to holders of
record of Series A as of the fifteenth (15th) day of the month immediately
preceding the month in which a quarterly dividend is due (each a "Dividend
Record Date"). The first dividend payment due on October 1, 1997 shall be
declared and paid on a pro rata basis for the period such shares of Series A are
outstanding. Through the dividend payable July 1, 1998 (the "Initial Period")
the Company has the option to pay such dividends in cash or in shares of Series
A. The shares of Series A payable in dividends during the Initial Period shall
be valued at $100.00, except that if the average closing price of the Common
Stock for the twenty (20) consecutive trading day period ending five (5) days
prior to the Dividend Record Date (the "Market Price") is less than the
Conversion Price, the value shall equal the Market Price times the quotient of
(i)$100.00 and (ii) the Conversion Price. Whenever dividends are paid in shares
of Series A, the Company shall not issue fractional shares; rather, the Company
shall pay cash in lieu thereof. Thereafter, dividends are payable in cash,
except that if the Company is unable to pay cash dividends, it shall pay
dividends in shares of Series A with a value equal to 80% of the lesser of (a)
$100.00 and (b) the Market Price times the quotient of (i) $100.00 and (ii) the
Conversion Price. Commencing July 1, 2000, the dividend rate will increase by
2.5% per quarter up to a maximum dividend of $24.00 per annum (i.e., the October
1, 2000 quarterly dividend will be increased to $11.50 per annum).
(b) PREFERENCE OF DIVIDENDS. In the event that dividends shall not
have been fully paid or declared and set apart for payment on all shares of
Series A, the amount of the deficiency (without interest) shall be fully paid
before any dividends shall be declared or paid on any shares of Common Stock or
any other equity security which is junior to the Series A. If any dividends are
paid on any of the Series A at any time in an aggregate amount less than the
total dividends then accumulated and payable on all shares of Series A entitled
to dividends then outstanding, the amount to be distributed shall be paid on
each series of Series A entitled to dividends in the proportion that the
dividends then accumulated and payable on each such series
- 2 -
<PAGE> 3
bear to the total dividends accumulated and payable on all outstanding shares of
Series A entitled to dividends.
(c) DATE OF PAYMENT. In any case where the due date for the payment
of dividends on the Series A shall be on a day on which banking institutions are
authorized or obligated by law to close, the payment of dividends need not be
made on such date, but may be made on the next succeeding day which is not a day
on which banking institutions are authorized or obligated by law to close, with
the same force and effect as if made on the date of such payment, and dividends
shall accrue and be paid for the period through and including the date of
payment.
SECTION 6. PRIORITY. All shares of the Series A shall rank on a
parity with each other and shall be preferred to the Common Stock of the
Corporation, and any other class of stock of the Corporation, as to the payment
of dividends and the distribution of assets upon the liquidation, dissolution or
winding up of the Corporation. The Corporation shall have the right to create
other classes of preferred stock which shall rank below the Series A without the
consent of the holders of the Series A.
SECTION 7. VOLUNTARY CONVERSION RIGHTS.
(a) VOLUNTARY CONVERSION Each holder of Series A shall have the
right at any time, and from time to time, at the holder's option, to convert all
or any portion of such holder's shares of Series A into fully paid and
non-assessable full shares of Common Stock of the Corporation at the Conversion
Price, determined as hereinafter provided, in effect at the time of conversion,
each share of the Series A being taken at $100.00 per share for the purposes of
such conversion. The initial Conversion Price is $4.25 per share of Common Stock
("Initial Conversion Price"). The Initial Conversion Price shall be adjusted as
provided for below in Section 5 (the Initial Conversion Price, and the Initial
Conversion Price as thereafter then adjusted, shall be referred to as the
"Conversion Price"). Upon each adjustment of the Conversion Price, the holders
of the Series A shall thereafter be entitled to receive upon conversion, at the
Conversion Price, resulting from such adjustments, the number of shares of
Common Stock obtained by multiplying $100.00 times the number of shares of
Series A being converted and divide such amount by the Conversion Price, as then
adjusted.
(b) METHOD OF CONVERSION. In order to convert shares of the Series
A into Common Stock, the holder thereof shall surrender the certificate or
certificates therefor, duly endorsed in blank at the principal office of the
Corporation or its transfer agent, if any, or at such other office or offices,
located in the United States as the Board of Directors may designate, and give
written notice to the Corporation at said office that he elects to convert said
shares. Shares of the Series A shall be deemed to have been converted as of the
date (hereinafter called the "Conversion Date") of receipt by the Corporation of
the surrender of such shares for conversion as provided above, and the person or
persons entitled to receive the Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
on such date. As soon as practicable on or after the Conversion Date but in no
event more than five (5) business days thereafter, the Corporation will deliver
by Federal Express or other nationally recognized overnight delivery service to
the address of the holders who submitted the Series A for conversion, a
certificate or certificates for the number of full shares of Common Stock
issuable upon such conversion, together with cash in lieu of any fraction of a
share, as hereinafter provided, to the person or persons entitled to receive the
same.
(c) CONVERSION PRIOR TO REDEMPTION. In case shares of the Series A
are called for redemption, the right to convert such shares shall cease and
terminate at the close of business on the date fixed for redemption, unless
default shall be made in payment of the amount due on such redemption.
SECTION 8. FORCED CONVERSION RIGHTS. The Company shall have the
right to force conversion all, but not less than all, of the Series A into
shares of Common Stock; provided however, that on the day that notice is given
and on the Forced Conversion Date (as defined below) the following conditions
are satisfied: (i) the Common Stock underlying the Series A has been registered
pursuant to the Securities Act of 1933, as amended (the "Act") and such
registration is then currently effective; and (ii) the average of
- 3 -
<PAGE> 4
the closing bid price of the Common Stock as listed on the National Association
of Securities Dealers Automated Quotation System ("NASDAQ"), the New York Stock
Exchange ("NYSE"), the American Stock Exchange ("ASE") or wherever the Company's
Common Stock then trades, is at least 175% of the Conversion Price for twenty
(20) trading days within a thirty (30) consecutive trading day period. Any
notice of forced conversion must be given to all holders no less than thirty
(30) days nor more than forty-five (45) days prior to the date set forth for
conversion (the "Forced Conversion Date"). On the Forced Conversion Date, the
Corporation shall pay to all registered holders of the Series A, all accrued and
unpaid dividends through and including the Forced Conversion Date.
SECTION 9. ANTI-DILUTION ADJUSTMENTS. The Conversion Price shall
be adjusted as follows:
(a) AMENDMENT TO THE CERTIFICATE OF INCORPORATION. In the case of
any amendment to the Certificate of Incorporation of the Corporation to change
the designation of the Common Stock or the rights, privileges, restrictions or
conditions in respect to the Common Stock or division of the Common Stock, the
Series A shall be adjusted so as to provide that upon conversion thereof the
registered holder shall receive, in lieu of shares of Common Stock theretofore
issuable upon such conversion, the kind and amount of shares, other securities,
money and property receivable upon such designation, change or division by such
holder issuable upon such conversion had the conversion occurred immediately
prior to such designation, change or division. The Series A shall be deemed
thereafter to provide for adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Section 5. The provisions
of this Subsection 5(a) shall apply in the same manner to successive
reclassifications, changes, consolidations and mergers.
(b) STOCK SPLITS; STOCK DIVIDENDS. If the Corporation shall at any
time subdivide its outstanding shares of Common Stock into a greater number of
shares of Common Stock, or declare a dividend or make any other distribution
upon the Common Stock payable in shares of Common Stock, the Conversion Price in
effect immediately prior to such subdivision or dividend or other distribution
shall be proportionately reduced, and conversely, in case the outstanding shares
of Common Stock shall be combined into a smaller number of shares of Common
Stock, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
(c) ISSUANCE OF ADDITIONAL SECURITIES. In case the Corporation
shall issue or otherwise sell or distribute shares of Common Stock for a
consideration per share in cash or property less than the lesser of the then
effective Conversion Price or the Additional Issuance Market Price (as defined
below), the Conversion Price then in effect shall be reduced by multiplying such
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance, sale or
distribution plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for such issuance, sale or
distribution (such consideration, if other than cash, as reasonably determined
by the Board of Directors of the Corporation, including a majority of the
Directors who are not officers or employees of the Corporation or any of its
subsidiaries, whose determination shall be described in a resolution of the
Board of Directors) would purchase at the Conversion Price per share and the
denominator shall be the number of shares of Common Stock outstanding
immediately after giving effect to such issuance, sale or distribution. The term
"Additional Issuance Market Price" shall mean the average of the closing bid
price for the Common Stock for the five (5) consecutive trading days ending two
(2) trading days prior to the relevant date that the Corporation shall issue or
otherwise sell or distribute shares of Common Stock. Notwithstanding anything
herein to the contrary, no adjustment shall be made to the Conversion Price upon
the exercise of any outstanding options, warrants or other rights to purchase
Common Stock or upon conversion of any securities or other rights convertible
into Common Stock, which options, warrants, securities or other rights were
outstanding prior to the initial issuance of any shares of Series A.
(d) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the Corporation, or
any consolidation or merger of the Corporation with another corporation or
entity, or the sale of all or substantially all of the Corporation's assets to
another corporation or other entity
- 4 -
<PAGE> 5
shall be effected in such a way that holders of shares of Common Stock shall be
entitled to receive stocks, securities, other evidence of equity ownership or
assets with respect to or in exchange for shares of Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale (except as otherwise provided below in this Subsection 5(d), lawful and
adequate provisions shall be made whereby the holders shall thereafter have the
right to receive upon the basis and upon the terms and conditions specified
herein, such shares of stock, securities, other evidence of equity ownership or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
Common Stock immediately theretofore purchasable and receivable upon the
conversion of Series A had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holders to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Conversion Price and of the number of shares of Common Stock
receivable upon the conversion of Series A) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities, other evidence
of equity ownership or assets thereafter deliverable upon the exercise hereof
(including an immediate adjustment, by reason of such consolidation or merger,
of the Conversion Price to the value for the Common Stock reflected by the terms
of such consolidation or merger if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation or merger).
Subject to the terms of the Series A, in the event of a merger or consolidation
of the Corporation with or into another corporation or other entity as a result
of which the number of shares of Common Stock of the surviving corporation or
other entity issuable to holders of Common Stock of the Corporation, is greater
or lesser than the number of shares of Common Stock of the Corporation
outstanding immediately prior to such merger or consolidation, then the
Conversion Price in effect immediately prior to such merger or consolidation
shall be adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of the Corporation. The
Corporation shall not effect any such consolidation, merger or sale, unless,
prior to the consummation thereof, the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the holders, the obligation to deliver to such holders such shares
of stock, securities, other evidence of equity ownership or assets as, in
accordance with the foregoing provisions, such holders may be entitled to
receive or otherwise acquire. If a purchase, tender or exchange offer is made to
and accepted by the holders of more than fifty (50%) percent of the outstanding
shares of Common Stock of the Corporation, the Corporation shall not effect any
consolidation, merger or sale with the person having made such offer or with any
affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the holders of Series A shall have been given a
reasonable opportunity to then elect to receive upon the conversion of Series A,
the amount of stock, securities, other evidence of equity ownership or assets
then issuable with respect to the number of shares of Common Stock of the
Corporation in accordance with such offer.
(e) CHANGE OF CONTROL. In case the Corporation shall, at any time
prior to conversion of the shares of Series A, consolidate or merge with any
other corporation or transfer all or substantially all of its assets to any
other corporation, then the Corporation shall, as a condition precedent to such
transaction, cause effective provision to be made so that the holder hereof upon
the exercise of this Series A after the effective date of such transaction shall
be entitled to receive the kind and amount of shares, evidences of indebtedness
and/or other securities or property receivable on such transaction by a holder
of the number of shares of Common Stock as to which each share of Series A was
convertible immediately prior to such transaction (without giving effect to any
restriction upon such exercise); and, in any such case, appropriate provision
shall be made with respect to the rights and interest of the holders of Series A
to the end that the provisions of the Series A shall thereafter be applicable
(as nearly as may be practicable) with respect to any shares, evidences of
indebtedness or other securities or assets thereafter deliverable upon
conversion of the Series A. Upon the occurrence of any event described in this
Section 5 (d), the holders of the Series A Preferred Stock shall have the right
to convert into shares of Common Stock immediately prior to the change of
control at a price equal to the lesser of (i) the Conversion Price or (ii) the
price per share of Common Stock payable in the change of control transaction.
- 5 -
<PAGE> 6
(f) ADJUSTMENT TO CONVERSION PRICE. The term "Conversion Price" as
used herein shall mean the Conversion Price specified in this certificate, until
the occurrence of an event stated in Section 5 and thereafter shall mean said
price, as adjusted from time to time herein.
(g) RECORD OF CONVERSION PRICE. Whenever the shares of Common Stock
or other types of securities or assets receivable upon conversion of the Series
A shall be adjusted as provided in this Section 5, the Corporation shall
forthwith obtain and file with its corporate records a certificate or letter
from a firm of independent public accountants of recognized standing setting
forth the computation and the adjusted number of shares of Common Stock or other
securities or assets resulting from such adjustments, and a copy of such
certificate or letter shall be mailed to the holders hereof. Any such
certificate or letter shall be conclusive evidence as to the correctness of the
adjustment or adjustments referred to therein and shall be available for
inspection by any holders of the Series A on any day during normal business
hours.
(h) NOTICE. In case:
(i) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock payable in Common Stock of the Corporation; or
(ii) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock payable in cash of the Corporation; or
(iii) any reclassification of Common Stock or any
consolidation, merger, conveyance of the property of the Corporation as an
entirety, or substantially as an entirety, dissolution, liquidation or winding
up shall be effected by the Corporation;
then the Corporation shall mail, or cause to be mailed by the Corporation's
transfer agent, if any, for the Series A and to the holders of record of the
outstanding shares of the Series A, at least thirty (30) days, but not more than
sixty (60) days, prior to the applicable record date hereinafter specified, a
notice stating (A) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record to be entitled to such
dividend, distribution or right are to be determined, or (B) the date on which
such reclassification, consolidation, merger, conveyance, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange the certificates representing their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
SECTION 10. RESERVATION OF SHARES OF COMMON STOCK.
(a) RESERVATION OF SHARES. The Corporation shall at all times
reserve and keep available. out of its authorized but unissued Common Stock, for
the purpose of effecting the conversion of the shares of the Series A, the full
number of shares of Common Stock then deliverable upon the conversion of all
shares of the Series A then outstanding. If shares of the Common Stock of the
Corporation are listed on any securities exchange, the Corporation shall make
application for the listing thereon, on notice of issuance, of the shares of
Common Stock deliverable upon the conversion of the outstanding shares of the
Series A and shall use its best efforts to effect such listing.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock are to
be issued upon conversion. The Corporation shall pay a cash adjustment out of
surplus in respect to any fraction of a share which would otherwise be issuable,
in an amount equal to the fair market value of the Common Stock which shall be
the same fraction of the last price per share at which the Common Stock was sold
on any principal stock exchange on which such stock is then listed or admitted
to trading, prior to the opening of business on the conversion date, or if no
sale of such stock takes place on such day on such exchange, the average of the
closing bid and asked prices on such day as officially quoted on such exchange,
or if such stock shall not at the time be listed or admitted to trading on any
stock exchange, the average of the last bid and asked prices
- 6 -
<PAGE> 7
for such stock on such day in the over-the-counter market as reported on NASDAQ
prior to the opening of business on the conversion date, or, if the Common Stock
is not then included in NASDAQ, as furnished by the National Quotation Bureau,
Inc. or if such firm is not at the time engaged in the business of reporting
such prices, as furnished by any firm then engaged in such business or by any
member of the National Association of Securities Dealers, Inc., selected by the
Corporation. If the Common Stock is not then publicly traded, fair market value
shall be determined in good faith by the Corporation's Board of Directors.
(c) TRANSFER TAXES. The Corporation will pay any and all transfer
taxes that may be payable in respect of the issue or delivery of shares of
Common Stock on conversion of shares of the Series A pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of transfer involved in the issue and delivery of shares of Common
Stock in a name other than that in which the shares of the Series A so converted
were registered, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Corporation the amount of any
such tax, or has established, to the satisfaction of the Corporation. that such
tax has been paid.
(d) COMMON STOCK. For the purpose of this Section, the term "Common
Stock" shall include any stock of any class of the Corporation which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and which is not subject to redemption by the Corporation. Shares
of Common Stock shall be only such shares which have no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation and which are not
subject to redemption by the Corporation; provided that if at any time there
shall be more than one such resulting class, the shares of each such class then
so issuable shall be substantially in the proportion which the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassification.
(e) STATUS OF COMMON STOCK. All Common Stock that may be issued
upon conversion of the Series A will, upon issuance, be duly issued, fully paid
and non-assessable and free from all taxes, liens and charges with respect to
the issuance thereof.
SECTION 11. VOTING.
(a) VOTING. The holders of the Series A shall be entitled to vote,
on all matters in which holders of Common Stock are entitled to vote, voting
together with the Common Stock without regard to class. The holders of the
Series A shall have the number of votes that they would have had assuming
conversion of the Series A into Common Stock as of the record date for the
meeting of the Corporation's holders of Common Stock. The holders of the Series
A shall be entitled to receive all communications sent by the Corporation to the
holders of Common Stock. Except as provided in Section 7(c) or by Delaware law,
holders of shares of the Series A shall not be entitled to vote as a separate
class.
(b) NO CUMULATIVE VOTING. The holders of shares of the Series A
shall not have the right of cumulative voting in an election of directors.
(c) VOTING AS A SEPARATE CLASS. The Corporation shall not, without
the consent (given by vote at a meeting called for that purpose) of the holders
of two-thirds of the shares of the Series A then outstanding, voting as a
separate class:
(i) create, authorize or issue any stock ranking equal to or
senior to the Series A as to dividends or distributions, or any obligation or
security convertible into shares of any such senior stock; or
(ii) amend, alter, change, or repeal any of the express terms
of the Series A.
- 7 -
<PAGE> 8
SECTION 12. REDEMPTION.
(a) REDEMPTION. Commencing thirty (30) months following the first
issuance of the shares of Series A, the Company may redeem the Series A in whole
at any time at the option of the Corporation by resolution of its Board of
Directors, at a redemption price of $100.00 per share, plus accrued and unpaid
dividends if any, to the date fixed for redemption.
(b) NOTICE OF REDEMPTION. Notice of redemption of the shares of the
Series A shall be given by certified mail, return receipt requested, postage
prepaid, not less than 30 nor more than 45 days prior to the date fixed for
redemption, to each holder of the Series A, at his last address appearing on the
books of the Corporation; but no failure to receive such a notice by any holder,
so long as mailed in accordance with the provisions herein, shall affect the
validity of the proceedings for the redemption of any shares of the Series A so
to be redeemed. Each notice of redemption of shares of the Series A shall state:
(i) the redemption date,
(ii) the redemption price,
(iii) the Conversion Price on the date of the notice,
(iv) that on the redemption date the redemption price will
become due and payable upon each share of the Series A to be redeemed and the
right to convert each such share shall cease as of the close of business on the
redemption date, unless default shall be made in the payment of the redemption
price, and
(v) the place or places where certificates for such shares
of the Series A to be redeemed are to be surrendered for conversion or for
payment of the redemption price.
(c) CONVERSION PRIOR TO THE REDEMPTION. At any time prior to the
redemption date and after notice of redemption shall be given, to each holder of
the Series A shall be entitled to convert all or any portion of such holders'
Series A into Common Stock based on the Conversion Price.
(d) RIGHTS FOLLOWING REDEMPTION. If notice of redemption shall have
been duly given as provided in Section 8(b), and if, on the redemption date,
funds necessary for such redemption have been deposited in trust with a bank or
trust company, or have been set aside, in trust, by the Corporation, for the
purpose of redeeming shares of the Series A, the shares of the Series A called
for redemption shall, as of the close of business on the redemption date, no
longer be transferable on the books of the Corporation and shall no longer be
deemed to be outstanding, the right to receive dividends thereon shall cease to
accrue, and all rights with respect to such shares so called for redemption
shall terminate, except only the right of the holders thereof to receive the
redemption price, without interest thereon, upon surrender of the certificates
for such shares.
(e) REDEMPTION PRICE. In case any holder of shares of the Series A
which shall have been redeemed shall not, within three years of the date of
redemption thereof, claim the amount deposited in trust for the redemption of
such shares, the bank or trust company with which such funds were deposited,
upon request of the Corporation, shall pay over to the Corporation such
unclaimed amount and shall thereupon be relieved of all responsibility in
respect thereof. The Corporation shall not be required to hold the amount so
paid over to it, or any amount theretofore set aside by it, in trust after such
three-year period, separate and apart from its other funds, and thereafter the
holders of such shares of the Series A shall look only to the Corporation for
payment of the redemption price thereof, without interest. All liability of the
Corporation to any holder of shares of the Series A for payment of the
redemption price for shares of the Series A called for redemption shall cease
and terminate as of the close of business on the fourth anniversary of the
redemption date for such shares.
(f) CANCELLATION OF SHARES. Shares of the Series A redeemed
pursuant to this Section 8 shall be canceled by the Corporation and thereafter
shall be authorized and unissued shares of preferred stock,
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<PAGE> 9
undesignated as to series, subject to reissuance by the Corporation as shares of
any series of preferred stock other than the Series A.
SECTION 13. LIQUIDATION.
(a) LIQUIDATION PREFERENCE. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation
(hereinafter collectively called "liquidation"), before any amount shall be paid
to or set aside for, or any assets shall be distributed among, the holders of
shares of Common Stock or of any other equity security of the Corporation, each
holder of a share of the Series A shall be entitled to receive out of the assets
of the Corporation or the proceeds thereof a preferential payment in an amount
equal to $100.00 per share, plus the amount of accrued and unpaid dividends on
such share, if any, and no more.
(b) PROPORTIONAL RIGHTS. In the event the amount available for
distribution as liquidation preference payments to holders of the Series A and
any other stock ranking on a parity therewith is insufficient to pay the full
amount of their respective preferences, such amount shall be divided among and
paid to such holders ratably in proportion to the respective amounts which would
be payable to such holders if their respective liquidation preferences were to
be paid in full.
(c) INSUFFICIENT FUNDS. In the event any liquidation preference
payment to be made on the shares of the Series A shall amount in the aggregate
to less than $100.00 per share plus accrued and unpaid dividends, the
Corporation in its discretion may require the surrender of certificates for
shares of the Series A and issue a replacement certificate or certificates, or
it may require the certificates evidencing the shares in respect of which such
payments are to be made to be presented to the Corporation, or its agent, for
notation thereon of the amounts of the liquidation preference payments made in
respect of such shares. In the event a certificate for shares of the Series A on
which payment of one or more partial liquidation preferences has been made is
presented for exchange or transfer shall bear an appropriate notation as to the
aggregate amount of liquidation preference payments theretofore made in respect
thereof.
(d) MERGER OR SALE. Neither the consolidation or merger of the
Corporation with or into any other corporation or corporations, nor the sale or
transfer by the Corporation of all or any part of its assets, shall be deemed to
be a liquidation of the Corporation for the purposes of this Section 9.
SECTION 14. REPLACEMENT CERTIFICATES.
(a) MUTILATED CERTIFICATE. If any mutilated certificate of Series A
is surrendered to the Corporation, the Corporation shall execute and deliver in
exchange therefor a new certificate for Series A of like tenor and principal
amount, bearing a number no contemporaneously outstanding.
(b) DESTROYED, LOST OR STOLEN CERTIFICATE. If there is delivered to
the Corporation (i) evidence to its reasonable satisfaction of the destruction,
loss or theft of any certificate of Series A and (ii) such reasonable security
or indemnity as may be required by it to save it harmless, then, in the absence
of notice to the Corporation that such certificate of Series A has been acquired
by a bona fide purchaser, the Corporation shall execute and deliver in lieu of
any such destroyed, lost or stolen certificate of Series A, a new certificate of
Series A of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
(c) STATUS OF NEW CERTIFICATE. Upon the issuance of any new
certificate of Series A under this Section 10, the Corporation may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith.
Every new certificate of Series A issued pursuant to this Section 10 in lieu of
any destroyed, lost or stolen certificate of Series A, shall constitute an
original additional contractual obligation of the Corporation, whether or not
the destroyed, lost or stolen certificate of Series A shall be at any time
enforceable by anyone. Any new certificate for Series A delivered pursuant to
this Section 10 shall be so dated that neither gain nor loss in interest shall
result from such exchange. The provisions of this Section 10 are exclusive and
shall preclude (to the extent lawful) all other rights and remedies with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
certificate of Series A.
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<PAGE> 1
Exhibit 3.3
CERTIFICATE
OF
MED/WASTE, INC.
I, the undersigned, DANIEL A. STAUBER, as President of MED/WASTE,
INC., a corporation organized and existing under the laws of the State of
Delaware (hereinafter referred to as the "Corporation") hereby certify and
affirm the following:
1. The name of the Corporation is MED/WASTE, INC.
2. On June 10, 1997, the Board of Directors, pursuant to
Section 151 of the Delaware General Corporation laws
adopted a resolution establishing the Designation,
Preferences Limitations, and relative Rights of the
Series A Preferred Stock, Callable, Convertible Series
(the "Series A Designation"). The Series A Designation
was filed with the secretary of State of Delaware on
August 12, 1997.
3. As of September 26, 1997, no shares of Series A were
outstanding. On September 26, 1997, the Board of
Directors, pursuant to Section 151 of the Delaware
General Corporation laws adopted a resolution amending
the Series A Designation in the form of Exhibit "A"
attached hereto.
4. The foregoing amendment to the Series A Designation
was adopted by the Board of Directors in accordance
with ss. 151 of the Delaware General Corporation Laws
and shall become effective and constitutes an
amendment to the Corporation's Certificate of
Incorporation upon the proper filing of this
instrument with the Delaware Secretary of State.
5. Shareholder approval is not required pursuant to the
Delaware General Corporation Laws.
IN WITNESS WHEREOF, the undersigned has execute this Certificate
of MED/WASTE, INC., this _____ day of September, 1997.
MED/WASTE, INC., a Delaware
corporation
By:
----------------------------
DANIEL A. STAUBER, President
I CERTIFY, that DANIEL A. STAUBER, personally known to me to be
the same persons whose names are subscribed to the foregoing instrument, this
day personally appeared before me as the President of MED/WASTE, INC., and he
acknowledged that he has executed the foregoing instrument fully and voluntarily
for the use and purpose therein expressed.
SWORN TO AND SUBSCRIBED before me this _____ day of September,
1997.
My Commission Expires: --------------------------------
NOTARY PUBLIC, STATE OF FLORIDA
Print Name: ____________________
Commission No.:_________________
<PAGE> 2
CERTIFICATE OF ADOPTION OF RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
MED/WASTE, INC.
AMENDING THE DESIGNATION, PREFERENCES, RIGHTS, QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE SERIES A PREFERRED STOCK, 9% REDEEMABLE CONVERTIBLE SERIES
-----------------------------
MED/WASTE, INC., a Delaware corporation (the "Corporation"), hereby
certifies that pursuant to the authority vested in the Board of Directors of the
Corporation by the provisions of its Certificate of Incorporation, and by the
provisions of The General Corporation Law of the State of Delaware, the Board of
Directors adopted the following resolution:
RESOLVED, the designation of the Series A Preferred Stock is hereby
amended by adding the following paragraph 11 to as follows:
SECTION 11. RIGHT TO EXCHANGE Provided that at least 35,000 shares
of Series A are sold prior to October 31, 1997, in the event that the
Corporation shall at any time prior to March 30, 1998, engage in a private
placement (an "Additional Placement") of any of its securities (the "Other
Securities"), the Corporation shall in accordance with the provisions set forth
herein, offer to each holder of the Series A, the right to exchange (the
"Exchange") their shares of Series A for the Other Securities. The term "Other
Securities" shall not include non-convertible debt instruments issued by the
Corporation (whether or not warrants are also issued in connection therewith).
The Corporation shall give each Investor written notice (the "Exchange Notice")
promptly after completion of the Additional Placement. The Exchange Notice shall
include a description of all of the terms and conditions relating to the Other
Securities (including the aggregate amount sold) and, if the Other Securities
were offered and sold pursuant to a written disclosure document, the Exchange
Notice shall include a copy of the written disclosure document. Each Investor
shall have fifteen (15) days after the Exchange Notice to determine whether to
participate in the Exchange. Any Investor that does not provide timely written
notice to the Corporation of their determination to participate in the Exchange
shall be deemed to have elected not to participate in the Exchange. In order to
properly elect to participate in the Exchange, an Investor must send written
notice of election to the Corporation at its principal offices and the Investor
must include their original certificate for Series A with such notice.
Immediately following the expiration of the fifteen (15) day election period,
the Corporation shall issue to the Investors that have properly elected to
participate in the Exchange, the Other Securities based on the purchase price
that was originally paid to the Corporation for the tendered shares of Series A.
For purposes of the Exchange, the purchase price of each share of Series A is
taken at $100. For example, if an Investor owns 500 shares at $50,000 and the
Investor has elected to participate in the Exchange, such Investor shall
receive, in exchange for the Investors' shares of Series A, $50,000 of Other
Securities, as valued in the Additional Placement. The Other Securities to be
issued to Investors that have elected to participate in the Exchange will be in
addition to the Other Securities sold in the Additional Placement and will not
reduce the aggregate number of Other Securities sold or the aggregate purchase
price received by the Corporation in connection with the Additional Placement.
Concurrently with the closing of the Exchange, the Corporation shall pay in cash
to each Investor that will receive Other Securities, all accrued and unpaid
dividends through the date the Exchange is consummated, on the Shares of Series
A being Exchanged.
- 2 -
<PAGE> 1
Exhibit 4.3
THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") AND
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM.
MED/WASTE, INC.
SAFETY DISPOSAL SYSTEM, INC.
THE KOVER GROUP, INC.
SAFETY DISPOSAL SYSTEM OF
SOUTH CAROLINA, INC.
10% Convertible Redeemable Debenture Due July 1, 2000
No. R-_____ US$_________
Med/Waste. Inc., a Delaware corporation, Safety Disposal System,
Inc., a Florida corporation, The Kover Group, Inc., an Ohio corporation and
Safety Disposal System of South Carolina, Inc., a South Carolina corporation
(collectively, the "Issuer"), for value received, hereby jointly and severally
promise to pay to _______________________________________________, or registered
assigns, the principal sum of ________________ (US$_________) Dollars on July 1,
2000 (the "Maturity Date"), and to pay interest thereon from the date of
issuance or from the most recent Interest Payment Date (as hereinafter defined)
to which interest has been paid, semi-annually in arrears on July I and January
I in each year, commencing the date hereof (each an "Interest Payment Date") at
the rate of ten (10%) percent per annum until the principal hereof is paid, and
(to the extent that the payment of such interest shall be legally enforceable)
at the rate of fifteen (15%) percent per annum on any overdue principal and on
any overdue installment of interest. The interest so payable, and punctually
paid, on any Interest Payment Date will be paid to the person (the "Registered
Holder") in whose name this Security is registered at the close of business on
June 15 or December 15 (whether or not a business day) as the case may be (each
a "Regular Record Date"), next preceding such Interest Payment Date. Interest
shall be computed on the basis of the actual number of days elapsed and the
actual number of days in the relevant period.
If this Security is converted into shares of common stock, $.001
par value per share, of Med/Waste, Inc. (the "Common Stock") pursuant to
Sections 10 or 11 below: (A) on or prior to the initial Regular Record Date,
interest shall be calculated through and including the date of conversion and
shall be paid on such date; or (B) after any (i) Interest Payment Date and on or
prior to the next Regular Record Date, interest whose Stated Maturity is on the
next Interest Payment Date shall be paid on the date of conversion calculated,
however, only through the date of conversion, and such interest shall be paid to
the Person in whose name this Security is registered at the close of business on
the date of conversion; or (ii) Regular Record Date and on or prior to the next
succeeding Interest Payment Date, interest whose Stated Maturity is on such
Interest Payment Date shall be paid on such Interest Payment Date calculated,
however, only through the date of conversion, notwithstanding such conversion,
and such interest shall be paid to the Person in whose name this Security is
registered at the close of business on such Regular Record Date.
Principal of this Security shall be payable at the earliest of
the Maturity Date, Redemption Date or Acceleration Date against surrender hereof
at the principal executive offices of the Issuer in the United States. Payments
of principal and of any interest on this Security shall be made in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of pubic and private debts. Payments of principal of this
Security shall be made against surrender hereof, and payments of interest on
this Security shall be made, in accordance with the foregoing and subject to
applicable laws and regulations, by check mailed on or before the due date for
such payment to the person entitled thereto at such person's address appearing
on the Security Register or to such other address as the Registered Holder may
have previously given notice to the Issuer in writing. Interest
<PAGE> 2
shall accrue and be payable on this Security through the earlier of the Maturity
Date or Redemption Date. If the principal on this Security is accelerated,
interest shall accrue and be payable until the date of payment. The Issuer
covenants that until this Security has been delivered to it for cancellation, or
monies sufficient to pay the principal of and interest in this Security have
been made available for payment and paid, it will at all times maintain at its
principal executive offices in the United States an office or agency for the
payment of the principal of and interest on the Securities as herein provided.
1. This Security is one of a duly authorized issue of securities
of the Issuer (herein called the "Securities"), designated as "10% Convertible
Redeemable Debentures Due July 1 2000", limited in aggregate principal amount to
$3,000,000. The Securities have been offered and sold pursuant to Med/Waste,
Inc.'s Confidential Private Placement Memorandum dated January 7, 1997 (the
"Memorandum").
The obligations of the Issuer hereunder are not secured by any
mortgage, pledge, encumbrance, security agreement or other security device and
only the full faith and credit of the Issuer are pledged for the payment of all
principal and interest due under this Security. The Securities are joint and
several direct, unconditional and general obligations of the Issuer and will
rank equally with all other evidences of unsecured and unsubordinated
indebtedness of the Issuer.
2. The Securities are issuable only in fully registered form and
in minimum authorized denominations of $10,000 and any integral multiple of
$1,000 in excess thereof.
3. So long as any Securities remain outstanding, the Issuer shall
maintain at its principal executives offices in the United States an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange, where
Securities may be surrendered for conversion pursuant to Sections 9 or 10
hereof, and where notices and demands to or upon the Issuer in respect of the
Securities may be served. The Issuer will at all times act as its own security
registrar and paying and transfer agent for such purposes and agrees to cause to
be kept at such office a register (the "Security Register") in which, subject to
such reasonable regulations as it may prescribe, the Issuer will provide for the
registration of Securities and registration of transfers of Securities. As of
the date this Security was originally issued, such principal executive offices
of the Issuer were located at 3890 N.W. 132nd Street, Suite K, Opa Locka,
Florida 33054. The Issuer shall not change the location of its principal
executive offices unless Issuer provides all Registered Holders with no less
than thirty (30) days prior written notice.
The transfer of a Security is registrable on the Security
Register upon surrender of such Security at the principal executive offices of
Issuer duly endorsed by, or accompanies by a written instrument of transfer in
form reasonably satisfactory to the Issuer duly executed by, the Registered
Holder thereof, or the Registered Holder's attorney duly authorized in writing,
together with any certifications and re presentations which Issuer may
reasonably require to reflect compliance with all applicable securities laws,
rules and regulations and the due authorization of the transaction. Upon such
surrender of this Security for registration of transfer, the Issuer shall
execute and deliver, in the name of the designated transferee or transferees,
one or more new Securities, dated the date of the execution thereof, of any
authorized denominations and of a like tenor, form and aggregate principal
amount.
At the option of the Registered Holder, upon request confirmed in
writing, Securities may be exchanged for Securities of any authorized
denominations and of a like tenor, form and aggregate principal amount upon
surrender of the Securities to be exchanged at the principal executive offices
of the Issuer. Whenever any Securities are so surrendered for exchange, the
Issuer shall execute and deliver the Securities which the Registered Holder
making the exchange is entitled to receive. Any registration of transfer or
exchange will be effected only upon the Issuer being reasonably satisfied with
the documents of title and identity of the person making the request and subject
to compliance with applicable Federal and state securities laws.
- 2 -
<PAGE> 3
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Issuer, evidencing
the same debt, and entitled to the same benefits, as the Securities surrendered
upon such registration of transfer or exchange. No service or other charges
shall be made for any registration of transfer or exchange, but the Issuer may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Issuer may treat the person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security be
overdue, and the Issuer shall not be affected by notice to the contrary.
4. In any case where the due date for the payment of the
principal of or interest on, any Security shall be at any place of payment a day
on which banking institutions are authorized or obligated by law to close, then
payment of principal or interest, as the case may be, need not be made on such
date at such place but may be made on the next succeeding day at such place
which is not a day on which banking institutions are authorized or obligated by
law to close, with the same force and effect as if made on the date for such
payment, and interest shall accrue and be paid for the period through and
including the date of payment.
5. (a) The Issuer shall pay all stamp and other duties and taxes,
if any, which may be imposed by the United States or any political subdivision
thereof, any state or any political subdivision thereof or any other taxing
authority with respect to the issuance of the Securities.
(b) Except as specifically provided in this Security, the
Issuer shall not be required to make any payment with respect to any tax,
assessment or other governmental charge imposed by any government or any
political subdivision or taxing authorities thereof or therein.
6. The Issuer represents and warrants to the Registered Holder,
as follows:
(a) Each Issuer is a corporation duly organized, existing and
in good standing under the laws of its state of incorporation and has the
corporate power to conduct the business which it conducts and proposes to
conduct.
(b) The execution, delivery and performance of the Securities
by the Issuer will have been duly approved by the Board of Directors of each
Issuer and all other actions required to authorize and effect the offer and sale
of the Securities will have been duly taken and approved.
(c) The Securities and the Conversion Shares have been duly
and validly authorized. The Securities and Conversion Shares, when issued and
paid for in accordance with the terms hereof, will be fully paid and
non-assessable and valid and binding obligations of the Issuer (or Med/Waste,
Inc. in the case of the Conversion Shares) enforceable in accordance with their
respective terms.
(d) Med/Waste, Inc. will at all times that there are
Outstanding Securities have authorized and reserved a sufficient number of
shares of Common Stock to provide for conversion of the Securities into shares
of Common Stock.
(e) Issuer has obtained all licenses, permits and other
governmental authorizations necessary to the conduct of its business; such
licenses, permits and other governmental authorizations obtained are in full
force and effect; and Issuer is in all material respects complying therewith.
(f) Issuer knows of no pending or threatened legal or
governmental proceedings to which Issuer is a party which could materially
adversely affect the business, property, financial condition or operations of
the Issuer.
- 3 -
<PAGE> 4
(g) The Issuer is not in violation of or default under, nor
will the execution and delivery of the Securities, the issuance of the Common
Stock upon conversion of the Securities and the incurrence of the obligations
herein and therein set forth and the consummation of the transactions herein or
therein contemplated, result in a violation of, or constitute a default under
the certificate of incorporation or by-laws, the performance or observance of
any material obligations, agreement, covenant or condition contained in any
bond, debenture, note or other evidence or indebtedness or in any material
contract, indenture, mortgage, loan agreement, lease, joint venture or other
agreements or instrument to which any Issuer is a party or by which it or any of
its properties may be bound or in violation of any material order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign.
(h) The financial information contained in the Memorandum
presents fairly the financial condition of the Issuer as of the date and for the
periods indicated.
7. Each Issuer hereby jointly and severally covenants and agrees
that for so long as any of the Securities shall remain outstanding:
(a) it will duly and punctually pay the principal of and any
interest on the Securities in accordance with the terms hereof,
(b) it will, on each due date for payment of the principal of
or any interest on any of the Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal
and any interest so becoming due until such sums shall have been paid to such
Persons;
(c) it will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights (charters and
statutory) and franchises;
(d) it will cause all material properties used or useful in
the conduct of its business or the business of its subsidiaries to be maintained
and kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the reasonable
judgment of the Issuer may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that the foregoing shall not prevent the Issuer from
discontinuing the operation or maintenance of any such properties if such
discontinuance is, in the reasonable judgment of the Issuer, desirable in the
conduct of its business or the business of any of its subsidiaries, and not
disadvantageous in any material respect to the holders of Securities; and,
PROVIDED, FURTHER that the failure to comply herewith shall not be deemed a
breach hereof unless such failure would have a material adverse effect on the
business, financial condition or results of operations of such Issuer and its
subsidiaries, taken as a whole (a "Material Adverse Effect"),
(e) it will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (I) all taxes, assessments
and governmental charges levied or imposed upon the Issuer or any of its
subsidiaries, or upon the income, profits or property of the. Issuer or any
subsidiaries, and (ii) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Issuer or
any subsidiaries- PROVIDED, HOWEVER, that the Issuer shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings; and, PROVIDED, FURTHER, that the failure
to comply herewith shall not be deemed a breach if it would not have a Material
Adverse Effect;
(f) it shall not without the prior written consent of the
holders of at least sixty-six and two-thirds (66 2/3%) percent of the aggregate
principal amount of the Securities then Outstanding, materially alter the nature
of its business or that of its subsidiaries in any manner, or dispose of the
- 4 -
<PAGE> 5
business or assets of the Issuer or its subsidiaries, either as a whole or any
substantial part thereof, which would have a material adverse effect on (i) its
ability to perform its obligations under the Securities, or (ii) the business,
financial conditions or results of operations of the Issuer and its
subsidiaries;
(g) it shall furnish to each Registered Holder of Securities a
copy of all documents it is required to send to its shareholders at the time the
same are sent to shareholders, including, without limitation, annual reports and
proxy statements;
(h) as soon as it becomes aware of the same, it shall give
written notice to each Registered Holder of Securities of any event or
occurrence which by itself or with notice or lapse of time or both would entitle
the holders of the Securities to declare the principal of and any interest on
the Securities immediately due and payable pursuant to Section 14 hereof,
(i) it will promptly obtain and maintain from time to time all
authorizations, permits, approvals, consents, licenses and exemptions which are
required under any applicable law or regulation to enable it to perform all of
its payment, conversion (as to Med/Waste, Inc. only) and other material
obligations under the Securities or which may be required for the validity or
enforceability of the Securities; provided, however, that the failure to obtain
and maintain such authorizations, permits, approvals, consents, licenses and
exemptions as to material obligations other than payment and conversion shall
not constitute a breach of this provision unless such noncompliance materially
adversely affects the Issuer's ability to comply with its obligations under the
Securities;
(j) it will, and it will cause its subsidiaries to, duly and
punctually comply with and observe all statutes now or hereafter in force and
all ordinances, regulation and bylaws thereunder and all requirements and orders
of any government or other public authority; PROVIDED, however, that any
non-compliance with any such statute, ordinance, regulation or by-law shall not
constitute a breach of this provision unless such non-compliance materially
adversely affects the Issuer's ability to comply with its obligations under the
Securities;
(k) it shall permit any representative of any Registered Holder
or Holders of at least $500,000 aggregate principal amount of the Securities to
make inspections of, and to report on, the property of, and business operations
being carried out by, the Issuer or any of its subsidiaries upon reasonable
notice and at reasonable times;
(l) it shall maintain and keep in force with reputable insurers
and in adequate amounts, property, casualty, third party liability, business
interruption and all such other insurances as would prudently be effected and
maintained in the case of a company carrying on a business similar to that of
the Issuer and its subsidiaries;
(m) it shall not:
(i) declare or pay any cash dividends on its
Common Stock or purchase, redeem or otherwise acquire or retire
for value any shares of Common Stock;
(ii) consolidate with or merge into any other
Person, where the Issuer is not the surviving corporation or
convey, transfer, lease or otherwise dispose of all or
substantially all of its assets, except in compliance with the
terms and conditions set forth in Section 10(d)(iv) below;
(iii) create any new stock option plans, amend any
existing stock option plans to authorize additional stock options
or otherwise issue options to purchase shares of Common Stock or
other securities convertible into shares of Common
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<PAGE> 6
Stock (other than pursuant to existing stock option plans),
except that the Issuer may issue stock options to employees,
whether pursuant to a new stock option plan, amendment to an
existing plan or otherwise, to purchase up to 500,000 shares of
Common Stock;
(iv) issue or otherwise create any Indebtedness of
the Issuer and its subsidiaries senior in ranking to the
Securities in the aggregate to exceed $5,000,000; provided,
however, that the $5,000,000 limit shall not apply with respect
to: (A) Indebtedness created in connection with the lease of
Autoclaves to customers which are secured by operating leases and
the Autoclaves themselves and by no other assets of the Issuer,
(B) Indebtedness in connection with acquisitions of assets where
the security for such Indebtedness is limited to the acquired
assets, and (C) Indebtedness existing in entities that are
acquired by the Issuer, provided that such Indebtedness is not
extended to any other assets of the Issuer;
(v) except for loans existing at January 1, 1997
as disclosed in the Memorandum, make any loans to any officers,
directors or shareholders beneficially owning five (5%) percent
or more of the Common Stock ("5% Holders") or amend any existing
loan to increase the principal balance or extend the payment
terms thereof, provided, however, that the Issuer may, in the
aggregate, make loans of up to $250,000 to officers, directors
and 5% Holders not including loans outstanding as of the date
hereof,
(vi) sell, gift, transfer, assign or otherwise
issue shares of Common Stock to any officer, director or 5%
Holder, unless: (A) issued pursuant to a stock option existing at
January 1, 1997; (B) issued for cash at a purchase price equal to
or greater than the closing bid price for the Common Stock on the
day prior to issuance; or (C) issued to an officer, director or
5% Holder as payment for services rendered where the Board of
Directors has reasonably determined the value of such services
and sets forth its determination in a resolution;
(vi) create, purchase or otherwise acquire any
new subsidiary, unless such subsidiary shall contemporaneously
with such creation, purchase or acquisition become a primary
obligor on all Outstanding Securities and send to all Registered
Holders written confirmation thereof,
(vii) incur or otherwise be liable for any
Contingent Obligation, other than with respect to the other
Issuers or in connection with the leasing of Autoclaves; or
(ix) invest in the securities of any Person other
than the subsidiaries except for short-term government
obligations and money market accounts.
8. (a) As soon as possible after the Final Closing (as defined in
the Memorandum), but in no event later than six (6) months after the Initial
Closing (as defined in the Memorandum) (regardless of whether the maximum number
of Securities shall have been sold), Med/Waste, Inc. shall, at its sole cost and
expense, file a registration statement on the appropriate form under the 1933
Act with the Securities and Exchange Commission ("SEC") covering all of the
Conversion Shares and such additional shares of Common Stock that may be issued
pursuant to the anti-dilution rights contained in the Securities and as set
forth in this Section 8(a) (collectively, the "Registrable Securities"), time
being of the essence. Med/Waste, Inc. will use its best efforts to have such
registration statement declared effective as soon as possible thereafter, and
shall keep such registration statement current and effective for at least three
(3) years from the effective date thereof or until such earlier date as all of
the Registrable Securities registered pursuant to such registration statement
shall have been sold or
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<PAGE> 7
otherwise transferred. Notwithstanding anything to the contrary contained
herein, if such registration statement shall not be declared effective within
six (6) months after the Initial Closing (regardless of whether the maximum
number of Securities shall have been sold), then the Conversion Price shall be
reduced (and concomitantly the number of shares of Common Stock issuable upon
the conversion of the Securities shall increase) by the percentage resulting
from multiplying five (5%) percent by the number of months, or any part thereof,
beyond said six (6) month period until the initial registration statement
described herein covering the Registrable Securities is declared effective.
(b) In the event Med/Waste, Inc. effects any registration
under the 1933 Act of any Registrable Securities pursuant to Paragraphs 8(a)
above or 8(g) below, the Issuer shall indemnify, to the extent permitted by law,
and hold harmless any Registered Holder whose Registrable Securities are
included in such registration statement (each, a "Seller"), any underwriter, any
officer, director, employee or agent of any Seller or underwriter, and each
other person, if any, who controls any Seller or underwriter within the meaning
of Section 15 of the 1933 Act, against any losses, claims, damages or
liabilities, judgment, fines, penalties, costs and expenses, joint or several,
or actions in respect thereof (collectively, the "Claims"), to which each such
indemnified party becomes subject, under the 1933 Act or otherwise, insofar as
such Claims arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus or any amendment or supplement thereto or any document filed under a
state securities or blue sky law (collectively, the "Registration Documents") or
insofar as such Claims arise out of or are based upon the omission or alleged
omission to state in any Registration Document a material fact required to be
stated therein or necessary to make the statements made therein not misleading,
and will reimburse any such indemnified party for any legal or other expenses
reasonably incurred by such indemnified party in investigating or defending any
such Claim; provided that the Issuer shall not be liable in any such case to the
extent such Claim is based upon an untrue statement or alleged untrue statement
of a material fact or omission or alleged omission of a material fact made in
any Registration Document in reliance upon and in conformity with written
information furnished to Med/Waste, Inc. by or on behalf of any indemnified
party specifically for use in the preparation of such Registration Document.
(c) In connection with any registration statement in which any
Seller is participating, each Seller, severally and not jointly, shall
indemnify, to the extent permitted by law, and hold harmless Med//Waste, Inc.,
each of its directors, each of its officers who have signed the registration
statement each other person, if any, who controls Med/Waste, Inc. within the
meaning of Section 15 of the 1933 Act, each other Seller and each underwriter,
any officer, director, employee or agent of any such other Seller or underwriter
and each other person, if any, who controls such other Seller or underwriter
within the meaning of Section 15 of the 1933 Act against any Claims to which
each such indemnified party may become subject under the 1933 Act or otherwise,
insofar as such Claims (or actions in respect thereof) are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
Registration Document or insofar as any Claims are based upon the omission or
alleged omission to state in any Registration Document a material fact required
to be stated therein or necessary to make the statements made therein not
misleading, and will reimburse any such indemnified party for any legal or other
expenses reasonably incurred by such indemnified party in investigating or
defending any such claim; provided, however, that such indemnification or
reimbursement shall be payable only if, and to the extent that, any such Claim
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any Registration Document in reliance
upon and in conformity with written information furnished to Med/Waste, Inc. by
the Seller specifically for use in the preparation thereof.
(d) Any person entitled to indemnification under Paragraphs
8(b) or 8(c) above shall notify promptly the indemnifying party in writing of
the commencement of any Claim if a claim for indemnification in respect thereof
is to be made against an indemnifying party under this Paragraph 8(d), but the
omission of such notice shall not relieve the indemnifying party from any
liability which it may
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<PAGE> 8
have to any indemnified party otherwise than under Paragraph 8(b) or 8(c) above,
except to the extent that such failure shall materially adversely affect any
indemnifying party or its rights hereunder. In case any action is brought
against the indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it chooses, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party; and, after notice from
the indemnifying party to the indemnified party that it so chooses, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
(i) if the indemnifying party fails to take reasonable' steps necessary to
defend diligently the Claim within twenty (20) days after receiving notice from
the indemnified party that the indemnified party believes it has failed to do
so; (ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the
extent any indemnified party or parties reasonably shall have concluded that
there are legal defenses available to such party or parties which are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any reasonable expenses therefor; provided, that no indemnifying
party shall be subject to any liability for any settlement of a Claim made
without its consent (which may not be unreasonably withheld, delayed or
conditioned). If the indemnifying party assumes the defense of any Claim
hereunder, such indemnifying party shall not enter into any settlement without
the consent of the indemnified party if such settlement attributes liability to
the indemnified party (which consent may not be unreasonably withheld, delayed
or conditioned).
(e) If for any reason the indemnity provided in Paragraphs
8(b) or 8(c) above is unavailable, or is insufficient to hold harmless, an
indemnified party, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of any Claim in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other from
the transactions contemplated by this Agreement. If, however, the allocation
provided in the immediately preceding sentence is not permitted by applicable
law, or if the indemnified party failed to give the notice required by Paragraph
8(d) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The amount paid or
payable in respect of any Claim shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim. Notwithstanding the foregoing, no
underwriter or controlling person thereof, if any, shall be required to
contribute, in respect of such underwriter's participation as an underwriter in
the offering, any amount in excess of the amount by which the total price at
which the Registrable Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The obligation of any underwriters to
contribute pursuant to this paragraph (e) shall be several in proportion to
their respective underwriting commitments and not joint.
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<PAGE> 9
(f) The provisions of Paragraphs 8(b) through 8(e) of this
Agreement shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party and shall
survive the transfer of the Registrable Securities by any such party.
(g) The Registered Holders shall have certain "piggyback"
registration rights with respect to the Registrable Securities as hereinafter
provided:
A. If at any time after. the date of the Initial Closing,
Med/Waste, Inc. shall file with the SEC a registration statement under the 1933
Act registering any shares of Common Stock owned by any person or entity,
Med/Waste, Inc. shall give' written notice to each Registered Holder thereof
prior to such filing.
B. Within fifteen (15) days after such notice from
Med/Waste, Inc., each Registered Holder shall give written notice to Med/Waste,
Inc. whether or not the Registered Holder desires to have all of the Registered
Holder's Registrable Securities included in the registration statement. If a
Registered Holder fails to give such notice within such period, such Registered
Holder shall not have the right to have such Registered Holder's Registrable
Securities registered pursuant to such registration statement. If a Registered
Holder gives such notice, then Med/Waste, Inc. shall include such Registered
Holder's Registrable Securities in the registration statement at Med/Waste,
Inc.'s sole cost and expense, subject to the remaining terms of this Paragraph
8(g).
C. If the registration statement relates to an
underwritten offering, and the underwriter shall determine in writing that the
total number of shares of, Common Stock to be included in the offering,
including the Registrable Securities, shall exceed the amount which the
underwriter deems to be appropriate for the offering, the number of shares of
the Registrable Securities shall be reduced in the same proportion as the
remainder of the shares in the offering and each Registered Holder's Registrable
Securities included in such registration statement will be reduced
proportionately. For this purpose, if other securities in the registration
statement are derivative securities, their underlying shares shall be included
in the computation. The Registered Holders shall enter into such agreements as
may be reasonably required by the underwriters and the Registered Holders shall
pay to the underwriters commissions relating to the sale of their respective
Registrable Securities.
D. The Registered Holders shall have two (2) opportunities
to have the Registrable Securities registered under this Paragraph 8(g).
E. The Registered Holder shall furnish in writing to
Med/Waste, Inc. such information. as Med/Waste, Inc. shall reasonably require in
connection with a registration statement.
(h) If and whenever Med/Waste, Inc. is required by the
provisions of this Paragraph 8 to use its best efforts to register any
Registrable Securities under the 1933 Act, Med/Waste, Inc. shall, as
expeditiously as possible under the circumstances:
A. Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective as soon as possible and remain
effective.
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<PAGE> 10
B. Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement current and to
comply with the provisions of the 1933 Act, and any regulations promulgated
thereunder, with respect to the sale or disposition of all Registrable
Securities covered by the registration statement required to effect the
distribution of the securities, but in no event shall Med/Waste, Inc. be
required to do so for a period of more than three (3) years following the
effective date of the registration statement.
C. Furnish to the Sellers participating in the offering,
copies (in reasonable quantities) of summary, preliminary, final, amended or
supplemented prospectuses, in conformity with the requirements of the 1933 Act
and any regulations promulgated thereunder, and other documents as reasonably
may be required in order to facilitate the disposition of the securities, but
only while Med/Waste, Inc. is required under the provisions hereof to keep the
registration statement current.
D. Use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions of the United States as the
Sellers participating in the offering shall reasonably request, and do any and
all other acts and things which may be reasonably necessary to enable each
participating Seller to consummate the disposition of the Registrable Securities
in such jurisdictions.
E. Notify each Seller selling Registrable Securities, at
any time when a prospectus relating to any such Registrable Securities covered
by such registration statement is required to be delivered under the 1933 Act,
of Med/Waste, Inc.'s becoming aware that the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, and promptly prepare and furnish to each such
Seller selling Registrable Securities a reasonable number of copies of a
prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
F. As soon as practicable after the effective date of the
registration statement, and in any event within eighteen (18) months thereafter,
make generally available to Sellers participating in the offering an earnings
statement (which need not be audited) covering a period of at least twelve (12)
consecutive months beginning after the effective date of the registration
statement which earnings statement shall satisfy the provisions of Section 11(a)
of the 1933 Act, including, at Med/Waste, Inc.'s option, Rule 158 thereunder. To
the extent that Med/Waste, Inc. files such information with the SEC in
satisfaction of the foregoing, Med/Waste, Inc. need not deliver the above
referenced earnings statement to Seller.
G. Upon request, deliver promptly to counsel of each
Seller participating in the offering copies of all correspondence between the
SEC and Med/Waste, Inc., its counsel or auditors and all memoranda relating to
discussions with the SEC or its staff with respect to the registration statement
and permit each such Seller to do such investigation at such Seller's sole cost
and expense, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary. Each Seller agrees that it will use its best efforts not to interfere
unreasonably with Med/Waste, Inc.'s business when conducting any such
investigation and each Seller shall keep any such information received pursuant
to this Paragraph G confidential.
H. Provide a transfer agent and registrar located in the
United States for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement.
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<PAGE> 11
I. List the Registrable Securities covered by such
registration statement on such exchanges and/or on the NASDAQ as the Common
Stock is then currently listed upon.
J. Pay all Registration Expenses incurred in connection
with a registration of Registrable Securities, whether or not such registration
statement shall become effective- provided that each Seller shall pay all
underwriting discounts, commissions and transfer taxes, and their own counsel
fees, if any, relating to the sale or disposition of such Seller's Registrable
Securities pursuant to a registration statement. As used herein, "Registration
Expenses" means any and all reasonable and customary expenses incident to
performance of or compliance with the registration rights set forth herein,
including, without limitation, (i) all SEC and stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees, (ii) all
fees and expenses of complying with state securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities but no other expenses
of the underwriters or their counsel), (iii) all printing, messenger and
delivery expenses, and (iv) the reasonable fees and disbursements of counsel for
Med/Waste, Inc. and Med/Waste, Inc.'s independent public accountants.
(i) Med/Waste, Inc. acknowledges that there is no
adequate remedy at law for failure by it to comply with the
provisions of this Paragraph 8 and that such failure would not be
adequately compensable in damages, and therefore agrees that its
agreements contained in this Paragraph 8 may be specifically
enforced. In the event that Med/Waste, Inc. shall fail to file
such registration statement when required pursuant to Paragraph
8(a) above or to keep any registration statement effective as
provided in this Paragraph or otherwise fails to comply with its
obligations and agreements in this Paragraph 8, then, in addition
to any other rights or remedies the Registered Holders may have
at law or in equity, including without limitation, the right of
rescission, the Issuer shall indemnify and hold harmless the
Registered Holders from and against any and all manner or loss
which they may incur as a result of such failure. In addition,
the Issuer shall also reimburse the Registered Holders for any
and all reasonable legal fees and expenses incurred by them in
enforcing their rights pursuant to this Paragraph 8, regardless
of whether any litigation was commenced.
9. The Issuer can redeem all, but not less than all, Outstanding
Securities at the Redemption Price at any time after December 31, 1997, provided
that on the- day that the Redemption Notice is given by the Issuer to a
Registered Holders of the Outstanding Securities and on the Redemption Date, the
following conditions are satisfied: (i) the Conversion Shares have been
registered by Med/Waste, Inc. pursuant to the 1933 Act as provided for in
Section 8 of the Securities and such registration is then currently effective-
and (ii) the average of the closing bid price per share of the Common Stock, as
listed on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), the New York Stock Exchange ("NYSE"), the American Stock
Exchange ("ASE") or wherever Med/Waste, Inc.'s Common Stock then trades, during
twenty (20) trading days out of the thirty (30) consecutive trading days ending
five (5) trading days prior to the' date the Redemption Notice is sent, is at
least two hundred (200%) percent per share of the Conversion Price. Any notice
to redeem ("Redemption Notice") must be given to all Registered Holders no less
than thirty (30) days nor more than forty-five (45) days prior to the date set
forth for redemption ("Redemption Date"). The Redemption Price shall equal the
sum of: (a) the face amount of the Securities; (b) all accrued and unpaid
interest through and including the Redemption Date; and (c) a redemption fee
equal to (I) ten (10%) percent of the face amount of the Securities, if the
Redemption Date is prior to January 1, 1999; or (II) five (5%) percent of the
face amount of the Securities if the Redemption Date is at any time from January
1, 1999 to June 30, 2000. For purposes hereof, the term "Conversion Shares"
shall mean the shares of Common Stock which the Registered Holder would be
entitled to receive upon conversion of Securities pursuant to Section 10 below
or forced conversion pursuant to Section 11 below.
10. (a) Each Registered Holder of Securities may at any time and
from time to time, commencing thirty (30) days after the original issuance of
the Securities, convert all or any amount of
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<PAGE> 12
the principal amount of the Securities then owned by such Registered Holder into
shares of Common Stock of Med/Waste, Inc. at a conversion price equal to $3.25
per share of Common Stock, subject to adjustment as provided in this Section 10.
Notwithstanding the giving by the Issuer of the Redemption Notice, the
Registered Holder may exercise the Registered Holder's conversion rights set
forth in this Section 10 at any time up to one (1) business day prior to the
Redemption Date.
(b) The conversion right granted in Section 10(a) hereof
may be exercised only by a Registered Holder of Securities, in whole or in part,
by the surrender of the certificate or certificates representing the Securities
to be converted at the principal executive offices of the Issuer against
delivery of that number of shares of whole Common Stock as shall be computed by
dividing the face amount of the Securities being converted by the Conversion
Price on the Conversion Date. At the time of conversion of Securities, the
Issuer shall pay in cash to the Registered Holder thereof an amount equal to all
accrued and unpaid interest, if any, to and including the Conversion Date. Each
Security surrendered for conversion shall be endorsed by the Registered Holder.
Med/Waste, Inc. will transmit the Common Stock certificates issuable upon
conversion of any Securities and a certificate representing the balance of the
Securities to the Registered Holder via express courier within three (3)
business days after the Conversion Date. The term "Conversion Date" shall mean
the date the original Notice of Conversion and Securities being converted are
received by the Issuer. The term "Notice of Conversion" shall mean the written
notice from the Registered Holder to the Issuer.
(c) All Common Stock which may be issued upon conversion
of the Securities will, upon issuance, be duly issued, fully paid and
non-assessable and free from all taxes, hens, and charges with respect to the
issue thereof At all times that any Securities are Outstanding, Med/Waste, Inc.
shall have authorized and shall have reserved for the purpose of issuance upon
such conversion into Common Stock of all Securities, a sufficient number of
shares of Common Stock to provide for the conversion of all Outstanding
Securities at the then effective Conversion Price. Without limiting the
generality of the foregoing, if, at any time, the Conversion Price is decreased
or increased, the number of shares of Common Stock authorized and reserved for
issuance by Med/Waste, Inc. upon the conversion of the Securities shall be
proportionately increased or decreased, as the case may be.
(d) The Initial Conversion Price is $3.25 per share of
Common Stock ("Initial Conversion Price"). The Initial Conversion Price shall be
adjusted as provided for below in this Section 10(d) (the Initial Conversion
Price, and the Initial Conversion Price, as thereafter then adjusted, shall be
referred to as the "Conversion Price") and the Conversion Price from time to
time shall be further adjusted as provided for below in this Section 10(d). Upon
each adjustment of the Conversion Price, the Registered Holders of the
Securities shall thereafter be entitled to receive upon conversion, at the
Conversion Price resulting from such adjustment, the number of shares of Common
Stock obtained by dividing the face amount of the Securities being converted by
the Conversion Price, as then adjusted. The Conversion Price shall be adjusted
as follows:
(i) In the case of any amendment to the
Certificate of incorporation of Med/Waste, Inc. to change
the designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect to the
Common Stock or division of the Common Stock, the
Securities shall be adjusted so as to provide that upon
conversion thereof the Registered Holder shall receive,
in lieu of each Common Stock theretofore issuable upon
such conversion, the kind and amount of shares, other
securities, money and property receivable upon such
designation, change or division by such holder issuable
upon such conversion had the conversion occurred
immediately prior to such designation, change or
division. The Securities shall be deemed thereafter to
provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments
provided for in this Section 10. The provisions of this
Subsection 10(d)(i) shall apply in the same manner to
successive reclassifications, changes, consolidations and
mergers.
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<PAGE> 13
(ii) If Med/Waste, Inc. shall at any time
subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, or declare a dividend or make
any other distribution upon the Common Stock payable in shares of
Common Stock, the Conversion Price in effect immediately prior to
such subdivision or dividend or other distribution shall be
proportionately reduced, and conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased.
(iii) In case Med/Waste, Inc. shall issue or
otherwise sell or distribute shares of Common Stock for a
consideration per share in cash or property less than the lesser
of the then effective Conversion Price or the Market Price (as
defined below), the Conversion Price then in effect shall be
reduced by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance, sale or
distribution plus the number of shares of Common Stock which the
aggregate consideration received by Med/Waste, Inc. for such
issuance, sale or distribution (such consideration, if other than
cash, as reasonably determined by the Board of Directors of
Med/Waste, Inc. including a majority of the Directors who are not
officers or employees of Med/Waste, Inc. or any of its
subsidiaries, whose determination shall be described in a
resolution of the Board of Directors) would purchase at the
Conversion Price per share and the denominator shall be the
number of shares of Common Stock outstanding immediately after
giving effect to such issuance, sale or distribution. The term
"Market Price" shall mean the average of the closing bid price
for the Common Stock for the five (5) consecutive trading days
ending two (2) trading days prior to the relevant date that
Med/Waste, Inc. shall issue or otherwise sell or distribute
shares of Common Stock.
(iv) If any capital reorganization or
reclassification of the capital stock of Med/Waste, Inc., or any
consolidation or merger of Med/Waste, Inc. with another
corporation or entity, or the sale of all or substantially all of
Med/Waste, Inc.'s assets to another corporation or other entity
shall be effected in such a way that holders of shares of Common
Stock shall be entitled to receive stocks, securities, other
evidence of equity ownership or assets with respect to or in
exchange for shares of Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale
(except as otherwise provided below in this Section 10(d)(iv)),
lawful and adequate provisions shall be made whereby the
Registered Holders shall thereafter have the right to receive
upon the basis and upon the terms and conditions specified
herein, such shares of stock, securities, other evidence of
equity ownership or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of Common Stock
immediately theretofore purchasable and receivable upon the
conversion of Securities under this Section 10 had such
reorganization, reclassification, consolidation, merger or sale
not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the
Registered Holders to the end that the provisions hereof
(including, without limitation, provisions for adjustments of the
Conversion Price and of the number of shares of Common Stock
receivable upon the conversion of Securities) shall thereafter be
applicable, as nearly as may be, in relation to any shares of
stock, securities, other evidence of equity ownership or assets
thereafter deliverable upon the exercise hereof (including an
immediate adjustment, by reason of such consolidation or merger,
of the Conversion Price to
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<PAGE> 14
the value for the Common Stock reflected by the terms of such
consolidation or merger if the value so reflected is less than
the Conversion Price in effect immediately prior to such
consolidation or merger). Subject to the terms of the Securities,
in the event of a merger or consolidation of Med/Waste, Inc. with
or into another corporation or other entity as a result of which
the number of shares of Common Stock of the surviving corporation
or other entity issuable to holders of Common Stock of Med/Waste,
Inc., is greater or lesser than the number of shares of Common
Stock of Med/Waste, Inc. outstanding immediately prior to such
merger or consolidation, then the Conversion Price in effect
immediately prior to such merger or consolidation shall be
adjusted in the same manner as though there were a subdivision or
combination of the outstanding shares of Common Stock of
Med/Waste, Inc. Med/Waste, Inc. shall not effect any such
consolidation, merger or sale, unless, prior to the consummation
thereof, the successor corporation (if other than Med/Waste,
Inc.) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written
instrument executed and mailed or delivered to the Registered
Holders, the obligation to deliver to such Registered Holders
such shares of stock, securities, other evidence of equity
ownership or assets as, in accordance with the foregoing
provisions, such Registered Holders may be entitled to receive or
otherwise acquire. If a purchase, tender or exchange offer is
made to and accepted by the holders of more than fifty (50%)
percent of the outstanding shares of Common Stock of Med/Waste,
Inc., Med/Waste, Inc. shall not effect any consolidation, merger
or sale with the Person having made such offer or with any
Affiliate of such Person, unless prior to the consummation of
such consolidation, merger or sale the Registered Holders of
Securities shall have been given a reasonable opportunity to then
elect to receive upon the conversion of Securities the amount of
stock, securities, other evidence of equity ownership or assets
then issuable with respect to the number of shares of Common
Stock of the Corporation in accordance with such offer.
(e) Whenever the Conversion Price shall be adjusted
pursuant to Section 10(d) hereof, Med/Waste, Inc. shall issue a certificate
signed by its President or Vice President and by its Treasurer, Assistant
Treasurer, Secretary or Assistant Secretary, setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board of Directors of Med/Waste, Inc. made any determination
hereunder), and the Conversion Price after giving effect to such adjustment, and
shall cause copies of such certificates to be mailed (by first-class mail,
postage prepaid) to each Registered Holder of Securities. Med/Waste, Inc. shall
make such certificate and mail it to each such holder promptly after each
adjustment.
(f) No fractional Common Stock shall be issued in
connection with any conversion (or forced conversion, if applicable) of
Securities, but in lieu of such fractional shares, the Issuer shall make a cash
payment therefor equal in amount to the product of the applicable fraction
multiplied by the Conversion Price then in effect.
11. All, but not less than all, of the principal amount of the
Outstanding Securities are convertible, at the option of Med/Waste, Inc., into
shares of Common Stock at the Conversion Price, provided that on the day that
the Conversion Notice is given by Med/Waste, Inc. to all Registered Holders and
on the Forced Conversion Date, the following conditions are satisfied: (i) the
Conversion Shares have been registered by Med/Waste, Inc. pursuant to the 1933
Act as provided for in Section 8 of the Securities and such registration is then
currently effective; and (ii) the average of the closing bid price per share of
the Common Stock, as listed on NASDAQ, the NYSE, the ASE or wherever Med/Waste
Inc.'s Common Stock then trades, during twenty (20) trading days out of the
thirty (30) consecutive trading days ending five (5) trading days prior to the
date the Forced Conversion Notice is sent, is at least two hundred (200%)
percent of the Conversion Price. Any notice of Conversion ("Forced
- 14 -
<PAGE> 15
Conversion Notice") must be given by Med/Waste, Inc. to all Registered Holders
no less than thirty (30) days nor more than forty-five (45) days prior to the
date set forth for conversion (the "Forced Conversion Date"). On the Forced
Conversion Date, the Issuer shall pay to all Registered Holders of Securities,
all accrued and unpaid interest on the Securities through and including the
Forced Conversion Date.
12. If any mutilated Security is surrendered to the Issuer, the
Issuer shall execute and deliver in exchange therefor a new Security of like
tenor and principal amount, bearing a number not contemporaneously outstanding.
If there is delivered to the Issuer (a) evidence to its
reasonable satisfaction of the destruction, loss or, theft of any Security and
(b) such reasonable security or indemnity as may be required by it to save it
harmless, then, in the absence of notice to the Issuer that such Security has
been acquired by a bona fide purchaser, the Issuer shall execute and deliver in
lieu of any such destroyed, lost or stolen Security a new Security of like tenor
and principal amount and bearing a number not contemporaneously outstanding.
Upon the issuance of any new Security under this Section 12, the
Issuer may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith.
Every new Security issued pursuant to this Section 12 in lieu of
any destroyed, lost or stolen Security, shall constitute an original additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone.
Any new Security delivered pursuant to this Section 12 shall be
so dated that neither gain nor loss in interest shall result from such exchange.
The provisions of this Section 12 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Securities.
13. A meeting of holders of the Securities may be called at any
time and from time to time to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
the Securities to be made, given or taken by holders of Securities or to modify,
amend or supplement the terms of the Securities as hereinafter provided. Notice
of every meeting of holders of Securities, setting forth the time and the place
of such meeting and in general terms the action proposed to be taken at such
meeting, shall be given as provided for in the terms of the Securities, not less
than fifteen (15) nor more than sixty (60) days prior to the date fixed for the
meeting. Such meetings may be called at any time for any such purpose by the
Issuer or by the holders of at least twenty-five (25%) percent in the aggregate
principal amount of the Outstanding Securities by, in the case of the holders,
written request to the Issuer setting forth in reasonable detail the action
proposed to be taken at the meeting. Upon receipt of any such request, the
Issuer shall call such meeting for such purposes by giving notice thereof.
To be entitled to vote at any meeting of holders of Securities, a
person shall be a registered holder of Outstanding Securities or a person duly
appointed by an instrument in writing as proxy for such a holder. The persons
entitled to vote more than fifty (50%) percent in principal amount of the
Outstanding Securities shall constitute a quorum. The Issuer may make such
reasonable and customary regulations as it shall deem advisable for any meeting
of holders of Securities with respect to the appointment of proxies in respect
of holders of Securities, the record date for determining the registered owners
of Securities who are entitled to vote at such meeting (which date shall be set
forth in the notice calling such meeting hereinabove referred to and which shall
be not less than fifteen (15) nor more than sixty (60) days prior to such
meeting), the adjournment and chairmanship of such meeting, the appointment and
duties of inspectors of votes, the submission and examination of proxies,
- 15 -
<PAGE> 16
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem appropriate.
At any meeting of holders of Securities duly called and held as
specified above, upon the affirmative vote, in person or by proxy thereunto duly
authorized in writing, of the Registered Holders of not less than sixty-six and
two-thirds (66 2/3%) percent in aggregate principal amount of Outstanding
Securities, or with the written consent of the Registered Holders of not less
than sixty-six and two-thirds (66 2/3%) percent in aggregate principal amount of
Outstanding Securities, the Issuer may modify, amend or supplement the terms of
the Securities in any way, and the holders of Securities may make, take or give
any request, demand, authorization, direction, notice, consent, waiver or other
action provided by the terms of the Securities to be made, given or taken by
holders of Securities; PROVIDED, HOWEVER, that no such action may, without the
consent of Registered Holders of Securities owning eighty (80%) percent or more
in the aggregate principal amount of Outstanding Securities affected thereby,
(a) change the due date for the payment of the principal of or any installment
of interest on any Security, (b) reduce the principal amount of any Security,
the portion of such principal amount which is payable upon acceleration of the
maturity of such Security or the interest rate thereon, (c) change the coin or
currency in which or the required places at which payment with respect to
interest or principal in respect of Securities is payable, (d) permit the Issuer
to redeem the Securities (other than as specifically provided in this Security),
or (e) reduce the proportion of the principal amount of Securities the vote or
consent of the holders of which is necessary to modify, amend or supplement the
terms and conditions of the Securities or to make, take or give any request,
demand, authorization, direction, notice, consent, waiver or other' action
provided hereby or thereby to be made, taken or given.
Any instrument given by or on behalf of any Registered Holder of
a Security in connection with any consent to or vote for any such modification,
amendment, supplement, request, demand, authorization, direction, notice,
consent, waiver or other action will be irrevocable once given and will be
conclusive and binding on all subsequent holders of such Security or any
Security issued directly or indirectly in exchange or substitution therefor or
in lieu thereof Any such modification, amendment, supplement, request, demand,
authorization, direction, notice, consent, waiver or other action will be
conclusive and binding on all holders of Securities, whether or not they have
given such consent or cast such vote, and whether or not notation of such
modification, amendment, supplement, request, demand, authorization, direction,
notice, consent, waiver or other action is made upon the Securities. Notice of
any modification or amendment of, supplement to, or request, demand,
authorization, direction, notice, consent, waiver or other action with respect
to the Securities shall be given to each registered holder of Securities
affected thereby, in all cases as provided herein.
Securities executed and delivered after the effectiveness of any
such modification, amendment, supplement, request, demand, authorization,
direction, notice, consent, waiver or other action shall bear a notation in the
form reasonably approved by the Issuer as to any matter provided for in such
modification, amendment, supplement, request, demand, authorization, direction,
notice, consent, waiver or other action. New Securities modified to conform to
any such modification, amendment, supplement, request, demand, authorization,
direction, notice, consent, waiver or other action may be prepared by the Issuer
and executed and delivered in exchange for Outstanding Securities.
For purposes of the provisions of the Securities, any Security
executed and delivered by the Issuer shall, as of any date of determination, be
deemed to be "Outstanding", EXCEPT:
(a) Securities theretofore cancelled by the Issuer or
delivered to the Issuer for conversion or cancellation or held by the Issuer for
reissuance but not reissued by the Issuer; or
- 16 -
<PAGE> 17
(b) Securities that have become due and payable at
Maturity or otherwise and with respect to which monies sufficient to pay the
principal thereof and any interest thereon shall have been made available to the
Registered Holders thereof, or
(c) Securities in lieu of or in substitution for which
other Securities shall have been authenticated and delivered pursuant to the
terms of the Securities;
PROVIDED, HOWEVER that in determining whether the Registered Holders of the
requisite principal amount of Outstanding Securities are present at a meeting of
holders of Securities for quorum purposes or have consented to or voted in favor
of any request, demand, authorization, direction, notice, consent, waiver,
amendment, modification or supplement hereunder, Securities owned directly or
indirectly by the Issuer or any Affiliate of the Issuer shall be disregarded and
deemed not to be Outstanding.
14. Where the terms of the Securities provide for notice to the
holders of any event, such notice shall be sufficiently given if given in
writing and mailed, first class postage prepaid, to each Registered Holder
affected by such event, at his address as it appears in the register for the
Securities. Any notice may be waived in writing by the Person entitled thereto,
either before or after the event, and such waiver shall be equivalent of such
notice.
15. In the event of:
(a) default in the payment of any interest on any Security
for a period of ten (10) days after Maturity; or
(b) default in the payment of the principal of any
Security at Maturity; or
(c) the breach by the Issuer of any of the representations
and warranties set forth in Section 6 of the Securities; or
(d) default in the performance or breach of any other
material covenant or agreement contained in the Securities for a period of
thirty (30) days after the date on which written notice of such default
requiring the Issuer to remedy the same and stating that such notice is a
"Notice of Default", shall first have been given to the Issuer by a Registered
Holder or Holder(s) owning fifteen (15%) percent or more of Securities; or
(e) default under one or more bonds, debentures, notes or
other evidence of Indebtedness in excess of $500,000 in the aggregate, whether
such Indebtedness is secured or unsecured and whether such Indebtedness now
exists or shall hereinafter be created, which has not been cured within a period
of thirty (30) days; or
(f) any misstatement of a material fact in the Memorandum
or omission of a material fact necessary to make the information in the
Memorandum not misleading (regardless of any investigation made by any
Registered Holders); or
(g) the entry by a court having jurisdiction of (i) a
decree or order for relief in respect of the Issuer in an involuntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or other
similar law or (ii) a decree or order adjudging the Issuer a bankrupt or
insolvent, or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Issuer under any
applicable law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Issuer or of any
substantial part of the property of the Issuer, or ordering the winding up or
liquidation of the affairs of the Issuer, and any such decree or order for
relief or any such other decree or order shall continue unstayed and in effect
for a period of sixty (60) consecutive days, or
- 17 -
<PAGE> 18
(h) commencement by any Issuer of a voluntary case or
proceeding under any applicable bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by the Issuer to the entry of a decree or order for
relief in respect of the Issuer in an involuntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against the
Issuer, or the filing by the Issuer of a petition or answer or consent seeking
reorganization or relief under any such applicable law, or the consent by the
Issuer to the filing of such petition or to the appointment of or the taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or other similar official of the Issuer or of any substantial part of its
property, or the making by the Issuer of an assignment for the benefit of
creditors, or the taking of action by the Issuer in furtherance of any such
action;
a Registered Holder or Registered Holders owning fifteen (15%) percent or more
of the Securities may, at their option, declare the principal of this Security
and the interest accrued hereon to be due and payable immediately (such date
being the "Acceleration Date") by written notice to the Issuer at its principal
executive offices, and unless all such defaults shall have been cured by the
Issuer prior to receipt of such written notice, the principal of this Security
and the interest accrued thereon shall become and be immediately due and
payable.
16. This Security shall be governed by and construed in
accordance with the laws of New York without regard to the conflicts-of-laws
principles thereof The Issuer hereby irrevocably (a) submits to the exclusive
jurisdiction of, and agrees that any action, suit or other proceeding at law, in
equity or otherwise, shall only be brought in the Supreme Court, New York
County, or Federal District Court for the Southern District of New York, for the
purpose of any such suit, action or other proceeding arising out of or based
upon this Agreement or the transactions contemplated hereby ("Action"); (b)
waives, to the extent not prohibited by applicable law, rule or regulation, and
agrees not to assert, by way of motion, as a defense or otherwise, in any such
Action, ,any claim that any such person is not subject personally to the
jurisdiction of the aforementioned courts, that its property is exempt or immune
from attachment or execution, that any such action brought in the aforementioned
court is brought in an inconvenient forum, that the venue of any such action
brought in the aforementioned court is improper, or that this Agreement, or the
transactions contemplated hereby enforced in or by such court, and (c) consents
to service of process in any such Action by recognized overnight courier
service. Nothing herein shall affect the right to serve process ion any other
manner permitted by law.
17. In any Action to protect the rights of the Registered Holders
or to collect on this Security, the Issuer shall pay the reasonable attorneys
fees and costs of the Registered Holder.
18. The following terms shall have the meaning ascribed to them
below: "Affiliate" means any Person directly or indirectly controlling,
controlled by or under direct or indirect control with another Person.
"Contingent Obligations", as applied to any Person, means
any direct or indirect liability, contingent or otherwise, of that Person (i)
with respect to any Indebtedness, lease, dividend or other obligation of another
if the primary purpose or intent thereof by the Person incurring the Contingent
Obligation is to provide assurance to the obligee of such obligation of another
that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the account of
that person, unpaid bankers' acceptances, bankers' assurances or guarantees or
similar items, or (iii) under any Interest Rate Protection Agreement or any
long-term foreign currency exchange contract, currency swap agreement, currency
futures contract, currency option contract, synthetic capital or similar
arrangement designed to protect the Person entering into the same against
fluctuations in currency values. Contingent Obligations shall include, without
limitation, (A) the direct or indirect guaranty, endorsement, co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (B) the obligation to make
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<PAGE> 19
take-or-pay or similar payments if required regardless of non-performance by any
other party or parties to an agreement, and (C) any liability of such Person for
the obligations of another through any agreement (contingent or otherwise) (x)
to purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), (y) to maintain the solvency, any balance sheet item, level of
income or financial condition of another, or (z) to make take-or-pay or similar
payments if required regardless of non-performance by any other party or parties
to an agreement (provided that, in the case of any agreement described under
Sub-clauses (C)(x) or (C)(y) of this sentence, the primary purpose or intent
thereof is as described in the preceding sentence). The amount of any Contingent
Obligation of a Person shall be equal to the amount of the obligation so
guaranteed or otherwise supported, subject to any limitation as to amount
contained in the instrument or agreement creating or evidencing such Contingent
Obligation; or in the case of Contingent Obligations referred to in clause (iii)
above, the mark-to-market value of such Contingent Obligation at the relevant
date of determination.
"Control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, wether through the ownership of voting securities, by contract or
otherwise.
"Indebtedness" of any Person means, at any date of
determination, without duplication, (i) all obligations of such Person for
borrowed money, (ii) that portion of obligations with respect to Capital Leases
that is properly classified as a liability on a balance sheet of such Person in
conformity with GAAP, (iii) notes payable and drafts accepted of such Person
representing extensions of credit whether or not representing obligations for
borrowed money, (iv) any obligation of such Person owed for all or any part of
the deferred price of the property or services, which price or obligation is (x)
due more than (or has not been discharged prior to) three (3) months from the
date of incurrence of the obligation in respect thereof, or (y) evidenced by a
note, instrument or other written agreement, (v) all Contingent Obligations of
such Person, and (vi) all indebtedness of the type described in clauses (i)
through (v) above that is secured by any Lien on any property or asset owned or
held by such person (provided that the amount of such indebtedness included as
Indebtedness under this clause (vi) shall not exceed the market value of the
property or asset subject to such Lien).
"Lien" means any mortgage, pledge, hypothecation, security
interest, encumbrance, charge or lien (statutory or otherwise) or assignment,
deposit arrangement or other preferential arrangement in respect of an interest
in property intended to secure, support or otherwise assure payment of an
obligation (including, without limitation, any conditional sale or other title
retention agreement and any lease having substantially the same economic effect
as the foregoing).
"Maturity" when used with respect to any Security, means
the date on which the principal of such Security or an installment of principal
becomes due and payable as therein or herein provided, whether at the Stated
Maturity or by declaration or acceleration, call for redemption or otherwise.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether Federal, state, county, city, municipal or otherwise, including without
limitation, any instrumentality, division, agency, body or department thereof).
"Stated Maturity" when used with respect to any Security
or any installment of interest thereon, means the date specified in such
Security as the fixed date on which the principal of such Security or such
installment of interest is due and payable.
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<PAGE> 20
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
duly executed and it corporate seal to be affixed hereto.
Dated: January 27, 1997
MED/WASTE, INC.
By: /s/ Daniel A. Stauber
------------------------
DANIEL A. STAUBER
President
[Corporate Seal]
SAFETY DISPOSAL SYSTEM, INC.
By: /s/ Daniel A. Stauber
------------------------
DANIEL A. STAUBER
President
[Corporate Seal]
THE KOVER GROUP, INC.
By: /s/ Daniel A. Stauber
------------------------
DANIEL A. STAUBER
President
[Corporate Seal]
SAFETY DISPOSAL SYSTEM OF SOUTH
CAROLINA, INC.
By: /s/ Daniel A. Stauber
------------------------
DANIEL A. STAUBER
President
[Corporate Seal]
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<PAGE> 1
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") entered into as of the
1st day of January, 1996 by and between MED/WASTE, INC., a Delaware corporation
(the "Company"), and MILTON J. WALLACE ("WALLACE").
R E C I T A L S:
A. The Company is engaged in the medical waste management
business (the "Medical Waste Business") through its wholly owned subsidiary
Safety Disposal System, Inc. ("SDS") and is a franchisee and franchisor of
janitorial services to commercial businesses (the "Janitorial Business") with
multiple locations in Ohio, Pennsylvania and Florida through its wholly owned
subsidiary The Kover Group, Inc. ("Kover") (the Medical Waste Business and
Janitorial Business shall hereinafter be collectively referred to as the
"Business");
B. WALLACE has served as Chairman of the Board of Directors of
the Company since June 1993; and
C. The Company believes that it is in the best interest of the
Company to assure WALLACE of a secure minimum compensation and to diminish the
inevitable distraction of WALLACE that may result in the event of the
possibility, threat or occurrence of a Change of Control (as defined below) by
providing for certain compensation arrangements upon a Change of Control.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained in this Agreement, the parties agree as follows:
1. RECITATIONS. The above recitations are true and correct and
are incorporated herein by this reference.
2. POSITION OF EMPLOYMENT.
2.1. EMPLOYMENT POSITION. The Company hereby continues to
employ WALLACE as Chairman of the Board of Directors. This Agreement shall
commence as of the Commencement Date (as defined in Section 3 herein). WALLACE
shall perform such duties as are usually performed by the Chairman of the Board
of Directors of a public company similar in size and scope as the Company. All
actions of WALLACE are subject and subordinate to the review and approval of the
Company's Board of Directors. The Board of Directors shall be the final and
exclusive arbiter of all policy decisions relative to the Company's Business.
The precise services of WALLACE may be modified in accordance with reasonable
policy established by the Board of Directors and not inconsistent with his
position.
2.2. DEVOTION OF TIME. During the term of this Agreement,
WALLACE agrees to devote sufficient time and attention to the business and
affair of the Company to the extent necessary to discharge the responsibilities
assigned to WALLACE and to use reasonable best efforts to perform faithfully and
efficiently such responsibilities. WALLACE's position and employment herein is
not full-time. WALLACE is involved in other business ventures, including the
practice of law. The Company argees that WALLACE's involvement in such business
ventures or the practice of law is not a conflict with, or in violation of, this
Agreement.
2.3. CORPORATE OPPORTUNITY. It is the express
understanding by and between the parties that the doctrine of corporate
opportunity as set forth in Delaware corporate law shall only apply to Wallace
and the Company for any business opportunities in the medical
<PAGE> 2
waste, solid waste or janitorial industries or such other industry in which the
Company operates during the term of this Agreement. Wallace shall not be
required to offer to the Company any business opportunity or venture in any
other industry.
3. TERM OF EMPLOYMENT.
3.1. TERM OF EMPLOYMENT. This Agreement shall begin as of
January 1, 1996 (the "Commencement Date") and end on December 31, 2000, subject
to earlier termination as otherwise set forth in this Agreement.
3.2. TERMINATION OF EMPLOYMENT BY THE COMPANY FOR
NON-PERFORMANCE. The Company may terminate WALLACE's employment upon thirty (30)
days written notice for the following reasons:
3.2.1. a material default or breach by WALLACE of any
of the provisions of this Agreement;
3.2.2. failure to follow reasonable and lawful
directives of the Company's Board of Directors, which are consistent with
WALLACE's job responsibilities and performance.
WALLACE shall have the right to cure any such default under this
Section 3.2 within the thirty (30) day period or such additional time as is
reasonably necessary to cure such default if WALLACE is using diligent effort to
cure such default. The notice must set forth in reasonable detail the facts
underlying the termination. In the event that WALLACE's employment is terminated
in accordance with the provisions of this Section 3.2, the Company shall not be
liable for any further compensation or benefits following the effective date of
termination other than accrued Base Salary.
3.3. TERMINATION BY THE COMPANY FOR CAUSE. The
Company may terminate WALLACE's employment effective upon written notice, if
such termination is for "Cause." For purposes of this Agreement, "Cause" is
defined as:
3.3.1. death of WALLACE;
3.3.2. actions by WALLACE constituting fraud,
embezzlement or dishonesty which result in a conviction of a criminal offense
not overturned on appeal;
3.3.3. intentionally furnishing false, misleading, or
omissive information to the Company's Board of Directors or any committee
thereof;
3.3.4. actions constituting a breach of the
confidentiality of the Business and/or trade secrets of the Company which is
materially detrimental to the Company;
3.3.5. the commission of an act by WALLACE involving
moral turpitude which detrimentally impacts on the business or reputation of the
Company;
3.3.6. intoxication by alcohol or drugs during the
performance of duties on more than one occasion which detrimentally impacts on
the business or reputation of the Company; or
Upon termination for Cause, the Company shall not be liable for any further
compensation or benefits following the effective date of termination other than
accrued Base Salary.
- 2 -
<PAGE> 3
Notwithstanding, if the Company fails to maintain the life insurance policy as
required in Section 4.7 herein and this Agreement is terminated in accordance
with Section 3.3.1., the Company shall pay to WALLACE's estate, the sum of
$500,000 within sixty (60) days of WALLACE's death.
3.4. TERMINATION WITHOUT CAUSE. The Company shall have
the right to terminate this Agreement without Cause on thirty (30) days written
notice, subject to payment by the Company of the Termination Payment described
in Section 4.5 herein; provided however, that if the Company terminates this
Agreement in accordance with this Section 3.3 following a Change of Control (as
defined in Section 3.5 herein), the Company shall pay to WALLACE the Severance
Payment described in Section 4.6 herein.
3.5. TERMINATION BY WALLACE. WALLACE may terminate this
Agreement upon thirty (30) days written notice after a material default of this
Agreement by the Company, which default is not cured within the thirty-day
notice period. Such notice shall set forth in reasonable detail the facts
underlying the default. If WALLACE terminates this Agreement under this
Paragraph 3.4, WALLACE shall be entitled to the Termination Payment as provided
in Paragraph 4.5.
3.6. TERMINATION BY WALLACE UPON CHANGE OF CONTROL.
WALLACE may terminate this Agreement upon thirty (30) days written notice at any
time within eighteen (18) months after a "Change of Control" occurs. Upon such
termination, WALLACE shall be entitled to the Severance Payment set forth in
Section 4.6 below. Change of Control is defined for the purposes of this
Agreement as any of the following acts:
3.6.1. The acquisition by any person, entity or
"group" within the meaning of ss. 13(d) or 14(d) of the Securities Exchange Act
of 1934 (the "Exchange Act") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of twenty-five (25%) percent or more
of either the then outstanding shares of the Company's common stock or the
combined voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors; or
3.6.2. If the individuals who serve on the Company
Board of Directors as of the Commencement Date (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board of Directors;
provided, however, that any person who becomes a director subsequent to the
Commencement Date whose election or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the directors then
compiling the Incumbent Board shall be for purposes of this Agreement considered
as if such person was a member of the Incumbent Board; or
3.6.3. Approval by the Company's stockholders of (i)
a merger, reorganization or consolidation whereby the Company's shareholders
immediately prior to such approval do not, immediately after consummation of
such reorganization, merger or consolidation own more than 50% of the combined
voting power entitled to vote generally in the election of directors of the
surviving entity's then outstanding voting securities; or (ii) liquidation or
dissolution of the Company; or (iii) the sale of all or substantially all of the
assets of the Company.
3.7. AUTOMATIC EXTENSION. This Agreement shall be
automatically extended for successive five (5) year periods at the end of the
initial or extended terms, unless either party provides written notice of
termination to the other party at least six (6) months prior to the expiration
of the initial or such extended term, respectively.
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4. COMPENSATION AND BENEFITS.
4.1. SALARY. the term of this Agreement, Company
shall pay to WALLACE, not less often than monthly, a base salary at a total
annual rate of $80,000 (the "Base Salary"), payable in cash, adjusted in
accordance with Section 4.2 herein.
4.2. COST OF LIVING INCREASE. WALLACE's Base Salary
shall be automatically increased on January 1 of each year commencing January 1,
1997 (the "Yearly Cash Increase") by the greater of (i) five (5%) percent, or
(ii) the percentage increase, if any, of the consumer price index for Urban Wage
Earning and Clerical Workers (Greater Metropolitan Miami Area, all items) issued
by the Bureau of Labor Statistics of the U.S. Department of Labor using the year
1967 as a base of 100 (the "Index"). In the event the Index ceases to be
published during the term of this Agreement or any extension thereof, the
parties shall use a mutually acceptable comparable statistical index on the cost
of living in the United States as shall then be computed and published by an
agency of the United States. The Company Board of Directors shall have the
discretion to grant increases of Base Salary in excess of the amount provided
herein.
4.3. BONUS. Prior to the commencement of each fiscal
year of the Company, the Board of Directors, or its Compensation Committee,
shall establish an Incentive Bonus Plan for such fiscal year. The Incentive
Bonus Plan shall entitle WALLACE to earn a bonus based upon certain goals and
objectives to be established in such Incentive Bonus Plan. Such Bonus, if any
shall be payable in cash within ninety (90) days following the end of such
fiscal year.
4.4. STOCK OPTIONS. WALLACE shall be eligible from
time to time to receive grants of stock options, under a stock option plan or
otherwise, in such amounts and at such times as determined by the Board of
Directors or any committee thereof. All options granted to WALLACE shall have a
term of at least five (5) years or such longer term as determined by the
specific stock option plan under which options are granted or by the Board of
Directors or any committee thereof. All options so granted shall have a vesting
schedule of no worse than thirty-three and one-third percent (33-1/3%) as of the
date of grant and thirty-three and one-third percent (33-1/3%) at the end of
each year thereafter, so long as WALLACE remains employed by Company.
Notwithstanding, vesting of options shall immediately accelerate upon an event
of Change of Control as defined in Section 3.5 herein. WALLACE shall have the
right to exercise vested incentive stock options for up to ninety (90) days
after termination and non-statutory stock options for up to twelve (12) months
after termination. All other terms of the Options shall be subject to and
determined by the stock option plan. Notwithstanding anything herein to the
contrary, the Company shall cause to be granted to WALLACE during each calendar
year during the term hereof of Options of not less than .25% of the then
outstanding common stock of the Company.
4.5. TERMINATION PAYMENT. In the event WALLACE's
employment is terminated (other than following a Change of Control) in
accordance with Section 3.4 or Section 3.5, WALLACE shall receive a termination
payment ("Termination Payment") equal to the greater of (A) the Base Salary
payments WALLACE would have received had his employment continued for the
remaining term of this Agreement or (B) two times his then Base Salary.
Notwithstanding anything herein to the contrary, if WALLACE is terminated for
any of the reasons set forth in this Section 4.5 following a Change of Control,
WALLACE shall receive the Severance Payment described in Section 4.6 below. The
Termination Payment shall be payable in twenty-four (24) monthly installments on
the first day of each month commencing the month following termination for a
period of twenty-four (24) months (the "Termination Period"). During the
Termination Period, WALLACE shall continue to receive all other benefits and
prerequisites, including the
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automobile allowance, health insurance, stock options and bonus provisions. Any
benefit or prerequisite that is payable in cash shall be payable in equal
installments on the first day of each month during the Termination Period.
4.6. CHANGE OF CONTROL SEVERANCE PAYMENT. WALLACE shall
be entitled to the Severance Payment as calculated below in the event that
WALLACE's employment is terminated (i) by WALLACE after a Change of Control
pursuant to Section 3.6; or (ii) by the Company for any reason after a Change of
Control. The Severance Payment shall be an amount equal to the greater of:
(a) The sum of (i) Base Salary payments WALLACE would
have received has his employment continued for the remaining term of this
Agreement; and (ii) three times any bonus paid to WALLACE in the preceding
twelve (12) months prior to termination;
(b) Three times the sum of (i) Base Salary in effect
at the time of termination and (ii) any bonus paid to WALLACE in the twelve (12)
months prior to termination, including any bonuses paid in stock, cash or other
property or benefits; or
(c) $500,000.
The Severance Payment shall be paid 100% in cash on the effective date of such
termination. In addition to the Severance Payment, WALLACE shall be entitled to
all of the benefits and personal perquisites otherwise provided in this
Agreement for a period of time which is the greater of (i) the remaining term of
this Agreement (if it were not terminated), or (ii) three (3) years (the
"Severance Period"). Such benefits shall include, but are not limited to,
automobile allowance, health insurance and any other benefit WALLACE was
receiving at the time of termination. Any benefit or prerequisite that is
payable in cash shall be payable in equal installments on the first day of each
month during the Severance Period.
4.7. LIFE INSURANCE. During the term of this Agreement,
the Company shall maintain and pay the premiums on an insurance policy on the
life of WALLACE in the aggregate face amount of $500,000. WALLACE shall have the
right to designate the beneficiaries of such life insurance policies. The
Company shall pay all premiums on such life insurance at least five (5) days
before the end of any grace period, and on demand shall provide proof of payment
to WALLACE. The insurance companies issuing such policies shall be authorized to
give WALLACE, upon his request, any information regarding the status of any such
policy.
4.8. ADDITIONAL BENEFITS.
4.8.1. AUTOMOBILE EXPENSES. During the term of this
Agreement and during any Severance or Termination Period thereafter, the Company
shall pay to WALLACE an automobile expense allowance of $600 per month.
4.8.2. REIMBURSEMENT OF EXPENSES. WALLACE shall be
reimbursed by the Company for all Business expenses which are reasonably
incurred by WALLACE in the performance of his duties under this Agreement. All
reimbursable travel expenses shall be in accordance with mutually agreeable and
reasonable policy.
4.8.3. PARTICIPATION IN EMPLOYEE BENEFIT PLANS.
WALLACE shall be entitled to participate, subject to eligibility and other terms
generally established by the Company's Board of Directors, in any group
hospitalization, health, dental care, profit sharing and pension, and other
benefit plans, as may be adopted or amended by the Company from
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<PAGE> 6
time to time. WALLACE's participation in such employee benefit plans shall
continue during the Severance and Termination Periods, respectively.
5. DISABILITY.
5.1. DISABILITY INSURANCE. During the term of this
Agreement, the Company shall maintain short and long term disability insurance
policies for the benefit of WALLACE and shall pay all premiums prior to their
respective due dates. Such disability insurance shall pay, at a minimum, sixty
percent (60%) of WALLACE's Base Salary then in effect for any period of
disability thereunder.
5.2. DISABILITY. In the event that WALLACE shall become
mentally or physically Disabled (as hereinafter defined) so as to be unable to
fully perform his duties herein, WALLACE shall continue to receive his monthly
compensation, including but not limited to Base Salary, automobile allowance,
bonus, stock options and health insurance for each of the first six (6) months
or any part thereof of any continuous Disability, less any amounts received by
him under any disability insurance, the premiums of which are paid for by
Company. If upon the expiration of six (6) months of continuous Disability,
WALLACE remains incapacitated (hereinafter "Permanent Disability") the Company
shall have the right to immediately terminate this Agreement. The Company shall
not have any liability thereafter for any compensation or benefits unless the
Company fails to maintain the disability insurance policies as required in
Section 5.1 herein. If the Company fails to maintain such policies, the Company
shall be liable for and shall continue to pay to WALLACE, sixty percent (60%) of
his Base Salary then in effect for the balance of such disability.
5.3. DEFINITION OF DISABILITY. Disability for the
purposes of this Section 5 shall mean the inability of WALLACE to perform his
duties as described herein.
6. REPRESENTATION BY WALLACE. WALLACE hereby represents to the
Company that he is physically and mentally capable of performing his duties
hereunder and he has no knowledge of any present or past physical or mental
condition which would cause him not to be able to perform his duties hereunder.
7. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION.
7.1. CONFIDENTIALITY. WALLACE shall not, during the term
of this Agreement or at any time thereafter, divulge, furnish or make accessible
to anyone without Company's prior written consent any knowledge or information
with respect to any confidential or secret aspect of the Business, including but
not limited to: the Company's costs; supplier's names, pricing and terms;
customer names, addresses and telephone numbers; billing procedures and pricing
of purchases; the Company's Business techniques, computer programs and
printouts; identity of prospective patients; confidential information disclosed
by the Company's customers to the Company; the Company's banking relationships,
including the extent and terms of lines of credit and borrowing costs; or other
information concerning the Business or its employees.
7.2. OWNERSHIP OF INFORMATION. WALLACE recognizes that
all records, customer lists, supplier lists, material cost data, files,
correspondence with customers and suppliers of material and services, computer
printouts, contracts, reports, notes, business plans, compilations of other
recorded matter, and copies or reproductions thereof, relating to the Company's
operations and activities and other information relating to the Company's
customers and suppliers, made or received by WALLACE in the course of his
employment are the exclusive property of the Company and WALLACE holds and uses
same as trustee for the Company and subject to the Company's sole control and
will deliver same to the Company at the termination
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<PAGE> 7
of his employment, or earlier if so requested by the Company in writing. All of
such information which if lost or used by WALLACE outside the scope of his
employment could cause irreparable and continuing injury to the Company's
Business for which there may not be an adequate remedy at law.
8. RESTRICTIVE COVENANT. As an inducement to cause the Company to
enter into this Agreement, WALLACE covenants and agrees that during his
employment and, for a period of eighteen (18) months after he ceases to be
employed by Company, regardless of the manner or cause of termination, and
except as limited in Sections 8.6 or 8.7 below or upon termination in accordance
with Paragraph 3.5:
8.1. RESTRICTION. WALLACE will not be an employee, agent,
director, stockholder or owner (except of not more than a controlling interest
in the voting securities of any publicly traded entity), partner, consultant,
financial backer, creditor or be otherwise directly or indirectly connected with
or participate in the management, operation or control of any Business, firm,
proprietorship, corporation, partnership, association, entity or venture engaged
in the provision of services or supplies similar to the Business (a "Competing
Business") within fifty (50) miles of any office or center of the Company or any
of its subsidiaries existing at the termination of this Agreement (the
"Restricted Area").
8.2. SOLICITATION OF BUSINESS. WALLACE will not initiate
any contact with, call upon, solicit business from, sell or render services to
any customer of the Company with respect to a Competing Business in the
Restricted Area or purchase from any supplier or potential supplier any
materials for same and WALLACE shall not directly or indirectly aid or assist
any other person, firm or corporation to do any of the aforesaid acts.
8.3. SOLICITATION OF EMPLOYEES. WALLACE will not directly
or indirectly, as principal, agent, owner, partner, stockholder, officer,
director, employee, independent contractor or consultant or in any individual or
representative capacity for himself or on behalf of any business, firm,
corporation, partnership association or proprietorship, initiate contact with or
solicit, or directly or indirectly cause others to solicit the employment of any
officer, sales person, agent, or other employee of the Company, for the purpose
of causing said officer, sales person, agent or other WALLACE to terminate
employment with the Company for the purpose of obtaining employment by a
Competing Business in the Restricted Area.
8.4. MATERIAL VIOLATION. A violation of Section 7 or 8 of
this Agreement shall constitute a material and substantial breach of this
Agreement and shall result in the imposition of the Company's remedies contained
in Section 9.
8.5. OTHER EMPLOYMENT. It is understood by and between the
parties that the covenants set forth in Sections 7 and 8 are essential elements
of this Agreement, and that, but for the agreement of the WALLACE to comply with
such covenants, the Company would not have entered into this Agreement. Such
covenants by the WALLACE shall be construed as agreements independent of any
other provision of this Agreement (other than Sections 8.6 or 8.7, herein) and
the existence of any claim or cause of action WALLACE may have against the
Company whether predicated on this Agreement or otherwise (other than for
Termination or Severance Payments), shall not constitute a defense to the
enforcement by the Company of these covenants.
8.6. DEFAULT ON TERMINATION PAYMENTS. If for any reason,
the Company fails to make any Termination Payment or to keep all Termination
benefits in force during any Termination Period, in addition to any other
remedies WALLACE may have as a result of such
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<PAGE> 8
default the provisions of Section 8 herein shall be null and void and
unenforceable by the Company, if any such default is not cured within ten (10)
days written notice.
8.7. INAPPLICABILITY OF RESTRICTIONS. In the event that
this Agreement is terminated (i) due to a material breach by the Company of its
obligations hereunder, (ii) by the Company following a Change of Control, or
(ii) by WALLACE in accordance with Paragraph 3.5, the restrictions contained in
Section 8 shall be null and void and unenforceable against WALLACE.
9. REMEDIES. WALLACE hereby acknowledges, covenants and agrees
that in the event of a material default or breach by WALLACE under this
Agreement:
9.1. INJUNCTIVE RELIEF. The Company may suffer irreparable
and continuing damages as a result of such breach and its remedy at law will be
inadequate. WALLACE agrees that in the event of a violation or breach of this
Agreement, in addition to any other remedies available to it, Company shall be
entitled to an injunction restraining any such default or any other appropriate
decree of specific performance, without the requirement to prove actual damages
or to post any bond or any other security and to any other equitable relief the
court deems proper; and
9.2. NON-EXCLUSIVE REMEDY. Any and all of the Company's
remedies described in this Agreement shall not be exclusive and shall be in
addition to any other remedies which the Company may have at law or in equity
including, but not limited to, the right to monetary damages.
10. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections, subdivisions, or subparagraphs contained
in this Agreement shall not affect the enforceability of the remaining portions
of this Agreement or any part thereof, all of which are inserted conditionally
on their being legally valid. In the event that one or more of the words,
phrases, sentences, clauses, sections, subdivisions, subparagraphs, or articles
are determined to be unenforceable and if such invalidity shall be caused by the
length of any period of time or the size of any area set forth in any part
hereof, such period of time or such area, or both, shall be considered to be
reduced to a period or area which would cure such invalidity.
11. INDEMNIFICATION. The Company agrees to indemnify WALLACE for
any and all liabilities to which he may be subject as a result of his service to
the Company as an officer, director, or agent or of any other enterprise in
which he serves at the request of the Company, or otherwise as a result of his
employment hereunder, including all expenses, including legal fees and costs
incurred as a result of any proceedings brought or threatened against WALLACE,
to the fullest extent permitted by law. Counsel's fees, to the fullest extent
permitted by law, shall be paid by the Company in advance of any final
disposition of a proceeding upon receipt of an undertaking by WALLACE that he
will repay such fees if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to indemnification. The Company will use
its best efforts to obtain and keep in force adequate director and officer
liability insurance during the term of this Agreement for six (6) years
thereafter.
12. SUCCESSORS AND ASSIGNS.
12.1. SUCCESSORS. This Agreement shall be binding upon the
parties hereto and their Successors and assigns. For purposes of this Agreement,
the term "Successor" of Company shall include:
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<PAGE> 9
(a) any person or entity, whether direct or indirect,
whether by purchase, merger, consolidation, operation of law, assignment, or
otherwise acquires or controls:
(i) all or substantially all of the assets of
Company; or
(ii) thirty percent (30%) or more of the total
voting securities of the Company, and was not affiliated with or
in common control of Company as of the Commencement Date;
(iii) through any other Business combination with
or without the consent of Company's shareholders.
12.2. ASSUMPTION. Subject to the provisions of Section 3.5
hereof, the Company shall require any Successor to expressly assume and agree to
be bound by the terms of this Agreement in the same manner and to the same
extent that the Company would be required to perform if no succession had
occurred. Company shall be in material breach of this Agreement if any such
successor fails to expressly assume or otherwise agree to guaranty performance
of this Agreement to the extent the Company was obligated prior to any
succession.
12.3. ASSIGNMENT. Except as expressly stated in Section
13.1 above, this Agreement shall be non-assignable by either the Company or
WALLACE without the written consent of the other party, it being understood that
the obligations and performance of this Agreement are personal in nature.
13. NOTICE. Any notices or other communications to any party
pursuant to or relating to this Agreement must be in writing and shall be deemed
to have been given or delivered when (i) hand-delivered, (ii) mailed through the
U.S. Postal Service via certified mail, return receipt requested, postage
prepaid, or (iii) through a nationally recognized overnight courier, or (iv) via
facsimile, to the party at their addresses below:
WALLACE: 2222 Ponce de Leon Boulevard, 6th Floor
Coral Gables, Florida 33134
The Company: Med/Waste, Inc.
3890 N.W. 132nd Street, Bay K
Opa Locka, Florida 33054
Attention: Daniel A. Stauber
with a copy to: BRYAN W. BAUMAN, ESQ.
Wallace, Bauman, Fodiman & Shannon, P.A.
2222 Ponce de Leon Boulevard, Sixth Floor
Coral Gables, Florida 33134
or such other address given by such party to the other party at any time
hereafter.
14. ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement between the parties with respect to the subject matter hereof.
15. AMENDMENT. No amendment, waiver or modification of this
Agreement or any provisions of this Agreement shall be valid unless in writing
and duly executed by both parties.
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<PAGE> 10
16. BINDING AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective heirs, legal
representatives, successors and assigns.
17. WAIVER. Any waiver by any party of any breach of any
provision of this Agreement shall not be considered as or constitute a
continuing waiver or waiver of any other breach of any provision of this
Agreement.
18. CAPTIONS. Captions contained in this Agreement are inserted
only as a matter of convenience or for reference and in no way define, limit,
extend, or describe the scope of this Agreement or the intent of any provisions
of this Agreement.
19. ATTORNEYS' FEES. In the event of any litigation arising out
of this Agreement, the prevailing party shall be entitled to recover its
attorneys' fees and costs, including attorneys' fees and costs incurred on
appeal.
20. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
MED/WASTE, INC., a Delaware corporation
By:
----------------------------
DANIEL A. STAUBER, President
----------------------------
MILTON J. WALLACE
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<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") entered into as of the
1st day of October, 1996 by and between MED/WASTE, INC., a Delaware corporation
(the "Company"), and MICHAEL D. ELKIN ("ELKIN").
R E C I T A L S:
A. The Company is engaged in the medical waste management
business (the "Medical Waste Business") through its wholly owned subsidiaries
Safety Disposal System, Inc. ("SDS") and Safety Disposal System of South
Carolina, Inc. and is a franchisee and franchisor of janitorial services to
commercial businesses (the "Janitorial Business") with multiple locations in
Ohio and Florida through its wholly owned subsidiary The Kover Group, Inc.
("Kover") (the Medical Waste Business and Janitorial Business shall hereinafter
be collectively referred to as the "Business");
B. ELKIN has served as Vice President of the Company since May
1995 and as Vice President/Chief Financial Officer since December 1995; and
C. The Company believes that it is in the best interest of the
Company to assure ELKIN of a secure minimum compensation and to diminish the
inevitable distraction of ELKIN that may result in the event of the possibility,
threat or occurrence of a Change of Control (as defined below) by providing for
certain compensation arrangements upon a Change of Control.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained in this Agreement, the parties agree as follows:
1. RECITATIONS. The above recitations are true and correct and
are incorporated herein by this reference.
2. POSITION OF EMPLOYMENT.
2.1. EMPLOYMENT POSITION. The Company hereby continues to
employ ELKIN as Vice President/Chief Financial Officer of the Business during
the term set forth in this Agreement. ELKIN shall continue to perform such
duties as are usually performed by a vice president/chief financial officer of a
business similar in size and scope as the Company and such other reasonable
additional duties as may be prescribed from time to time by the Company's Board
of Directors which are reasonable and consistent with the Company's operations,
taking into account ELKIN's education, expertise and job responsibilities. ELKIN
shall report directly to the President of the Company. All actions of ELKIN
shall be subject and subordinate to the review and approval of the Board of
Directors. The Board of Directors shall be the final and exclusive arbiter of
all policy decisions relative to Company's Business. In the interim between
Board or Executive Committee meetings, the Chairman of the Board shall be the
exclusive arbiter of policy matters.
2.2. DEVOTION OF TIME. During the term of this Agreement,
ELKIN agrees to devote full time and attention during normal business hours to
the business and affairs of the Company to the extent necessary to discharge the
responsibilities assigned to ELKIN and to use
<PAGE> 2
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During this Agreement, it shall not be a violation of this
Agreement for ELKIN to (i) serve on corporate, civic or charitable boards or
committees; (ii) prepare income tax returns for individuals or companies other
than the Company; (iii) deliver lectures, fulfill speaking engagements or teach
at educational institutions; or (iv) manage personal investments or companies in
which personal investments are made, so long as such activities do not interfere
with the performance of ELKIN's responsibilities with the Company and which
companies are not in competition with the Company.
2.3. CORPORATE OPPORTUNITY. It is the express
understanding by and between the parties that the doctrine of corporate
opportunity as set forth in Delaware corporate law shall only apply to ELKIN and
the Company for any business opportunities in the medical waste, solid waste or
janitorial industries or such other industry in which the Company operates
during the term of this Agreement. ELKIN shall not be required to offer to the
Company any business opportunities or ventures in any other industry.
2.4. LOCATION OF EMPLOYMENT. Unless otherwise agreed by
ELKIN, ELKIN's principal place of employment shall be in a mutually agreeable
location and facility within Dade, Broward or Palm Beach County, Florida.
3. TERM OF EMPLOYMENT.
3.1. TERM OF EMPLOYMENT. This Agreement shall begin as of
the date hereof (the "Commencement Date") and shall end at the end of one year
thereafter, subject to automatic extension or earlier termination as otherwise
set forth in this Agreement. Notwithstanding anything herein to the contrary,
upon the effective date of a Change of Control as defined in Section 3.6 herein,
the Term of this Agreement shall automatically convert to a two (2) year term,
with the Commencement Date of the two (2) year term to be the effective date of
the Change of Control.
3.2. TERMINATION OF EMPLOYMENT BY THE COMPANY FOR
NON-PERFORMANCE. The Company may terminate ELKIN's employment upon thirty (30)
days written notice for the following reasons: if
3.2.1. a material default or breach by ELKIN of any
of the provisions of this Agreement;
3.2.2. failure to follow reasonable and lawful
directives of the Company's Board of Directors, which are consistent with
ELKIN's job responsibilities and performance.
ELKIN shall have the right to cure any such default under this
Section 3.2 within the thirty (30) day period or such additional time as is
reasonably necessary to cure such default if ELKIN is using diligent effort to
cure such default. The notice must set forth in reasonable detail the facts
underlying the termination. In the event that ELKIN's employment is terminated
in accordance with the provisions of this Section 3.2, the Company shall not be
liable for any further compensation or benefits following the effective date of
termination other than accrued Base Salary.
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<PAGE> 3
3.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company
may terminate ELKIN's employment effective upon written notice, if such
termination is for "Cause." For purposes of this Agreement, "Cause" is defined
as:
3.3.1. death of ELKIN;
3.3.2. actions by ELKIN constituting fraud,
embezzlement or dishonesty which result in a conviction of a criminal offense
not overturned on appeal;
3.3.3. intentionally furnishing false, misleading,
or omissive information to the Company's Board of Directors or any committee
thereof;
3.3.4. actions constituting a breach of the
confidentiality of the Business and/or trade secrets of the Company which is
materially detrimental to the Company;
3.3.5. the commission of an act by ELKIN involving
moral turpitude which detrimentally impacts on the business or reputation of the
Company;
3.3.6. intoxication by alcohol or drugs during the
performance of duties on more than one occasion which detrimentally impacts on
the business or reputation of the Company; or
3.3.7. in the event that ELKIN shall become mentally
or physically disabled (as hereinafter defined) so as to be unable to perform
his duties for a period of ninety (90) days. During such disability and prior to
termination, ELKIN shall continue to receive his Base Salary and other
compensation and benefits herein. Disability for the purposes herein shall be
the inability of ELKIN to perform his duties as determined by an independent
physician mutually chosen by the Company and ELKIN.
Upon termination for Cause, the Company shall not be liable for any further
compensation or benefits following the effective date of termination other than
accrued Base Salary.
3.4. TERMINATION WITHOUT CAUSE. The Company shall have
the right to terminate this Agreement without Cause on thirty (30) days written
notice, subject to payment by the Company of the Termination Payment described
in Section 4.5 herein; provided however, that if the Company terminates this
Agreement in accordance with this Section 3.4 following a Change of Control (as
defined in Section 3.6 herein), the Company shall pay to ELKIN the Severance
Payment described in Section 4.6 herein.
3.5. TERMINATION BY ELKIN. ELKIN may terminate this
Agreement upon thirty (30) days written notice after a material default of this
Agreement by the Company, which default is not cured within the thirty-day
notice period. Such notice shall set forth in reasonable detail the facts
underlying the default. If ELKIN terminates this Agreement under this Section
3.5 prior to a Change of Control, ELKIN shall be entitled to the Termination
Payment as provided in Section 4.5. If ELKIN terminates this Agreement under
this Section 3.5 following a Change of Control, ELKIN shall be entitled to the
Severance Payment as provided in Section 4.6.
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<PAGE> 4
3.6. CHANGE OF CONTROL. Change of Control is defined for
the purposes of this Agreement as any of the following acts:
3.6.1. The acquisition by any person, entity or
"group" within the meaning of section 13(d) or 14(d) of the Securities Exchange
Act of 1934 (the "Exchange Act") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of twenty-five (25%) percent or
more of either the then outstanding shares of the Company's common stock or the
combined voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors; or
3.6.2. If the individuals who serve on the Company
Board of Directors as of the Commencement Date (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Board of Directors;
provided, however, that any person who becomes a director subsequent to the
Commencement Date whose election or nomination for election by the Company's
shareholders was approved by a vote of at least a majority of the directors then
compiling the Incumbent Board shall be for purposes of this Agreement considered
as if such person was a member of the Incumbent Board; or
3.6.3. Approval by the Company's stockholders of (i)
a merger, reorganization or consolidation whereby the Company's shareholders
immediately prior to such approval do not, immediately after consummation of
such reorganization, merger or consolidation own more than 50% of the combined
voting power entitled to vote generally in the election of directors of the
surviving entity's then outstanding voting securities; or (ii) liquidation or
dissolution of the Company; or (iii) the sale of all or substantially all of the
assets of the Company.
Upon the effective date of a Change of Control, this Agreement
shall automatically be extended for a period of two (2) years commencing such
date.
3.7. AUTOMATIC EXTENSION. Prior to a Change of Control,
this Agreement shall be automatically extended for successive one (1) year
periods at the end of the initial or extended terms, unless either party
provides written notice of termination to the other party at least thirty (30)
days prior to the expiration of the initial or such extended term, respectively.
Following a Change of Control, this Agreement shall be automatically extended
for successive two (2) year periods at the end of each term, unless either party
provides written notice of termination to the other party at least ninety (90)
days prior to the expiration of the initial or such extended term, respectively.
In the event that this Agreement is not renewed by the Company in accordance
with the provisions of this Agreement and ELKIN's employment is thereafter
terminated, ELKIN shall be entitled to severance equal to nine (9) month's base
salary then in effect, which shall be paid in nine (9) equal monthly payments
payable on the first day of each month commencing on the first day of the month
following termination of this Agreement.
4. COMPENSATION AND BENEFITS.
4.1. SALARY. For the first year of the term of this
Agreement, Company shall pay to ELKIN, a base salary at a total annual rate of
$100,000 (the "Base Salary"), payable in cash. Base Salary shall be paid in
accordance with normal payroll procedures adopted by the Company for its
employees from time to time.
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<PAGE> 5
4.2. COST OF LIVING INCREASE. ELKIN's Base Salary shall
be automatically increased on October 1 of each year (the "Yearly Cash
Increase") by the greater of (i) five (5%) percent, or (ii) the percentage
increase, if any, of the consumer price index for Urban Wage Earning and
Clerical Workers (Greater Metropolitan Miami Area, all items) issued by the
Bureau of Labor Statistics of the U.S. Department of Labor using the year 1967
as a base of 100 (the "Index"). In the event the Index ceases to be published
during the term of this Agreement or any extension thereof, the parties shall
use a mutually acceptable comparable statistical index on the cost of living in
the United States as shall then be computed and published by an agency of the
United States. The Company Board of Directors shall have the discretion to grant
increases of Base Salary in excess of the amount provided herein.
4.3. BONUS. ELKIN shall be entitled to such bonuses or
incentive compensation as maybe determined from time to time by the Company's
Board of Directors in its sole discretion. The Company's Board of Directors or
any committee thereof may establish an incentive bonus plan for ELKIN which
would establish targeted profit and revenue levels, as well as other goals. The
Board shall have the full and complete discretion in the establishment, if at
all, of an incentive bonus plan for any given year or to grant additional or
discretionary bonuses to ELKIN during the term of this Agreement. Nothing set
forth herein shall obligate the Company to pay ELKIN any bonus or incentive
compensation.
4.4. STOCK OPTIONS. ELKIN shall be eligible from time to
time to receive grants of stock options, under a stock option plan or otherwise,
in such amounts and at such times as determined by the Board of Directors or any
committee thereof.
4.5. TERMINATION PAYMENT. In the event ELKIN's employment
is terminated, prior to a Change of Control, in accordance with Sections 3.4 or
Section 3.5, ELKIN shall receive a termination payment ("Termination Payment")
equal to one (1) year of his then Base Salary. The Termination Payment shall be
payable in twelve (12) monthly installments on the first day of each month
commencing the month following termination, for a period of twelve (12) months
(the "Termination Period").
4.6. CHANGE OF CONTROL SEVERANCE PAYMENT. In the event
that ELKIN's employment is terminated following a Change of Control in
accordance with Sections 3.4 or Section 3.5, ELKIN shall be entitled to the
Severance Payment equal to two (2) times his existing Base Salary. The Severance
Payment shall be paid 50% in cash on the effective date of such termination and
the balance in twelve (12) monthly payments on the last day of each month
thereafter.
4.7. ADDITIONAL BENEFITS.
4.7.1. VACATION. ELKIN shall be entitled to a
minimum of two (2) weeks paid vacation during each twelve-month period during
the term of this Agreement or such longer vacation as may be provided in any
policy adopted by the Company from time to time pertaining to its employees
generally. Any vacation not taken, will not be paid in cash and will not
cumulate from year to year. In addition, ELKIN shall be entitled to paid time
off for the same holidays as other employees of the Company as established by
the Company's Board of Directors and shall be permitted additional vacation days
for the Jewish holidays of Rosh Hashanah and Yom Kippur.
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<PAGE> 6
4.7.2. AUTOMOBILE EXPENSES. During the term of this
Agreement, the Company shall pay to ELKIN an automobile expense allowance of
$500 per month. Such automobile allowance shall be inclusive of insurance,
gasoline, maintenance, depreciation and all other expenses for ELKIN's personal
automobile.
4.7.3. REIMBURSEMENT OF EXPENSES. ELKIN shall be
reimbursed by the Company for all Business expenses which are reasonably
incurred by ELKIN in the performance of his duties under this Agreement. All
travel expenses shall be incurred and reimbursable in accordance with policy
established by the Board of Directors.
4.7.4. PARTICIPATION IN EMPLOYEE BENEFIT PLANS.
ELKIN shall be entitled to participate, subject to eligibility and other terms
generally established by the Company's Board of Directors, in any group
hospitalization, health, disability, profit sharing and pension, and other
benefit plans, as may be adopted or amended by the Company from time to time.
The Company shall pay the premiums on all health and dental insurance for ELKIN
and each of his dependents during the term hereof.
5. REPRESENTATIONS BY ELKIN. ELKIN hereby represents to the
Company that he is physically and mentally capable of performing his duties
hereunder and he has no knowledge of any present or past physical or mental
condition which would cause him not to be able to perform his duties hereunder.
6. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION.
6.1. CONFIDENTIALITY. ELKIN shall not, during the term of
this Agreement or at anytime thereafter, divulge, furnish or make accessible to
anyone without Company's prior written consent any knowledge or information with
respect to any confidential or secret aspect of the Business, including but not
limited to: the Company's costs; supplier's names, pricing and terms; customer
names, addresses and telephone numbers; billing procedures and pricing of
purchases; the Company's Business techniques, computer programs and printouts;
identity of prospective patients; confidential information disclosed by the
Company's customers to the Company; the Company's banking relationships,
including the extent and terms of lines of credit and borrowing costs; or other
information concerning the Business or its employees.
6.2. OWNERSHIP OF INFORMATION. ELKIN recognizes that all
records, customer lists, supplier lists, material cost data, files,
correspondence with customers and suppliers of material and services, computer
printouts, contracts, reports, notes, business plans, compilations of other
recorded matter, and copies or reproductions thereof, relating to the Company's
operations and activities and other information relating to the Company's
customers and suppliers, made or received by ELKIN in the course of his
employment are the exclusive property of the Company and ELKIN holds and uses
same as trustee for the Company and subject to the Company's sole control and
will deliver same to the Company at the termination of his employment, or
earlier if so requested by the Company in writing. All of such information which
if lost or used by ELKIN outside the scope of his employment could cause
irreparable and continuing injury to the Company's Business for which there may
not be an adequate remedy at law.
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<PAGE> 7
7. RESTRICTIVE COVENANT. As an inducement to cause the Company to
enter into this Agreement, ELKIN covenants and agrees that during his employment
and, for a period of twelve (12) months after he ceases to be employed by the
Company, regardless of the manner or cause of termination:
7.1. RESTRICTION. ELKIN will not be an employee, agent,
director, stockholder or owner (except of not more than a controlling interest
in the voting securities of any publicly traded entity), partner, consultant,
financial backer, creditor or be otherwise directly or indirectly connected with
or participate in the management, operation or control of any Business, firm,
proprietorship, corporation, partnership, association, entity or venture engaged
in the provision of services or supplies similar to the Business (a "Competing
Business") within Dade, Broward of Palm Beach Counties.
7.2. SOLICITATION OF BUSINESS. ELKIN will not initiate
any contact with, call upon, solicit business from, sell or render services to
any customer of the Company with respect to a Competing Business in the
Restricted Area or purchase from any supplier or potential supplier any
materials for same and ELKIN shall not directly or indirectly aid or assist any
other person, firm or corporation to do any of the aforesaid acts.
7.3. SOLICITATION OF EMPLOYEES. ELKIN will not directly
or indirectly, as principal, agent, owner, partner, stockholder, officer,
director, employee, independent contractor or consultant or in any individual or
representative capacity for himself or on behalf of any business, firm,
corporation, partnership association or proprietorship, initiate contact with or
solicit, or directly or indirectly cause others to solicit the employment of any
officer, sales person, agent, or other employee of the Company, for the purpose
of causing said officer, sales person, agent or other ELKIN to terminate
employment with the Company for the purpose of obtaining employment by a
Competing Business.
7.4. MATERIAL VIOLATION. A violation of Sections 6 or 7
of this Agreement shall constitute a material and substantial breach of this
Agreement and shall result in the imposition of the Company's remedies contained
in Section 8.
7.5. OTHER EMPLOYMENT. It is understood by and between
the parties that the covenants set forth in Sections 6 and 7 are essential
elements of this Agreement, and that, but for the agreement of the ELKIN to
comply with such covenants, the Company would not have entered into this
Agreement. Such covenants by the ELKIN shall be construed as agreements
independent of any other provision of this Agreement and the existence of any
claim or cause of action ELKIN may have against the Company whether predicated
on this Agreement or otherwise (other than for Termination or Severance
Payments), shall not constitute a defense to the enforcement by the Company of
these covenants.
7.6. ACKNOWLEDGMENT. ELKIN acknowledges and confirms that
the length of the term and geographic restrictions contained in this Agreement
are fair and reasonable and not the result of overreaching, duress or coercion
of any kind. ELKIN further acknowledges and confirms that his full, uninhibited
and faithful observance of each of the covenants contained in this Agreement
will not cause any undue hardships, financial or otherwise and that enforcement
of this Agreement will not impair ELKIN's ability to obtain employment
commensurate with ELKIN's abilities and on terms fully acceptable to ELKIN.
ELKIN acknowledges that ELKIN will
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<PAGE> 8
be receiving significant information regarding the Business which ELKIN has not
previously received and would not receive without being employed by the Company.
ELKIN acknowledges and confirms that such information would cause the Company
serious injury and loss if used by ELKIN for the benefit of a competitor.
7.7. DEFAULT ON TERMINATION OR SEVERANCE PAYMENTS. If for
any reason, the Company fails to make any Termination or Severance Payment as
may be required, in addition to any other remedies ELKIN may have as a result of
such default, the provisions of Section 7 herein shall be null and void and
unenforceable by the Company if any such default is not cured within ten (10)
days written notice.
8. REMEDIES. ELKIN hereby acknowledges, covenants and agrees that
in the event of a material default or breach by ELKIN under this Agreement:
8.1. INJUNCTIVE RELIEF. The Company would suffer
irreparable and continuing damages as a result of such breach and its remedy at
law will be inadequate. ELKIN agrees that in the event of a violation or breach
of this Agreement, in addition to any other remedies available to it, Company
shall be entitled to an injunction restraining any such default or any other
appropriate decree of specific performance, without the requirement to prove
actual damages or to post any bond or any other security and to any other
equitable relief the court deems proper; and
8.2. NON-EXCLUSIVE REMEDY. Any and all of the Company's
remedies described in this Agreement shall not be exclusive and shall be in
addition to any other remedies which the Company may have at law or in equity
including, but not limited to, the right to monetary damages.
9. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections, subdivisions, or subparagraphs contained
in this Agreement shall not affect the enforceability of the remaining portions
of this Agreement or any part thereof, all of which are inserted conditionally
on their being legally valid. In the event that one or more of the words,
phrases, sentences, clauses, sections, subdivisions, subparagraphs, or articles
are determined to be unenforceable and if such invalidity shall be caused by the
length of any period of time or the size of any area set forth in any part
hereof, such period of time or such area, or both, shall be considered to be
reduced to a period or area which would cure such invalidity.
10. INDEMNIFICATION. The Company agrees to indemnify ELKIN for
any and all liabilities to which he may be subject as a result of his service to
the Company as an officer, director, or agent or of any other enterprise in
which he serves at the request of the Company, or otherwise as a result of his
employment hereunder, including all expenses, including legal fees and costs
incurred as a result of any proceedings brought or threatened against ELKIN, to
the fullest extent permitted by law. Counsel's fees, to the fullest extent
permitted by law, shall be paid by the Company in advance of any final
disposition of a proceeding upon receipt of an undertaking by ELKIN that he will
repay such fees if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to indemnification.
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<PAGE> 9
11. SUCCESSORS AND ASSIGNS.
11.1. SUCCESSORS. This Agreement shall be binding upon
the parties hereto and their Successors and assigns. For purposes of this
Agreement, the term "Successor" of Company shall include:
(a) any person or entity, whether direct or
indirect, whether by purchase, merger, consolidation, operation of law,
assignment, or otherwise acquires or controls:
(i) all or substantially all of the
assets of Company; or
(ii) thirty percent (30%) or more
of the total voting securities of the Company, and
was not affiliated with or in common control of
Company as of the Commencement Date;
(iii) through any other Business
combination with or without the consent of
Company's shareholders.
11.2. ASSUMPTION. The Company shall require any Successor
to expressly assume and agree to be bound by the terms of this Agreement in the
same manner and to the same extent that the Company would be required to perform
if no succession had occurred. The Company shall be in material breach of this
Agreement if any such successor fails to expressly assume or otherwise agree to
guaranty performance of this Agreement to the extent the Company was obligated
prior to any succession.
11.3. ASSIGNMENT. Except as expressly stated in Section
11.1 above, this Agreement shall be non-assignable by either the Company or
ELKIN without the written consent of the other party, it being understood that
the obligations and performance of this Agreement are personal in nature.
12. NOTICE. Any notices or other communications to any party
pursuant to or relating to this Agreement must be in writing and shall be deemed
to have been given or delivered when (i) hand-delivered, (ii) mailed through the
U.S. Postal Service via certified mail, return receipt requested, postage
prepaid, or (iii) through a nationally recognized overnight courier, or (iv) via
facsimile, to the party at their addresses below:
ELKIN: 3200 North 46th Avenue
Hollywood, Florida 33021
The Company: MED/WASTE, INC.
3890 N.W. 132nd Street, Bay K
Opa Locka, Florida 33054
Attention: Daniel A. Stauber
with a copy to: BRYAN W. BAUMAN, ESQ.
Wallace, Bauman, Fodiman & Shannon, P.A.
2222 Ponce de Leon Boulevard, Sixth Floor
Coral Gables, Florida 33134
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<PAGE> 10
or such other address given by such party to the other party at any time
hereafter.
13. ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement between the parties with respect to the subject matter hereof.
14. AMENDMENT. No amendment, waiver or modification of this
Agreement or any provisions of this Agreement shall be valid unless in writing
and duly executed by both parties.
15. BINDING AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective heirs, legal
representatives, successors and assigns.
16. WAIVER. Any waiver by any party of any breach of any
provision of this Agreement shall not be considered as or constitute a
continuing waiver or waiver of any other breach of any provision of this
Agreement.
17. CAPTIONS. Captions contained in this Agreement are inserted
only as a matter of convenience or for reference and in no way define, limit,
extend, or describe the scope of this Agreement or the intent of any provisions
of this Agreement.
18. ATTORNEYS' FEES. In the event of any litigation arising out
of this Agreement, the prevailing party shall be entitled to recover its
attorneys' fees and costs, including attorneys' fees and costs incurred on
appeal.
19. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
MED/WASTE, INC., a Delaware corporation
By:
------------------------------------
DANIEL A. STAUBER, President
------------------------------------
MICHAEL ELKIN
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<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT entered into as of this 1st day of
June, 1997 by and between MED/WASTE, INC., a Delaware corporation ("Company"),
and W. FRED BONHAM ("BONHAM").
R E C I T A L S:
A. The Company is engaged in the medical waste management
business through its wholly owned subsidiaries, including but not limited to
Safety Disposal System, Inc. ("SDS"), Safety Disposal System of South Carolina,
Inc., a South Carolina corporation ("SDSSC"), Safety Disposal System of
Pennsylvania, Inc., a Pennsylvania corporation ("SDSPA") and Safety Disposal
System of Georgia, Inc. a Georgia corporation ("SDSGA") (the "Business"); and
B. BONHAM has substantial experience in the operation of medical
waste management business; and
C. The Company desires to employ BONHAM as the Company's Vice
President - Operations and BONHAM desires to be employed by the Company in such
position on the terms and conditions provided herein; and
D. The Company believes that it is in the best interest of the
Company to assure BONHAM of a secure minimum compensation and to diminish the
inevitable distraction of BONHAM that may result in the event of the
possibility, threat or occurrence of a change of control, by providing for
certain compensation arrangements upon a change of control.
NOW THEREFORE, in consideration of the mutual promises and
covenants contained in this Agreement and such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. RECITATIONS. The above recitations are true and correct and
are incorporated herein by this reference.
2. EMPLOYMENT.
2.1. POSITION OF EMPLOYMENT. The Company hereby employs
BONHAM as its Vice President - Operations for the Business, upon all of the
terms and conditions hereinafter set forth and as described on Exhibit "A"
attached hereto. BONHAM shall perform such duties as are usually performed by a
Vice President of Operations of a business similar in scope as the Business and
such other reasonable additional duties as may be prescribed from time to time
by the Company's Board of Directors. BONHAM shall report directly to the
President/Chief Executive Officer. All actions shall be subject and subordinate
to review and approval by the Board of Directors and any and all committees of
the Board of Directors. The precise responsibilities of BONHAM may be modified
from time to time in accordance with reasonable policy established by the Board
of Directors of the Company consistent with BONHAM's qualifications and
experience.
2.2. BOARD MEMBERSHIP. During the term of this Agreement,
commencing the Closing Date as that term is defined in that certain Asset
Purchase Agreement between the Company, SDSPA, Bonham Environmental Services,
Inc., Bonham Management Group, Inc. and BONHAM dated as of May 29, 1997 ( the
"Asset Purchase Agreement"), the Company shall use its best efforts to nominate
and cause the election of BONHAM to the Company's Board of Directors.
<PAGE> 2
2.3. DEVOTION OF TIME. During the term of BONHAM's
employment, BONHAM shall devote his full business time, ability and attention to
the business affairs of the Company. BONHAM agrees to use his best efforts to
perform faithfully and efficiently such responsibilities. BONHAM shall be
permitted to (i) serve on corporate, civic or charitable boards or committees;
and (ii) deliver lectures, fulfill speaking engagements or teach at educational
institutions. All income received from such other endeavors shall be for the
exclusive benefit of BONHAM and the Company shall have no interest therein.
2.4. LOCATION OF EMPLOYMENT. Unless otherwise agreed to
by BONHAM, BONHAM's principal place of business shall be at the Company's
principal executive offices in Dade County, Florida; provided however, Bonham
understands and agrees that he will be traveling a substantial portion of his
time to each of the Company's Business locations.
3. TERM OF EMPLOYMENT
3.1. TERM OF EMPLOYMENT. The term of this Agreement shall
begin as of June 1, 1997 (the "Commencement Date") and shall end four (4) years
thereafter, subject to earlier termination or extension as otherwise set forth
in this Agreement.
3.2. TERMINATION OF EMPLOYMENT BY THE COMPANY FOR CAUSE.
The Company may terminate BONHAM's employment upon fifteen (15) days written
notice for the reasons set forth in Section 3.2.1 below, if such default is not
cured within such notice period, or such additional time as is reasonably
necessary to cure such default if BONHAM is using diligent efforts to cure such
default. The Company shall be entitled to terminate BONHAM's employment without
notice or an opportunity to cure for the reasons set forth in Section 3.2.2
herein. The reasons set forth below in Sections 3.2.1 and 3.2.2, are defined as
"Cause."
3.2.1. NOTICE. Notice or an opportunity to cure
shall be required for the following reasons:
(a) A default or breach by BONHAM of any of
the material provisions of this Agreement detrimental to the Company;
(b) refusal to follow reasonable and lawful
directives of the Company's Board of Directors or any committee thereof which
are consistent with BONHAM's duties and responsibility outlined in this
Agreement; or
3.2.2. NO NOTICE. No notice or an opportunity to
cure shall be required for the following:
(a) actions by BONHAM constituting fraud,
embezzlement or dishonesty;
(b) BONHAM furnishing materially false,
misleading, or omissive information or omitting to furnish material information
to the Company's Board of Directors, or any committee thereof, in the reasonable
judgment of the Board of Directors;
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<PAGE> 3
(c) any action by BONHAM which constitutes a
breach of the confidentiality of the Business and/or trade secrets of the
Company;
(d) BONHAM's gross negligence in the
performance of his duties as outlined in this Agreement;
(e) any felony violation of federal or state
law by BONHAM;
3.2.3. NO ADDITIONAL COMPENSATION. Upon termination
for the reasons set forth in Section 3.2 herein, the Company shall not be liable
for any further compensation or benefits following the date of termination,
other than accrued Base Salary. Notwithstanding, BONHAM shall be entitled to
receive all appropriate benefits mandated by the Consolidated Budget
Reconciliation Act of 1985 ("COBRA").
3.3. TERMINATION BY BONHAM. BONHAM may terminate this
Agreement due to the default of the Company under this Agreement or the Company
or SDSPA under the Asset Purchase Agreement by giving thirty (30) days notice
and the Company's or SDSPA's failure to cure such default within such thirty
(30) day period. BONHAM may terminate this Agreement upon thirty (30) days
written notice, for any other reason or for no reason at all. Upon termination,
Bonham shall only be entitled to accrued Base Salary through the Effective Date
of termination unless due to the default of the Company or SDSPA under this
Agreement or the Asset Purchase Agreement, in which event the Company shall pay
to BONHAM the remaining Base Salary which would have been paid for the balance
of the four (4) year term of this Agreement if it were not terminated. The
severance payment under this Section 3.4 shall be payable in cash on the
effective date of termination. Notwithstanding any termination herein, the
provisions of Paragraphs 6, 7, 8, 9, 10 and 11 shall remain in full force and
effect.
3.4. TERMINATION WITHOUT CAUSE. The Company shall have
the right to terminate this Agreement, without cause, upon thirty (30) days
written notice to BONHAM. Notwithstanding such termination, the Company shall be
obligated to pay to BONHAM the remaining Base Salary which would have been paid
for the balance of the four (4) year term of this Agreement if it were not
terminated. The severance payment under this Section 3.4 shall be payable in
cash on the effective date of termination.
3.5. TERMINATION UPON DEATH. This Agreement shall be
terminated immediately upon the death of BONHAM. Within thirty (30) days
following such termination, the Company shall pay to BONHAM's estate all accrued
Base Salary and earned bonuses. Upon such termination and payment as provided
herein, the Company shall not be liable for any further compensation or benefits
to BONHAM's estate.
4. COMPENSATION AND BENEFITS
4.1. SALARY. For each year of employment, the Company
shall pay to BONHAM, a base salary at a total annual rate of $175,000 (the "Base
Salary"), payable in cash. Base Salary shall be paid in regular payroll
intervals consistent with payroll policy established by the Company from time to
time.
4.2. BONUS. Prior to the commencement of each fiscal
year, the Board of Directors or its compensation committee, if any, shall
establish in good faith a reasonable and justifiable incentive bonus plan for
BONHAM for such fiscal year. The incentive bonus plan shall
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<PAGE> 4
provide BONHAM the ability to earn a bonus based upon certain reasonable goals
and objectives to be established in such incentive bonus plan. Such bonus, if
any, shall be payable within thirty (30) days following the completion of the
Company's audit for such fiscal year by its independent auditors.
4.3. STOCK OPTIONS. Upon the Commencement Date herein,
the Company shall cause to be granted to BONHAM options to purchase an aggregate
of 100,000 shares of the Company's common stock, $.001 par value. In addition,
BONHAM shall be eligible from time to time to receive grants of stock options,
under stock option plans or otherwise, in such amounts and at such times as
determined by the Board of Directors or any committee thereof. All options
granted to BONHAM shall:
(a) have a minimum term of five (5) years within
which to exercise such options;
(b) have a vesting schedule of no worse than
twenty-five (25%) percent as of the date of grant and twenty-five (25%) on each
anniversary date of such grant thereafter;
(c) vesting shall be accelerated upon a change of
control of the Company (as such term is defined in the Company's 1993 Employee
Stock Option Plan);
(d) have an exercise price no greater than the market
price of the underlying securities as of the date of grant; and
(e) such other terms and conditions as are customary
for similar types of options.
4.4. ADDITIONAL BENEFITS.
4.4.1. VACATION. BONHAM shall be entitled to a reasonable
number of discretionary paid vacation days consistent with his level of
employment, duties and seniority during each twelve-month period during the term
of this Agreement, but in no event less than fifteen (15) days during each
period. Vacation time may be accumulated for a period of not longer than two (2)
years. BONHAM shall not receive compensation for days not used.
4.4.2. REIMBURSEMENT OF EXPENSES. BONHAM shall be
reimbursed by the Company, upon presentation of adequate receipts, for all
business expenses which are reasonably incurred by BONHAM in the performance of
his duties under this Agreement, including but not limited to travel (including
travel expenses to and from Bonham's residence from and to any Company
location), cellular phone and similar expenses. All expenses shall be incurred
in accordance with reasonable policy established by the Board of Directors.
4.4.3. PARTICIPATION IN EMPLOYEE BENEFIT PLANS. BONHAM
shall be entitled to participate, subject to eligibility and other terms
generally established by the Company's Board of Directors, in any group
hospitalization, health, dental care, profit sharing and pension, and other
benefit plans, as may be adopted or amended by the Company from time to time as
affecting employees of similar status. Bonham shall be entitled to the same
number of paid sick days available to employees of similar status.
- 4 -
<PAGE> 5
5. REPRESENTATIONS. BONHAM hereby represents to the Company that
he is in good health, he is physically and mentally capable of performing his
duties hereunder and he has no knowledge of any present or past physical or
mental condition which would cause an insurance company to reject an application
by BONHAM for life insurance or for accident, sickness or disability insurance.
BONHAM represents and warrants that to the best of his knowledge he is not
subject to any restrictive covenants under any other agreements prohibiting his
performance in full hereunder, or which would subject the Company to any valid
claims for tortious interference.
(a) DISABILITY. This Agreement and all payments
thereunder including Base Salary and other compensation and benefit shall be
suspended at such time as BONHAM shall have failed, by reason of mental or
physical disability or illness ("Disability" as hereinafter defined), to perform
his services pursuant to this Agreement for a period of ninety (90) consecutive
days. Disability shall be defined to mean the inability of BONHAM to perform his
duties under this Agreement, based on injury, illness or physical or mental
conditions as determined by the Company's Board of Directors, which
determination must be supported by two licensed physicians, one of each selected
by the Company and BONHAM; provided, however, if the Company or BONHAM maintains
a policy insuring against the disability of BONHAM, Disability shall have the
meaning ascribed in such policy. Upon the Board's initial determination of
disability, BONHAM will submit to mental and physical examinations which shall
be paid by the Company, unless otherwise covered by health benefits provided by
the Company to BONHAM. The failure of BONHAM to submit to such reasonable
examinations within fifteen (15) days of such request shall be conclusive that
such Disability exists. Upon the removal of the Disability, this Agreement shall
be reinstated and Base Salary and other compensation and benefits shall continue
from such date through the balance of the term of this Agreement.
6. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION.
6.1. CONFIDENTIALITY. BONHAM shall not, during the term
of this Agreement or at any time thereafter, divulge, furnish or make accessible
to anyone without the Company's prior written consent, any knowledge or
information with respect to any aspect of the Business, including but not
limited to: the Company's costs; fees or models; customer or vendor names;
referral sources; addresses and telephone numbers of customer, vendors and
referral sources; billing procedures, prices and terms; its business techniques,
computer programs and printouts; identity of prospective customers, vendor or
referral sources; information disclosed by the Company's customers to the
Company; or other information concerning the Business or its employees. All
information given to BONHAM in connection with his employment shall be
considered confidential and proprietary, provided however, confidential
information shall not include (i) information which is generally available to
the public other than as a result of Bonham's disclosure, or (ii) to which
Bonham is legally required to disclose such information pursuant to court order.
6.2. OWNERSHIP OF INFORMATION. BONHAM recognizes that all
records; referral lists; material cost data; fees or models; files and
correspondence with referral services, customers, vendors or otherwise related
to the Business; computer printouts; contracts; reports; notes; business plans;
compilations of other recorded matter; and copies or reproductions thereof,
relating to the Company's operations and activities made or received by BONHAM
in the course of his employment are the exclusive property of the Company and
BONHAM holds and uses same as trustee for the Company and subject to the
Company's sole control and will deliver same to the Company at the termination
of his employment, or earlier if so requested. All of such information,
- 5 -
<PAGE> 6
which if used by BONHAM outside the scope of his employment, could cause
irreparable and continuing injury to the Business for which there may not be an
adequate remedy at law.
7. RESTRICTIVE COVENANT. As an inducement to cause the Company to
enter into this Agreement, BONHAM covenants and agrees that during his
employment and, for a period of two (2) years after he ceases to be employed by
the Company, and so long as the Company is in compliance with this Agreement and
its payment obligations to BONHAM, regardless of the manner or cause of
termination:
7.1. RESTRICTION. BONHAM will not be an employee, agent,
director, stockholder or owner (except of not more than a controlling interest
in the voting securities of any publicly traded entity), partner, consultant,
financial backer, creditor or be otherwise directly or indirectly connected with
or participate in the management, operation or control of any Business, firm,
proprietorship, corporation, partnership, association, entity or venture engaged
in the provision of services or supplies similar to the Business (a "Competing
Business") within the United States other than for the operation of Bio Medtec -
West Virginia, Inc. ("BMT"). It is understood and agreed by BONHAM that BONHAM
will not operate BMT, either directly or indirectly through Bonham Environmental
Services, Inc. ("BESI") or any other company, the intent being that if the
Company does not exercise its option to purchase BMT, BONHAM will cause BESI to
sell BMT.
7.2. SOLICITATION OF BUSINESS. BONHAM will not initiate
any contact with, call upon, solicit business from, sell or render services to
any customer of the Company with respect to a Competing Business or purchase
from any supplier or potential supplier any materials for same and BONHAM shall
not directly or indirectly aid or assist any other person, firm or corporation
to do any of the aforesaid acts.
7.3. SOLICITATION OF EMPLOYEES. BONHAM will not directly
or indirectly, as principal, agent, owner, partner, stockholder, officer,
director, employee, independent contractor or consultant or in any individual or
representative capacity for himself or on behalf of any business, firm,
corporation, partnership association or proprietorship, initiate contact with or
solicit, or directly or indirectly cause others to solicit the employment of any
officer, sales person, agent, or other employee of the Company, for the purpose
of causing said officer, sales person, agent or other employee to terminate
employment with the Company.
8. ACKNOWLEDGMENT. BONHAM HEREBY ACKNOWLEDGES AND UNDERSTANDS
THIS AGREEMENT INHIBITS BONHAM'S ABILITY TO WORK FOR THE SAME OR SIMILAR KIND OF
BUSINESS FOR A PERIOD OF TWO (2) YEARS AFTER THE END OF BONHAM's EMPLOYMENT WITH
THE COMPANY. BONHAM acknowledges and confirms that the length of the term and
geographic restrictions contained in this Agreement are fair and reasonable and
not the result of overreaching, duress or coercion of any kind. BONHAM further
acknowledges and confirms that his full, uninhibited and faithful observance of
each of the covenants contained in this Agreement will not cause any undue
hardships, financial or otherwise and that enforcement of this Agreement will
not impair BONHAM's ability to obtain employment commensurate with BONHAM's
abilities and on terms fully acceptable to BONHAM. BONHAM acknowledges that
BONHAM will be receiving significant information regarding the Business which
BONHAM has not previously received and would not receive without being employed
by the Company. BONHAM acknowledges and confirms that such information would
cause the Company serious injury and loss if used by BONHAM for the benefit of a
competitor.
- 6 -
<PAGE> 7
9. MATERIAL VIOLATION. A violation of Sections 6 or 7 shall
constitute a material and substantial breach of this Agreement and shall result
in the imposition of the Company's remedies contained in Section 11. BONHAM
acknowledges that compliance with the provisions of Sections 6 and 7 are
necessary to protect the goodwill and proprietary interests of the Company and
is a material condition of employment.
10. MATERIAL COVENANTS. It is understood by and between the
parties that the foregoing covenants set forth in Sections 6 and 7 are essential
elements of this Agreement, and that but for the agreement of BONHAM to comply
with such covenants, the Company would not have entered into this Agreement.
Such covenants by BONHAM shall be construed as agreements independent of any
other provision of this Agreement and the existence of any claim or cause of
action BONHAM may have against the Company whether predicated on this Agreement
or otherwise, shall not constitute a defense to the enforcement by the Company
of these covenants.
11. REMEDIES. BONHAM hereby acknowledges, covenants and agrees
that in the event of a material default or breach under this Agreement:
(a) the Company will suffer irreparable and continuing
damages as a result of such breach and its remedy at law will be inadequate.
BONHAM agrees that in the event of a violation or breach of this Agreement, in
addition to any other remedies available to them, the Company shall be entitled
to an injunction restraining any such default or any other appropriate decree of
specific performance, without any requirement to prove actual damages or to post
any bond or any other security and to any other equitable relief the court deems
proper; and
(b) Any and all of the Company's remedies described in
this Agreement shall not be exclusive and shall be in addition to any other
remedies which the Company may have at law or in equity including, but not
limited to, the right to monetary damages.
12. BREACH OF AGREEMENTS. Notwithstanding anything herein to the
contrary, the Company shall not be entitled to enforce the provisions of Section
7 in the event that (a) either the Company or SDSPA are in default of the Asset
Purchase Agreement, which default is not cured within thirty (30) days following
written notice of such default; or (b) this Agreement is terminated (i) by the
Company without cause or (ii) by BONHAM upon default by the Company or SDSPA of
this Agreement or the Asset Purchase Agreement, and following such termination,
the Company fails to pay all severance as required herein.
13. INDEMNIFICATION. The Company agrees to indemnify BONHAM for
any and all liabilities to which he may be subject as a result of his service to
the Company as an officer, director, or agent or of any other enterprise in
which he serves at the request of the Company, or otherwise as a result of his
employment hereunder, including all expenses, including legal fees and costs
incurred as a result of any proceedings brought or threatened against BONHAM, to
the fullest extent permitted by law. Counsel's fees, to the fullest extent
permitted by law, shall be paid by the Company in advance of any final
disposition of a proceeding upon receipt of an undertaking by BONHAM that he
will repay such fees if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to indemnification. The Company will use
its best efforts to obtain and keep in force adequate director and officer
liability insurance during the term of this Agreement and for six (6) years
thereafter, if available at a reasonable cost. The Company represents that it
currently does not have director and officer liability insurance. If the Company
obtains director and
- 7 -
<PAGE> 8
officer liability insurance for any other officer or director of the Company,
BONHAM will be included in such policy
14. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections, subdivisions, subparagraphs, paragraphs
or articles contained in this Agreement shall not affect the enforceability of
the remaining portions of this Agreement or any part thereof, all of which are
inserted conditionally on their being legally valid. In the event that one or
more of the words, phrases, sentences, clauses, sections, subdivisions,
subparagraphs, paragraphs or articles are determined to be unenforceable and if
such invalidity shall be caused by the length of any period of time or the size
of any area set forth in any part hereof, such period of time or such area, or
both, shall be considered to be reduced to a period or area which would cure
such invalidity.
15. NOTICE. Any notices or other communications to any party
pursuant to or relating to this Agreement must be in writing and shall be deemed
to have been given or delivered when hand-delivered, mailed through the U.S.
Postal Service via certified mail, return receipt requested, postage prepaid,
through a nationally recognized overnight courier, or via facsimile to the party
at their addresses below:
Company: Med/Waste, Inc.
3890 N.W. 132nd Street, Suite K
Opa Locka, Florida 33059
Attention: Daniel A. Stauber, President
with a copy to: Bryan W. Bauman, Esq.
Wallace, Bauman, Fodiman & Shannon, P.A.
2222 Ponce de Leon Boulevard, Sixth Floor
Coral Gables, Florida 33134
BONHAM: W. Fred Bonham
5090 Down Point Lane
Windemere, Florida 34786
or such other address given by such party to the other party at any time
hereafter.
16. ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement between the parties with respect to the subject matter hereof and
supersedes any and all other prior written or oral agreements between them as to
such subject matter.
17. AMENDMENT. No amendment, waiver or modification of this
Agreement or any provisions of this Agreement shall be valid unless in writing
and duly executed by both parties.
18. BINDING AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective heirs, legal
representatives, successors and assigns.
19. WAIVER. Any waiver by any party of any breach of any
provision of this Agreement shall not be considered as or constitute a
continuing waiver or waiver of any other breach of any provision of this
Agreement.
- 8 -
<PAGE> 9
20. ASSIGNMENT. No party may assign their rights hereunder
without the prior written consent of the other, except that the Company may
assign its rights to any affiliate or successor entity without the consent of
BONHAM.
21. CAPTIONS. Captions contained in this Agreement are inserted
only as a matter of convenience or for reference and in no way defines, limits,
extends, or describes the scope of this Agreement or the intent of any
provisions of this Agreement.
22. ATTORNEYS' FEES. In the event of any litigation arising out
of this Agreement, the prevailing party shall be entitled to recover its
attorneys' fees and costs, including attorneys' fees and costs incurred on
appeal.
23. GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Florida.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
MED/WASTE, INC., a Delaware corporation
By:
------------------------------------
DANIEL A. STAUBER, President
------------------------------------
W. FRED BONHAM
- 9 -
<PAGE> 1
MED/WASTE, INC. AND SUBSIDIARIES
EXHIBIT 21 - SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF YEAR OF
NAME INCORPORATION INCORPORATION
- ------------------------------------------------------ ------------------------ -----------------------
<S> <C> <C>
Safety Disposal System, Inc. Florida 1990
Med/Waste of Florida, Inc. Florida 1992
The Kover Group, Inc. Ohio 1986
Safety Disposal System of South Carolina, Inc. South Carolina 1996
Safety Disposal System of Georgia, Inc. Georgia 1996
Safety Disposal System of Pennsylvania, Inc. Pennsylvania 1996
Safety Disposal System of Tennessee, Inc. Tennessee 1996
Safety Disposal System of New York, Inc. New York 1996
Incendere, Inc. Incendere 1992
Safety Disposal System of Virginia Virginia 1996
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 984,708
<SECURITIES> 0
<RECEIVABLES> 4,998,028
<ALLOWANCES> (108,000)
<INVENTORY> 238,653
<CURRENT-ASSETS> 9,996,577
<PP&E> 11,727,790
<DEPRECIATION> (1,090,987)
<TOTAL-ASSETS> 34,648,684
<CURRENT-LIABILITIES> 7,027,773
<BONDS> 0
430
0
<COMMON> 4,630
<OTHER-SE> 18,219,336
<TOTAL-LIABILITY-AND-EQUITY> 34,648,684
<SALES> 13,547,960
<TOTAL-REVENUES> 13,547,960
<CGS> 8,914,359
<TOTAL-COSTS> 12,481,222
<OTHER-EXPENSES> (978,754)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,045,492
<INCOME-TAX> 401,768
<INCOME-CONTINUING> 1,643,724
<DISCONTINUED> 202,671
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,846,395
<EPS-PRIMARY> .68
<EPS-DILUTED> .45
</TABLE>
