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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, 1998
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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 [ ] No [X]
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 $24,924,664.
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 $.51 as of July 21, 1999 was approximately $3,434,330.
The number of shares outstanding of the registrant's common stock $.001
par value as of July 21, 1999 was 6,733,980.
DOCUMENTS INCORPORATED BY REFERENCE
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"), Incendere, Inc.
("Incendere"),Target Medical Waste Services. LLC ("Target"), Med-Waste, Inc.
("Decatur"), Sanford Motors, Inc. ("SMI") and BMW Medtec of West Virginia
("BMW"). 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, Incendere, Target, Decatur and SMI provide collection,
transportation, treating, tracking and related services for the disposal of
medical waste throughout Alabama, 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. Decatur owns and operates a microwave
treatment facility in Decatur, Alabama and Target owns and operates an autoclave
treatment facility in Mobile, Alabama. SDS also owns and operates 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 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
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medical waste treatment facility located in Marcus Hook, Pennsylvania. The
Company also operates autoclave treatment facilities in West Palm Beach,
Florida, and Decatur, Alabama which are capable of treating 24 tons and 10 tons
of medical waste per day, respectively. In Mobile, the Company operates a
microwave treatment facility with a capacity of 6 tons per day. The autoclaves
and microwave facilities 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.
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 improve and enhance its position as a fully integrated
medical waste management services company. The Company believes that in order to
achieve superior competitive results in the medical waste industry, it is
important to centralize its support organizations and realize economies of scale
from the consolidation of existing business units with future acquisitions and
encouraging internal growth. As part of such strategy, the Company will continue
to provide all aspects of medical waste management, including collection,
transportation and treatment. By providing all services, the Company will be
able to take advantage of economies of scale and become a formidable competitor
within the medical waste industry. With the centralization of support services
into a national service center, the Company will be able to achieve substantial
cost reductions and benefit from the acquisitions made in 1997 and 1998. The
centralization will also position the Company so that it can maximize internal
growth and integrate future acquisitions into the organizational structure
quickly and efficiently.
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
containers, on-site
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training, 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, Alabama 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
the generator 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 Waste"
below.
The Company 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, 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 November 1997, the Company purchased the 2.9 acre
industrial site, in Marcus Hook, Pennsylvania 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 is 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 at its autoclave facility located in West Palm Beach, Florida. In June
of 1998 it also acquired Target and Decatur in Alabama. At such locations, the
Company also operates autoclave and microwave sterilization facilities. The
autoclave or microwave process sterilizes medical waste, 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.
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 the expense of disposal due to 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.
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
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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 third largest public medical waste
disposal company based in the United States. The Company services more than
20,000 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'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 near 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
Florida and Alabama sterilization facilities are located close to the population
centers of these areas, which allows for lower operating costs to the Company.
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
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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 1997 consolidated financial statements; such results in 1998
were not material. 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 at the time of the sale. 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"). In July 1998,
MPK and Kover prepaid both notes plus accrued interest. The Company received
$1,350,000 in cash and a new $150,000 promissory note from MPK ("the New Note").
The New Note is payable interest only monthly at the rate of 8.25% per annum,
with the principal balance due at the end of eleven years.
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.
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").
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 assets of
Bonham Management Group, Inc. ("BMG"), which had a management agreement to
operate the KS Facility. The purchase agreement included a non-competition
agreement from BMG's principal, William F. Bonham.
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Also in November 1997, the Company purchased 100% of the capital stock of
Incendere from 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.
On March 31, 1998 the Company purchased the capital stock of MedWaste, Inc. an
unrelated Pennsylvania corporation. The 41,000 shares of stock issued as part of
the purchase price are guaranteed by the Company at the end of two years for
$7.50 per share.
In June 1998, the Company purchased from Biomade Plastics, Inc.("Biomade")molds
for the manufacture of reusable sharps container, lids and accessories used in
the "Sharps Away" program, together with all proprietary knowledge, patents,
510K approval, trade secrets, referral lists, technical information, quality
control data, processes, methods and other similar intangible assets. Biomade
operated a "Sharps Away" reusable sharps container program through licensing
territories to third parties. The Company received an assignment of all license
agreements, as well as all inventories of containers.
In June 1998 the Company, acquired Target Medical Waste Services, LLC ("Target")
based in Mobile, Alabama. Target provides medical waste management services to
customers in Alabama, Florida, Louisiana and Mississippi. Target also owns and
operates a medical waste autoclave facility.
In June 1998, the Company acquired certain assets and assumed certain
liabilities of Biotech Disposal, Inc. ("Biotech"). Biotech provides medical
waste management services to generators of medical waste in Broward County,
Florida. In connection with the purchase, the Company issued 26,666 shares of
common stock with a guaranteed value after one year of $6.50.
In June 1998, the Company acquired Med-Waste, Inc., an unrelated Alabama
corporation ("Decatur") based in Decatur, Alabama. Decatur provides medical
waste management services to medical waste generators located in the states of
Alabama, Georgia and Tennessee. Decatur also owns and operates a medical waste
autoclave facility. As part of the purchase price, the Company guaranteed
120,000 shares of the 133,334 issued to have a fair market value of $7.50 per
share at the end of two years.
In September 1998, the Company purchased BMW Medtec of West Virginia, Inc.
("BMW"), a medical waste transportation company operating in West Virginia,
Eastern Ohio and Western Pennsylvania.
In October 1998, the Company acquired Sanford Motors, Inc. and its related
companies ("SMI"). SMI operates a medical waste hauling operation in the
Pennsylvania, New Jersey, Delaware, and Maryland region and owns a 49% interest
in an incineration facility in Matthews, North Carolina. In connection with the
purchase, the Company issued 500,000 shares of common stock with a guaranteed
fair value of $14 per share after three years. Payments under such guarantee can
be made in cash or in additional shares of stock at the option of the Company.
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GOVERNMENT REGULATION
GENERAL. 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 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. Subsequent to December 31, 1998, HMTA has
reviewed, revised and re-authorized the exemption
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for 37 cubic yard roll-off container for bulk loaded medical waste. This insures
that the efficient roll-off container will continue to be an effective weapon in
the Company's arsenal of waste collection and disposal products.
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.
The Incinerator has recently received its Part 70 Air Quality (Title V
Operating) Permit No. TV1280-0021 effective on July 29, 1999, from the State of
South Carolina under its State Implementation Program ("SIP") as delegated by
U.S. EPA. The Company has a state emission test scheduled for no later than
October 31, 1999 subject to any extension that may be granted. The Company must
make improvements at this facility during 1999-2000 of approximately $6 million
to meet the new emission standards. Pursuant to the Clean Water 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 under
the National Pollution Discharge Elimination System ("NPDES"). The Company's
Incinerator has a stormwater discharge NPDES permit, and discharges all
wastewater to the sanitary sewer system in compliance with its permit with the
Town of Hampton. The Company's other facilities also discharge all waste water
to sanitary sewers.
ALABAMA REGULATION. The Alabama Department of Environmental Management has
jurisdiction over the packaging, collection, storage, transportation and
disposal of regulated medical waste. Generators are required to develop a plan
to, package and label untreated medical waste, and then ship the untreated
medical waste with a permitted transporter. Permits are also required for
medical waste treatment facilities. Once the medical waste is treated, it may be
disposed of as solid waste.
The Company has a permitted autoclave facility in Decatur, Alabama and a second
microwave treatment facility permitted in Mobile, Alabama.
FLORIDA REGULATION. 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 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
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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.
GEORGIA REGULATION. The Georgia Department of Natural Resources enforces the
biomedical waste management rules. As in other states, generators of the
biomedical waste are required to segregate, package, label biomedical waste
before shipping it to a treatment site with a permitted biomedical waste
transporter. Georgia's DNR is also empowered to oversee the permitting of
transporters, treatment facilities and transfer facilities. The Company has a
permitted transfer facility near Atlanta.
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 REGULATION. 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
TENNESSEE REGULATION. The Tennessee Department of Health and Environment
enforces the standards for infectious waste incinerators. Generators of
infectious waste are restricted from disposing of certain categories of
infectious waste in landfills. Human blood and blood products, cultures and
stocks of infectious agents and recognizable human organs and body parts may not
be landfilled. The Company operates a small transfer station for infectious
waste in Nashville.
VIRGINIA REGULATION. The Virginia Department of Waste Management has
jurisdiction to enforce the regulations for infectious waste management in
Virginia. The comprehensive regulations require generators to segregate,
package, label and seal medical waste prior to shipping it off-site for
disposal. Transporters must be permitted through the Department, and the
infectious waste must be taken to a permitted treatment facility. Transporters
must insure that all waste is properly packaged and labeled, and must be capable
of managing spills in the unlikely event of a spillage. Permits are required for
transfer stations and the permit process includes public
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<PAGE> 13
participation. The Company operates a permitted transfer facility in Richmond,
Virginia. The Company operates a permitted transfer facility in Richmond,
Virginia and has a long term incineration agreement with a Norfolk, Virginia
incineration company. Subsequent to December 31, 1998, the Company favorably
re-negotiated the agreement.
WEST VIRGINIA REGULATION. The West Virginia Department of Health and Human
Resources enforces the rules regulating infectious medical waste. Generators are
required to segregate, package, seal and label infectious medical waste before
shipping off-site. Infectious medical waste may not be stored for longer than 30
days. Transporters must be permitted and must haul the waste to a permitted
treatment or transfer facility. Permits for infectious medical waste management
facilities require public participation
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COMPETITION
The Company comprises the second largest medical waste management provider in
the State of Florida and the third largest publicly 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., 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. With the Company's recent
acquisitions, its bargaining power for insurance has improved and it looks
forward to better coverage at more reasonable rates.
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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EMPLOYEES
As of December 31, 1998, the Company had approximately 350 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. Subsequent to
December 31, 1998 a new 2 year agreement was entered into expiring in May, 2001.
None of the Company's other employees are represented by a labor organization.
Management considers its relationship with its employees to be satisfactory.
RECENT DEVELOPMENTS
During 1998, the Company continued its expansion activities and suffered
significant financial setbacks. As a result, the Company experienced significant
losses from operations, and accordingly, the Company's financial statements
contain an explanatory paragraph regarding its ability to continue as a going
concern. In early 1999 Company's top management was replaced, and a recovery
plan was implemented. In March 1999 Independent Counsel was appointed by the
Audit Committee of the Board of Directors to investigate the Company's past
accounting practices (See ITEM 6. Management's Discussion and Analysis of
Financial Conditions and Results of Operations). In June 1999, a lawsuit was
filed against the Company, its former officers and certain former and/or current
directors. (See ITEM 3. Legal Proceedings).
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 at the facility. The facility is subject to a
mortgage of approximately $1.8 million which is held by the prior owner. The
mortgage is payable over a four (4) year period and matures in October 2000.
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 purchase money mortgage
of approximately $400,000 in favor of the prior owner. The mortgage is payable
over five(5) years without interest.
SMI owns and operates a transfer facility located in Morrisville, Pennsylvania
which consists of land and 8,500 square feet of building space housing
administrative offices, repair station and a transfer station.
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 operates autoclave and microwave facilities in Mobile and Decatur
Alabama respectively. The buildings used for these operations are leased.
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. Subsequent to year end,
as part of a significant cost reduction effort, the Company closed down transfer
stations in Opa Locka, Florida, Savannah, Georgia, Westchester, PA and
Washington D.C.. The Company continues to operate leased 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> 16
ITEM 3. LEGAL PROCEEDINGS.
In January 1999 the former stockholders of Med-Waste, Inc., an Alabama
corporation, including Malcolm Alexander and Louis Noto filed a lawsuit against
the Company and Med-Waste, Inc., an Alabama corporation in the Circuit Court of
Decatur, Alabama. The Company purchased the capital stock of the Alabama
corporation in June 1998. The lawsuit alleges fraud, misrepresentations, breach
of contract and failure to pay on a promissory note given as part of the
purchase price. In June 1999, the Company terminated the employment of Malcolm
Alexander, Louis Noto and Abby Alexander for "cause." The Company intends to
vigorously defend the lawsuit and believes it has meritorious defenses to the
claims. In addition, the Company expects to file a counterclaim for breach of
contract, fraud and misrepresentation in connection with the purchase of the
Alabama corporation.
On April 9, 1999, W. Fred Bonham filed a complaint against the Company
which is pending in the Circuit Court of the Fifteenth Judicial Circuit in and
for Palm Beach County, Florida. Prior to January 7, 1999, Mr. Bonham served
first, as the Company's Vice President of Operations and then as Vice
President/Chief Operating Officer pursuant to a four (4) year employment
agreement dated June 1, 1997 (the "Employment Agreement"). On January 7, 1999,
the Company terminated Mr. Bonham's employment for "cause," as that term is
defined in the Employment Agreement. Mr. Bonham alleges in his complaint that
the Company violated the Employment Agreement by failing to pay Bonham certain
compensation after his discharge from the Company. In his Complaint Bonham seeks
compensatory damages, pre-judgment interest, costs and reasonable attorneys'
fees. Specifically, Bonham seeks his base salary ($175,000.00) due for the
remaining term of his Employment Agreement as well as various stock options.
On June 16, 1999 Steve Saarinen filed a complaint in the United States
District Court for the Southern District of Florida, Miami Division against
Med/Waste, Inc., Daniel A. Stauber, Michael D. Elkin, Milton J. Wallace and
Richard Green, as Defendants. Mr. Stauber served as President/Chief Executive
Officer and as a director until his resignation of all such positions on June
10, 1999. Mr. Wallace has been Chairman of the Board of the Company since June
1993. Mr. Green is a former director and chairman of the Audit committee
resigning as a director on December 15, 1998. Mr. Elkin was Vice President/Chief
Financial Officer of the Company from December 1995 until December 31, 1998,
when he resigned his position. The Plaintiff seeks to certify a class action
against the Defendants for purported securities violations relating to Med/Waste
common stock. Specifically, the complaint seeks relief for violations of Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule
10(b)-5, promulgated thereunder, as well as purported violations of Section
20(a) of the Exchange Act. The complaint alleges that the Defendants purportedly
issued false and misleading statements as to the Company's results of operations
and that, specifically, earnings and earnings per share of the Company for each
of the quarterly reports issued for the first, second and third quarters of the
1998 fiscal year were fraudulently misstated. Plaintiff seeks to recover damages
on behalf of himself and the putative class he represents purportedly sustained
as a result of the violations of the securities law alleged in the Complaint.
Plaintiff also seeks to recover attorneys' fees and costs incurred in the
litigation. No discovery has commenced and the size of the plaintiff class, if
certified, is not yet determined.
By letter dated July 19, 1999, the Securities and Exchange Commission ("SEC")
advised the Company that it is conducting an informal inquiry into the
accounting procedures utilized by the Company. The SEC has requested that the
Company voluntarily provide certain records and other information by August 19,
1999. The Company intends to comply fully with such request and cooperate with
the SEC in its inquiry.
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The Company is subject to claims and suits in the ordinary course of business.
Except as noted above, 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, 1998.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock was traded in the over-the-counter market and prior
to June 3, 1999, prices were quoted on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") Small Cap Market under the symbol
"MWDS." On June 3, 1999, NASDAQ halted trading the common stock. Effective June
10, 1999, the Company withdrew from NASDAQ. The Company's common stock is quoted
on the "Pink Sheets" maintained by the National Quotation Bureau. The following
table sets forth the high and low sales prices 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.
<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
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
----- -----
FISCAL 1998
Quarter ending March 31, 1998 5.69 4.56
----- -----
Quarter ending June 30, 1998 7.38 4.75
----- -----
Quarter ending September 30, 1998 7.63 3.63
----- -----
Quarter ending December 31, 1998 4.88 2.88
----- -----
</TABLE>
In July 1999, the average high and low prices of the common stock as reported
on the "Pink Sheets" was $.65 and $.49 respectively. As of that date, the
Company had 192 common stockholders of record.
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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.
The Company paid cash dividends on its Series A Preferred Stock from its
issuance until March 31, 1999. Since that date, the Company has paid such
dividends in the form of shares of Series A Preferred Stock.
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<PAGE> 19
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL. In 1998, the Company continued its expansion program by acquiring four
medical waste hauling operations and one additional medical waste treatment
facility. The Company also spent considerable resources ($711,000) in pursuing
other potential acquisitions that never materialized. Revenues increased by
$11.3 million (83%) from 1997 principally due to completed acquisitions in 1997
and 1998. Also, the Company divested itself from its janitorial service segment
of the business by the sale of Kover. The information presented below only
relates to the Company's continuing medical waste operations.
As more fully described below, the Company will restate its quarterly financial
statements for the year ended December 31, 1998 to correct the erroneous
reporting of results of operations.
PRESS RELEASES RELATING TO THE COMPANY'S REORGANIZATION AND 1998 FINANCIAL
RESULTS
During January 1999, the Company issued various press releases announcing the
appointment of Carlos Campos as Chief Operating Officer, George Mas as Chief
Financial Officer and Ross Johnston as Vice President of Legal Affairs.
On March 8, 1999, the Company issued a press release announcing the possibility
that it may be required to restate earnings for the three fiscal quarters of
1998. At that time, the restatement was estimated at $1.75 million for the three
quarters. After further investigation by the new management team and the
appointment of an independent counsel by the Audit Committee of the Board of
Directors, the Company estimated the 1998 loss in a press release dated April
15, 1998 at $8 million. On March 17, 1999, Carlos Campos was appointed acting
CEO and the investigation by both the Company and the independent counsel
continued.
On June 3, 1999 the Company announced that it expected to report a net loss of
$9.3 million for fiscal year 1998 and that it had expanded its investigation to
fiscal years 1997 and 1996. In July 1999, after a review of 1997 and 1996 by the
independent counsel, it was concluded that no material misstatements of fiscal
years 1997 and 1996 had come to its attention. The Company's management agrees
with this conclusion and will file amended quarterly reports for the three
quarters of fiscal year 1998.
On June 10, 1999, the Company issued a press release announcing that it had
voluntarily removed its stock from trading on the Nasdaq Stock Market ("Nasdaq")
in anticipation of not being in compliance with the net tangible assets
requirements of Nasdaq.
On July 15, 1999, the Company announced that Carlos Campos was appointed
President and CEO and also elected to the Board of Directors. Effective June 10,
1999, Daniel Stauber, former President and CEO resigned from these positions and
also from the Board of Directors. All stock options owned by Mr. Stauber
terminated as of the date of his resignation.
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<PAGE> 20
MANAGEMENT AND BOARD CHANGES
In December 1998, Richard Green resigned as a director of the Company. On
December 16, 1998, the Board was expanded and Charles Simons, Douglas Hailey
and Michael Recca were appointed to the Board.
As of December 31, 1998, Michael Elkin resigned as Vice President of Finance and
Chief Financial Officer of the Company.
On January 5, 1999 the Company announced the appointment of George Mas as Vice
President of Finance and Chief Financial Officer.
On January 7, 1999, the Company terminated the employment of W. Fred Bonham as
Vice President and Chief Operating Officer.
On January 11, 1999 the Company announced the appointment of Carlos Campos as
Executive Vice President and Chief Operating Officer. Mr. Campos was appointed
Acting CEO on March 17, 1999 and appointed President and CEO and appointed to
the Board of Directors on July 15, 1999.
On January 26, 1999 Ross Johnston was appointed Vice President Legal Affairs.
On March 17, 1999, Daniel Stauber, took a leave of absence as President and
Chief Executive Officer of the Company. Effective June 10, 1999, Mr. Stauber
resigned as President and CEO and also as a member of the Board of Directors of
the Company.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH 1997
REVENUES. Revenues for the year ended December 31, 1998 increased by
approximately $11.4 million from 1997 due to the three acquisitions made in late
1997 and the four acquisitions made during 1998. Internal growth was very
limited during the year due to the former management's inability to formulate an
effective marketing plan. The consolidated results of operations prepared on a
proforma basis as if all 1997 and 1998 acquisitions had occurred as of the
beginning of 1997 show a decrease in revenues from $33.9 million to $29.9
million per year. Approximately $900,000 of this decrease can be attributed to a
decrease in autoclave sales. The remainder can be attributed to the Company's
inability to combine and manage the acquisitions within the Company operational
structure.
OPERATING COSTS. The increase of approximately $12 million can be substantially
attributed to the acquisitions made in late 1997 and 1998. Substantially no
benefits were obtained from costs synergies relating to these acquisitions due
to the former management's inability to consolidate the new organizations into
the existing financial and operational structure. As an example, direct labor
expenses at the two major divisions where revenues dropped by $900,000 increased
by $238,000 during the year. During 1998, the Company incurred significant
operating costs that could have been avoided with proper planning and controls
such as the rental of trucks instead of repairing the trucks at a lower cost.
ADMINISTRATIVE AND SELLING EXPENSES. The increase of approximately $7 million
can be substantially attributed to the acquisitions made in late 1997 and 1998.
Substantially no benefits were obtained from costs synergies relating to the
acquisitions principally due to management's inability to consolidate the
acquisitions into the existing organizational structure. In addition, as a
result of rapid expansion and administrative inaccuracies, substantial expenses
were incurred in administrative expenses relating to professional services,
financial consulting and auditing fees. Other administrative costs were allowed
to increase due to delays in billing, computer problems, duplicative employee
positions and other
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administrative inadequacies (i.e. collection of receivables). Such amounts
included uncollectable accounts receivables of approximately $800,000,
professional fees in excess of $1.5 million in salaries and wages at the
Florida facilities of $868,000.
OPERATING LOSS. The loss of $8.7 million in 1998 is attributable to the
Company's inability to obtain costs synergies from the acquisitions made in late
1997 and in 1998. In addition, substantial increases in administrative costs
were incurred at the Corporate Office location for professional services,
financial consulting and auditing fees. Also, approximately $711,000 in deferred
acquisition costs were written off due to the cancellation of the agreement to
acquire Health Care Waste Services Corp. of New York City ("HCWS").
OTHER EXPENSES. The increase was principally due to an increase in interest
expense resulting from higher total debt during 1998.
PROVISION FOR INCOME TAXES. No provision for income taxes were necessary for
1998 due to the loss reported for the year. These losses also created a tax
credit from net operating loss carrybacks to prior years. (See note 10 to
Consolidated Financial Statements.)
DISCONTINUED OPERATIONS, NET OF TAX. Discontinued operations, net of tax
decreased substantially during the year because the sale of Kover was
consummated in the first quarter of 1998. Kover's 1998 results were not
material.
NET LOSS. The net loss for 1998 resulted primarily from the Company's inability
to consolidate the acquisitions made in late 1997 and during 1998 into the
existing organizational structure. In addition approximately $711,000 was
written off relating to costs incurred in pursuing the HCWS acquisition. Costs
increased as a percent of revenues in virtually every major category of expense.
Specially significant were increases in professional fees including professional
services, financial consulting and auditing fees. Virtually no synergies were
obtained from the 1997 and 1998 acquisitions and in substantially all cases
costs were allowed to increase without proper management participation in cost
reduction efforts. Due to improper accounting and financial controls internal
and external reports issued during 1998 did not reflect the real performance of
the Company.
YEAR 2000 DISCLOSURE. In the past, many computer software programs were written
using two digits rather than four to define the applicable year. As a result,
date sensitive computer software may recognize a date using "00" as the year
1900, rather than the year 2000. This is generally referred to as the "Year
2000" issue. If this situation occurs, the potential exists for computer system
failure or miscalculations by computer programs, which could disrupt operations.
During 1998, the Company completed the implementation of its new computer system
to use 4-digit year fields and therefore believes itself to be Year 2000
compliant. After analysis of the Company's exposure to the impact of Year 2000
issues, management believes any additional costs of addressing the remaining
Year 2000 issues to be less than $50,000.
The Company is exposed to the risk that one or more of its vendors or
customers, including financial institutions, could experience Year 2000 problems
that impact their abilities to meet obligations to the Company. To date, the
Company is not aware of any vendor or customer Year 2000 issue that would have a
material adverse impact on the Company's operations. The Company has no means
of ensuring that its vendors and customers will be Year 2000 ready. The
inability of such vendors and customers to complete their Year resolution
process in a timely fashion could have an adverse impact on the Company. The
effect of non-compliance by vendors and customers is not determinable at this
time. The Company's Year 2000 risks are considered minimal and no contingency
plans are believed to be necessary.
Widespread disruptions in the national or international economy, including
disruption affecting the financial markets, resulting from Year 2000 issues, or
in certain industries, such as commercial or investment banks, could also have
an adverse impact on the Company. The likelihood and effect of such disruptions
is not determinable at this time.
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LIQUIDITY AND CAPITAL RESOURCES. The Company's sources of cash during 1998
were the proceeds from the sale of Kover and bank borrowings. Operating
activities used cash primarily from the Company's inability to achieve a
profitable level of operations. The cash used in investing activities was
principally due to the Company's 1998 acquisition program. Financing activities
provided cash from bank borrowings.
The Company must make improvement at the SDSSC incinerator during 1999-2000 of
approximately $6 million to meet new emission standard requirements. In
addition, the Company plans to borrow another $1 million for other company wide
improvements. The Company expects to obtain those funds from additional bank
borrowings and/or equity capital. There can be no assurances that the Company
will be able to obtain such funds. In such event, the Company may be required
to reduce the amount of waste processed or close the facility until the funds
to make the renovations become available.
The Company is presently not in compliance with minimum tangible net worth and
other financial covenants set forth in its bank credit facility and other notes
payable. The Lenders have not declared the Company in formal default or
accelerated payment of the Company's indebtedness thereunder. There can be no
assurance that they will not do so in the future. The Company is engaged in
discussions with prospective sources of additional working capital and with its
current lenders. There can be no assurance that the Company will successfully
negotiate a new credit facility or obtain additional working capital. The
Company's current credit facility which would have provided a maximum of $35
million in financing has been placed on hold by the lenders. The revolving
portion of the credit facility expires on July 31, 1999. Subsequent to year end
the Company's new management team implemented a series of cost reduction and
performance enhancing measures which are expected to reduce considerably the
operating expenses of the Company. These cost reduction measures are anticipated
to result in positive cash flow from operations in the third quarter of 1999.
Management expects to negotiate with existing lenders to obtain waivers on the
default status of various provisions of the loan agreement. Management believes
it will raise additional working capital of approximately $2 million through a
private placement of debt securities in conjunction with the existing bank
credit facility. These additional funds, along with a positive cash flow, are
expected to be sufficient for the operational cash needs of the Company during
the next 12 months.
The Company's consolidated financials are presented on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. During 1997 and 1998, the Company purchased
several companies in the medical waste business in contemplation of integrating
the acquisitions into the Company's core business. Unfortunately, the Company
was unable to successfully integrate and achieve profitability from these
acquisitions. In addition, internal growth was limited due to the Company's
inability to formulate an effective marketing plan, integrate its acquisitions
and manage the Company's growth. In early 1999, with new management the Company
began its plan to aggressively control costs, control expansion efforts and
focus on the Company's core business.
The Company is also in discussion with several lenders for additional funds, as
well as obtaining a waiver to cure its financial covenant violations.
Discussions are also being held with private investors to raise equity capital.
The Company believes the additional loan and equity proceeds, if obtained, will
be adequate to fund its on-going operations.
The Company's continued existence is dependent upon its ability to resolve its
liquidity problems principally by implementing cost reduction strategies and
obtaining positive results from increased marketing efforts.
22
<PAGE> 23
The financial statements do not include any adjustments to reflect the possible
future effect on the recoverability and classification of assets for the
amount of classification of liabilities that may result from the possible
inability of the Company to continue as a going concern. There is no assurance
that the Company will be able to achieve its recovery plan as described above.
(See Independent Auditor's Report which contains an explanatory paragraph
regarding the Company's ability to continue as a going concern.)
This Form 10-KSB contains certain forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with respect to the
financial condition, results of operations and business of the Company, and its
subsidiaries, including statements made under Management's Discussion and
Analysis of Financial Condition and Results of Operations. These forward
looking statements involve certain risks and uncertainties. No assurance can be
given that any of such matters will be realized. Factors that may cause actual
results to differ materially from those contemplated by such forward looking
statements include, amount other, the following: the competitive pressure in the
industry; general economic and business conditions; the ability to implement
and the effectiveness of business strategy and development plans; quality of
management; business abilities and judgment of personnel; and availability of
qualified personnel; labor and employee benefit costs.
IMPACT OF INFLATION. To the extent permitted by competition the Company passes
increased costs attributed to inflation to its customers by increasing sales
prices over a reasonable period of time. Also, it is the Company's policy to
place all of its major supplier purchases out to bid. During 1998 these policies
were not carried out in an organized financial structure resulting in
significant costs increases for the year. Subsequent to year end significant
changes in operating philosophies were implemented that should result in
immediate cost reductions during 1999.
NEW ACCOUNTING PRONOUNCEMENTS.
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-up
Activities," provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. The SOP is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company's management
does not expect this SOP to have a meterial impact on the Company's financial
position or results of operations.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, Accounting For The Costs Of Computer Software
Developed Or Obtained For Internal Use ("SOP 98-1"). SOP 98-1 requires computer
software costs associated with internal use software to be expensed as incurred
until certain capitalization criteria are met. The Company will adopt SOP 98-1
on January 1, 1999. Adoption of this statement is not expected to have a
material impact on the Company's financial position, results of operations, or
cash flows.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Statement applies to all entities and is
effective for all fiscal quarters of the fiscal years beginning after June 15,
1999. The Company did not engage in derivative instruments or hedging activities
in any periods presented in the consolidated financial statements and this
statement is not expected to have a material impact on the Company's financial
position, results of operations or cash flow.
23
<PAGE> 24
ITEM 7. FINANCIAL STATEMENTS.
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants ............................................... 25
Consolidated Balance Sheet as of December 31, 1998 and 1997 ...................................... 26
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997 ............. 27
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1998 and 1997 ... 28
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997 ............. 29
Notes to Consolidated Financial Statements ....................................................... 30
</TABLE>
24
<PAGE> 25
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, 1998 and 1997, 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, 1998 and 1997, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in notes 6 and 18 to the
financial statements, the Company is in default with certain lenders and has
incurred significant losses from operations, negative cash flows and a working
capital deficiency as of and for the year ended December 31, 1998. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regards to these matters are described in note
18. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
Miami, Florida BDO SEIDMAN, LLP
April 20, 1999, except for
Note 17 which is as of
July 19, 1999
25
<PAGE> 26
Med/Waste, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 113,146 $ 984,708
Accounts receivable, net of allowances of $740,000 and $108,000 in 1998 and 1997, 5,713,044 5,525,528
respectively
Net assets of discontinued operations (note 9) -- 2,632,909
Inventories 352,941 238,653
Prepaid expenses and other 1,359,436 735,779
------------ ------------
Total current assets 7,538,567 10,117,577
Notes receivable 150,000 --
Property, plant and equipment, net (note 4) 14,172,260 10,636,803
Goodwill (note 2) 19,906,832 11,919,106
Other intangibles, net (notes 2 and 5) 6,955,707 1,397,860
Other assets 715,279 697,718
Investment in unconsolidated subsidiary (note 3) 717,399 --
------------ ------------
$ 50,156,044 $ 34,769,064
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 6,679,770 $ 2,511,280
Current portion of notes payable and debentures (note 6) 20,120,645 4,094,861
Current portion of capital lease obligations (note 11) 679,935 397,371
Income tax payable (note 10) -- 116,000
Customer deposits 19,566 23,640
------------ ------------
Total current liabilities 27,499,916 7,143,152
Capital lease obligations, less current portion (note 11) 901,634 502,239
Notes payable and debentures less current portion (note 6) 1,957,023 8,496,605
Deferred income tax liability (note 10) -- 702,000
------------ ------------
Total liabilities 30,358,573 16,843,996
Commitments and contingencies (notes 11, 13 and 18)
Shareholders' equity (notes 2, 7, 8, 14, and 17):
Series A Preferred stock, .01 par value; 60,000 shares authorized, 28,869 and 42,969
shares outstanding at 1998 and 1997 respectively ($100 per share liquidation preference) 289 430
Common stock, $.001 par value; 10,000,000 shares authorized; 6,650,647 and 4,629,699 6,651 4,630
shares issued and outstanding
Additional paid-in capital 30,289,507 18,625,685
Warrant subscriptions and option notes receivable (387,466) (258,003)
Deficit (10,080,853) (417,017)
------------ ------------
19,828,128 17,955,725
Less cost of treasury stock: 11,824 shares (30,657) (30,657)
------------ ------------
Total shareholders' equity 19,797,471 17,925,068
------------ ------------
$ 50,156,044 $ 34,769,064
============ ============
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
26
<PAGE> 27
Med/Waste, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues $ 24,924,664 $ 13,547,960
------------ ------------
Costs and expenses:
Operating costs 21,195,204 8,914,359
Administrative and selling expenses 10,743,423 3,378,939
Amortization of intangibles 999,536 187,924
Failed acquisitions expense (Note 2) 710,963 --
------------ ------------
Total 33,649,126 12,481,222
------------ ------------
Operating (loss) profit (8,724,462) 1,066,738
Other (expense) income:
Gain from insurance settlement (note 16) -- 1,357,376
Interest expense (1,598,628) (598,078)
Other 352,801 219,456
------------ ------------
Other (expense) income, net (1,245,827) 978,754
------------ ------------
(LOSS) INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (9,970,289) 2,045,492
Income tax (benefit) provision (note 10) (580,835) 627,768
------------ ------------
(Loss) income from continuing operations (9,389,454) 1,417,724
Discontinued operations (note 9) -- 131,671
------------ ------------
NET (LOSS) INCOME (9,389,454) 1,549,395
Preferred stock dividend 274,382 96,680
------------ ------------
Net (loss) income available to common shareholders $ (9,663,836) $ 1,452,715
============ ============
(Loss) earnings per share - basic
From continuing operations $ (1.68) $ .52
Discontinued operations, net of taxes .05
------------ ------------
$ (1.68) $ .57
============ ============
Weighted Average number of common shares outstanding-basic 5,764,566 2,559,905
(Loss) earnings per share - diluted
From continuing operations $ (1.68) $ .38
Discontinued operations, net of taxes -- .03
------------ ------------
$ (1.68) $ .41
============ ============
Weighted Average number of common shares
outstanding - diluted 5,764,566 3,922,848
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
27
<PAGE> 28
Med/Waste, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 2,328,499 $2,329
Conversion of debentures into common shares -- -- 458,000 458
Issuance of preferred shares 42,969 $ 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
Exercise of options -- -- 40,000 40
--------- ------ --------- ------
Balance at December 31, 1997 42,969 430 4,629,699 $4,630
Conversion of preferred stock to common stock (14,100) (141) 388,935 389
Conversion of debentures to common stock 558,579 559
Issuance of common stock for the acquisition of Decatur 133,334 133
Issuance of common stock for the acquisition of Med-Waste, Inc. 41,334 41
Issuance of common stock for BMW acquisition 16,000 16
Issuance of common stock for the acquisition of SMI 500,000 500
Issuance of common stock for Bio-Tech, Inc. 26,666 27
Issuance of common stock for certain assets acquired from
Biomade, Inc 75,992 76
Stock issued for services 1,989 2
Warrants Exercised 38,417 38
Options Exercised 239,702 240
--------- ------ --------- ------
Balance at December 31, 1998 28,869 $ 289 6,650,647 $6,651
--------- ------ --------- ------
</TABLE>
<TABLE>
<CAPTION>
WARRANT
SUBSCRIPTIONS
ADDITIONAL AND TOTAL SHARE-
PAID IN OPTION NOTES TREASURY HOLDERS'
CAPITAL RECEIVABLE DEFICIT STOCK EQUITY
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1997 $ 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)
------------ ----------- ------------ ----------- -----------
Balance at December 31, 1997 $ 18,625,685 (258,003) $ (417,017) $ (30,657) $17,925,068
------------ ----------- ------------ ----------- -----------
Conversion of preferred stock to common stock 248
Conversion of debentures to common stock 1,335,343 1,335,902
Issuance of common stock for the acquisition of
Decatur 992,378 992,511
Issuance of common stock for the acquisition of
Med-Waste, Inc. 309,959 310,000
Issuance of common stock for BMW acquisition 79,984 80,000
Issuance of common stock for the acquisition of
SMI 6,999,500 7,000,000
Issuance of warrants for the acquisition of SMI 25,000 25,000
Issuance of common stock for Bio-Tech, Inc. 196,635 196,662
Issuance of common stock for certain assets
acquired from Biomade, Inc 549,924 550,000
Stock issued for services 9,998 10,000
Options issued for services 245,870 245,870
Warrants issued for services 253,000 253,000
Warrants Exercised 114,985 115,023
Options Exercised 551,246 (179,463) 372,023
Proceeds from stock subscription 50,000 50,000
Net (loss) for the year (9,389,454) (9,389,454)
Dividends (274,382) (274,382)
------------ ----------- ------------ ----------- -----------
Balance at December 31, 1998 $ 30,289,507 $ (387,466) $(10,080,853) $ (30,657) $19,797,471
============ =========== ============ =========== ===========
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
28
<PAGE> 29
Med/Waste, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings from continuing operations $ (9,389,454) $ 1,417,724
Adjustments to reconcile net earnings to net cash (used) in operating
activities,
Gain from insurance settlement (1,357,376)
Depreciation and amortization 2,479,577 885,560
Provision for doubtful notes and accounts receivable 631,600 94,524
Loss on disposal of operating equipment 195,170 --
Equity in net income of unconsolidated subsidiary (36,550) --
Issuance of stock, options, and warrants for services 508,870 --
Changes in operating assets and liabilities,
net of effects of acquisitions:
Decrease (Increase) in accounts receivable 1,493,072 (3,164,725)
Decrease in notes receivables -- 306,000
(Increase) in inventories (23,863) (54,822)
(Increase) in prepaid expenses (544,698) (572,160)
Decrease (Increase) in other assets 335,804 (521,884)
Increase in accounts payable and accrued
liabilities and income taxes payable 1,578,060 624,217
(Decrease) in customer deposits (4,074) (14,924)
(Decrease) increase in deferred income tax liability (818,000) 702,000
------------ ------------
Net cash used in operating activities (3,594,486) (1,655,866)
Net Cash used in Discontinued Operations -- (217,227)
INVESTING ACTIVITIES:
Proceeds from settlement with insurance company -- 3,318,600
Proceeds on sale of Kover 1,200,000 --
Proceeds on note for sale of Kover 1,350,000 --
Acquisition of businesses, net of cash acquired (6,838,743) (16,151,315)
Purchase of operating equipment (1,641,432) (4,004,855)
------------ ------------
Net cash used in investing activities (5,930,175) (16,837,570)
FINANCING ACTIVITIES:
Borrowing under line of credit 1,296,382 2,980,618
Preferred stock dividends (274,382)
Additions to long term debt 14,300,000 6,063,277
Payments on long term debt (6,531,475) (132,273)
Principal payments under capital leases (674,718) (86,060)
Issuance of common and preferred stock -- 10,757,989
Proceeds from exercising options and warrants 487,292 --
Payment of stock subscription receivable 50,000 30,000
------------ ------------
Net cash provided by financing activities 8,653,099 19,613,551
------------ ------------
Net increase (decrease) in cash and cash equivalents (871,562) 902,888
Cash and cash equivalents at beginning of period 984,708 $ 81,820
------------ ------------
Cash and cash equivalents at end of period $ 113,146 $ 984,708
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Notes received for sale of Kover $ (1,500,000) $ --
Notes issued for acquisition of Decatur 1,500,000 --
Fixed assets acquired through capital leases 1,336,677 --
Common stock issued for the acquisition of SMI 7,000,000 --
Warrants issued for the acquisition SMI 25,000 --
Common stock issued for the acquisition Decatur 992,511 --
Common stock issued for the acquisition of Med-Waste, Inc. 310,000 --
Common stock issued for the acquisition of BMW 80,000 --
Common stock issued for the acquisition of Biomade assets 550,000 --
Common stock issued for the acquisition of Biotech 196,662 --
Conversion debentures to common stock 1,335,902 1,339,978
Conversion of preferred stock to common stock 1,410,000 --
Cash paid during the year for interest 263,532
Notes for acquisition of BMG -- 500,000
Shares issued in connection with acquisitions of BMG, Inc. -- 1,000,000
Issuance of common stock for note receivable 179,463 --
</TABLE>
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
29
<PAGE> 30
Med/Waste, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Med/Waste, Inc. (the "Company") is a holding company incorporated in November
1991 under the laws of the State of Delaware. The Company and through its
subsidiaries, is engaged in the businesses of medical waste management. The
medical waste management operations are conducted primarily through the
following subsidiaries, collectively referred to as the "Waste Companies":
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")
Safety Disposal System of Virginia, Inc. ("SDSVA)
Target Medical Waste Services, LLC ("Target")
Med-Waste, Inc. ("Decatur")
Sanford Motors, Inc. ("SMI")
BMW Medtec of West Virginia ("BMW")
Incendere, Inc. ("Incendere")
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions have been
eliminated.
PREPARATION OF FINANCIAL STATEMENTS
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 amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
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 consist primarily of supplies used to store waste during transport
and are accounted for under the First-in-First-out (FIFO) method of accounting
and are carried at the lower of cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated 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.
30
<PAGE> 31
GOODWILL AND OTHER INTANGIBLE ASSETS
The excess of the cost over the fair value of net assets of purchased businesses
is recorded as goodwill and is amortized on a straight-line basis over 25 years
(40 years prior to 1998). The effect of this change in estimate was not
material. Other intangible assets primarily include covenants not to compete,
customer lists, patents and permits. The cost of other intangibles in amortized
on a straight-line basis over their estimated useful lives, ranging from five to
twenty-five years. The Company reviews the carrying value of goodwill and other
intangible assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash and cash
equivalents, accounts receivable, accounts payable, and long-term debt. The fair
values of these financial instruments were not materially different from their
carrying values. Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. Credit
risk on trade receivable is substantially minimized as a result of the large
customer base. No single customer represents greater than 5% of total accounts
receivable. The Company maintains allowance for potential credit losses and
performs on going credit evaluations.
STOCK BASED COMPENSATION
The Company recognizes compensation expense for its stock option incentive plans
using the intrinsic value method of accounting. Under the terms of the intrinsic
value method, compensation cost is excess, if any of the quoted market price of
the stock at the grant date, or other measurement date, over the amount an
employee must pay to acquire the stock.
INCOME TAXES
Income taxes are accounted for using the liability approach under the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes".
NET (LOSS) INCOME 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.
31
<PAGE> 32
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-up
Activities," provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred. The SOP is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company's management
does not expect this SOP to have a material impact on the Company's financial
position or results of operations.
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, Accounting For The Costs Of Computer Software
Developed Or Obtained For Internal Use ("SOP 98-1"). SOP 98-1 requires computer
software costs associated with internal use software to be expensed as incurred
until certain capitalization criteria are met. The Company will adopt SOP 98-1
on January 1, 1999. Adoption of this statement is not expected to have a
material impact on the Company's financial position, results of operations, or
cash flows.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Statement applies to all entities and is
effective for all fiscal quarters of the fiscal years beginning after June 15,
1999. The Company did not engage in derivative instruments or hedging activities
in any periods presented in the consolidated financial statements.
2. ACQUISITIONS
On September 25, 1997, the Company, through SDSGA, acquired substantially all of
the assets and business of Environmental Waste Reduction, Inc. ("EWR"). EWR
provides medical waste management services to medical waste generators in
Georgia, South Carolina and North Carolina.
On November 7, 1997, the Company, purchased 100% of the capital stock of
Incendere, Inc. ("Incendere"). Incendere provides medical waste management
services to medical waste generators in Pennsylvania, Virginia, North Carolina,
South Carolina and Maryland.
On November 10, 1997, the Company purchased certain assets of BMG. BMG provides
medical waste sterilization and management services to medical waste generators
in the north east United States. In connection with the purchase, the Company
issued 200,000 shares of common stock valued at $5.00 per share, the then market
value.
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.
On March 31, 1998, the Company purchased the capital stock of Med Waste, Inc. an
unrelated Pennsylvania corporation. Med Waste, Inc. provides medical waste
management services to medical waste generators in Pennsylvania. In connection
with the purchase, the Company issued 41,000 shares of common stock with a
guaranteed fair value after two years of $7.50.
32
<PAGE> 33
In June 1998, the Company purchased from Biomade Plastics, Inc. a subsidiary of
ARK Industries, Inc. (formerly Bio-Medical Waste Systems, Inc.) molds for the
manufacture of reusable sharps containers, lids and accessories used in the
"Sharps Express" program, together with all proprietary knowledge, patents, 510K
approvals, trade secrets, referral lists, technical information, quality control
data, processes (whether secret or not), methods and other similar know how or
rights. Biomade Plastics, Inc. operated a reusable sharps container program
through licensing territories to third parties. The Company received an
assignment of all license agreements as well as all inventories of such
containers.
In June 1998, the Company acquired Target based in Mobile, Alabama. Target
operates a medical waste microwave facility and provides medical waste
management services to customers in Alabama, Florida, Louisiana and Mississippi.
In June 1998, the Company acquired certain assets and assumed certain
liabilities of Biotech Disposal, Inc. ("Biotech"). Biotech provides medical
waste management services to generators of medical waste in Broward County,
Florida. In connection with the purchase, the Company issued 26,666 shares of
common stock with a guaranteed value after one year of $6.50.
In June 1998, the Company acquired Decatur an unrelated Alabama corporation
based in Decatur, Alabama. Decatur owns and operates a medical waste autoclave
facility and provides medical waste management services to medical waste
generators in the states of Alabama, Georgia and Tennessee. In connection with
the purchase, the Company issued 133,334 shares of common stock of which the
Company guaranteed fair value of 120,000 shares after two years of $7.50 per
share.
In September 1998, the Company purchased BMW, a medical waste transportation
company operating in West Virginia, Eastern Ohio and Western Pennsylvania. In
connection with the purchase, the Company issued 16,000 shares of common stock
valued at the then market value.
In October 1998, the Company acquired SMI and its related companies. SMI
provides medical waste management services to medical waste generators in the
Pennsylvania, New Jersey, Delaware, and Maryland region and owns a 49% interest
in an incineration facility in Matthews, North Carolina. In connection with the
purchase, the Company issued 500,000 shares of common stock with a guaranteed
fair value of $14 per share after three years. Payments under such guarantee can
be made in cash or in additional shares of stock at the option of the Company.
The following summarized unaudited pro forma consolidated results of operations
have been prepared as if the aforementioned acquisitions had occurred at the
beginning of 1997 and includes pro forma adjustments for interest, depreciation
and amortization:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
REVENUES $ 29,932,645 $33,857,980
Income (loss) from continuing operations (9,389,463) 330,062
Discontinued operations, net of taxes -- $ 131,671
Net income (loss) (9,389,463) 461,733
EPS - Basic and Diluted
Income (loss) from Continuing Operations (1.50) .07
Income from Discontinued Operations, net of taxes -- .03
Net Income (loss) (1.50) .10
------------ -----------
Weighted Average number of common share
outstanding-basic $ 6,239,677 $ 4,777,237
</TABLE>
33
<PAGE> 34
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.
All of these acquisitions were accounted for by the purchase method of
accounting. Accordingly, purchase price includes the guaranteed fair value of
common stock issued in connection with the acquisition and the results of
operations of the acquired entities are included in the accompanying
consolidated Statements of Operations from the respective dates of acquisition.
During 1997 and 1998 the Company had capitalized certain costs relating to the
potential acquisition of a company. During the fourth quarter of 1998, the
Company expensed the capitalized costs of $710,963 due to the Company's failure
to complete the acquisition.
In each acquisition, the purchase price has been allocated to the fair value of
tangible and identified intangible assets acquired and liabilities assumed as
follows:
<TABLE>
<CAPTION>
In millions of dollars
EWR Incendere BMG Biotech PA Target Decatur
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Value of common stock issued $ 1.00 $ 0.20 $ 0.31 $ -0- $ 1.00
Cash paid including expenses net of
cash acquired $ 2.34 $ 12.49 1.75 0.01 1.32 0.51
Fair value of liabilities assumed 0.34 1.10 0.91 0.05 0.02 1.80
-------------------------------------------------------------------------
Total amount paid $ 2.68 $ 13.59 $ 3.66 $ 0.26 $ 0.33 $ 1.32 $ 3.31
=========================================================================
Fair value of tangible assets 1.04 3.92 1.20 0.04 0.07 0.46 0.48
acquired
Fair value of intangible assets 1.10 0.69 0.20 0.60 1.00
acquired
Goodwill 1.64 8.57 1.77 0.02 0.26 0.26 1.83
-------------------------------------------------------------------------
Total net assets acquired $ 2.68 $ 13.59 $ 3.66 $ 0.26 $ 0.33 $ 1.32 $ 3.31
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
In millions of dollars
SMI BMW Bio-Made
----------------------------------
<S> <C> <C> <C>
Value of common stock issued $ 7.03 $ 0.08 $ 0.550
Cash paid including expenses net of
cash acquired 4.17 0.17 0.630
Fair value of liabilities assumed 1.34 0.19
----------------------------------
Total amount paid $ 12.54 $ 0.44 $ 1.180
==================================
Fair value of tangible assets 3.42 0.15 0.440
acquired
Fair value of identifiable intangible
assets acquired 3.55 0.23 0.330
Goodwill 5.57 0.06 0.410
----------------------------------
Total net assets acquired $ 12.54 $ 0.44 $ 1.180
==================================
</TABLE>
3. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
During 1998, (as part of the SMI acquisition) the Company acquired a 49%
interest in Matthews Acquisition Corporation ("MAC"), an incineration facility
located in North Carolina, that owns all of the capital stock of BMWNC, Inc.
("BMWNC") and Biomedical Services, Inc. ("BMS"). Both BMWNC and BMS were debtors
in possession pursuant to Chapter 11 of the Bankruptcy Code. This transaction
was approved by the bankruptcy court on April 3, 1998. In connection therewith,
MAC acquired BMWNC and BMS for approximately $1 million in cash and the issuance
of $2.1 million, 8% notes payable, due in 2004. The notes are collateralized by
the assets and stock of BMWNC and BMS. The Company recorded the transaction
according to the equity method and, as such, recorded its initial investment at
cost and has adjusted its investment for its respective percentage of
undistributed income, which are not material to the Company's financial
statements. The Company does not have a controlling interest in MAC. The
Company's purchase agreement for the 49% interest stipulates that the Company's
interest in MAC will increase to 51% upon the occurrence of certain events. Upon
acquiring 51% interest, the Company would have a controlling interest, and would
consolidate the accounts of MAC.
34
<PAGE> 35
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31:
1998 1997
------------ ------------
Land $ 527,700 $ 416,000
Building 2,819,817 1,988,541
Incinerator and autoclaves 4,310,947 3,992,099
Operations equipment 5,978,103 4,833,600
Computer, office and other equipment 3,119,221 706,838
------------ ------------
16,755,788 11,937,018
Less accumulated depreciation (2,583,528) (1,300,275)
------------ ------------
$ 14,172,260 $ 10,636,803
============ ============
Depreciation expense amounted to $1,480,041 and $576,953 for 1998 and 1997,
respectively. Included in operations equipment and computer, office and other
equipment is approximately $1,500,000 and $1,000,000 of equipment under capital
leases at December 31, 1998 and 1997 respectively.
5. OTHER INTANGIBLE ASSETS
Other intangible assets consist of the following at December 31:
1998 1997
----------- -----------
Licenses and permits $ 4,150,000 --
Customer lists 3,208,972 $ 1,669,860
----------- -----------
7,358,972 1,669,860
Less accumulated amortization (403,265) (272,000)
----------- -----------
$ 6,955,707 $ 1,397,860
=========== ===========
6. NOTES PAYABLE AND DEBENTURES
Notes payable and debentures consist of the following at December 31:
1998 1997
----------- -----------
Note payable - Chambers (1) $ 1,860,642 $ 2,173,485
Term loans (2) 13,154,447 6,000,000
Line of credit (2) 5,000,000 2,703,618
Debentures (3) -- 1,327,096
Notes payable (4) 1,826,468 387,267
Other 236,111 --
----------- -----------
22,077,668 12,591,466
Less current portion 20,120,645 4,094,861
----------- -----------
$ 1,957,023 $ 8,496,605
=========== ===========
35
<PAGE> 36
The minimum annual debt payments for the next five years required under the
terms of the notes payable are as follows:
1999 $ 20,120,645
2000 1,616,176
2001 119,052
2002 116,571
2003 32,098
Thereafter 73,126
--------------
$ 22,077,668
==============
(1) The note is non-interest bearing and is payable quarterly. It is
reflected, net of approximately $139,358 of 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 did not make
payments for the first three quarters of 1999 amounting to $675,000
and is therefore in default of the debt agreement. Accordingly, such debt
has been classified as current.
(2) During 1998 the Company restructured the term loan and line of credit
outstanding at December 31, 1997. At December 31, 1998 the Company has a
line of credit with a bank for $5 million. The line is a demand note and
bears interest at prime plus 1% (8.75% at December 31, 1998). Interest is
payable monthly. At December 31, 1998, the outstanding balance on the line
is $5,000,000. In addition, the Company has term loans with the bank of
$13,154,447 at December 31, 1998. The term loans bear interest at a rate
of prime plus 1% (8.75% at December 31, 1998). Certain term loans called
for monthly payments of principal plus interest, and others are interest
only monthly payments. The term loans in aggregate include monthly
principal payments of $83,333 plus interest with a balloon payment due on
April 30, 1999. The line of credit and term loans are collateralized by
substantially all of the Company's assets and include certain financial
covenants.
In January 1999, the Company refinanced the line of credit and term loans
with its existing bank through a new Credit Agreement. The Credit
Agreement includes a revolving credit loan for $10,000,000 and a
convertible credit loan of $25,000,000. Generally, borrowings under the
revolving credit loan and the convertible credit loan together may not
exceed 80% of the Company's eligible accounts receivable, as defined.
Provided that no default or event of default, as defined, has occurred,
the total principal balance of the convertible credit loan would be
converted to a term loan on July 31, 2000 and is payable monthly in an
amount equal to one eighty-fourth (1/84th) of the aggregate principal
balance of the converted loan. Final payment plus accrued interest is due
on July 31, 2004. The revolving credit loan is due July 31, 1999. Interest
on the revolving credit loan and convertible credit loan is payable
monthly at a rate equal to the Prime Rate or the LIBOR Rate plus or minus
an applicable margin as defined in the Credit Agreement. The Credit
Agreement requires the Company to maintain minimum levels of liquidity,
profitability and net worth.
36
<PAGE> 37
The Company is currently in violation of all of the financial covenants
pertaining to the Credit Agreement. The Company has not obtained waivers
from the bank and as such, has classified the line of credit and term
loans outstanding at December 31, 1998 as current liabilities. The Company
has been negotiating with its lenders for the purposes of restructuring
the Company's debt and these lenders have not called the outstanding
balances.
(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. 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. During 1998, $1.7
million of Debentures were converted into 558,579 shares of Common Stock.
As of December 31, 1998, there were no Debentures outstanding.
(4) On November 6, 1997 the Company issued a $500,000 non-interest purchase
money note secured by real estate. The note is payable monthly over five
years and the balance at December 31, 1998 amounted to $326,468 and is
reflected, net of a $65,200 discount. The discount is based on an imputed
interest rate of 10%.
On June 29, 1998 the Company issued five promissory notes to the previous
shareholders of Decatur aggregating $1,500,000. The notes bear interest at
the Prime Rate (7.75% at December 31, 1998) and the principal balances on
the notes with accrued interest are due June 30, 2000.
(5) On June 29, 1998 the Company issued five promissory notes to the previous
shareholders of Decatur aggregating $1,500,000. The notes bear interest at
the Prime Rate (7.75% at December 31, 1998) and the principal balances on
the notes with accrued interest are due June 30, 2000.
37
<PAGE> 38
7. STOCK WARRANTS
In February 1997, October 1997 and November 1997, the Company issued an
aggregate of 273,848 warrants to its placement agent in connection with the
issuance of the Debentures, the Series A Preferred Stock and Common Stock in
various private placements. Such warrants have exercise prices which range from
$2.925 to $5.00 per share and expire in February 2002.
In November 1997, the Company issued an aggregate of 58,185 warrants 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. The Company valued these warrants using the Black
Scholes method.
In August 1997, the Company issued 25,000 warrants to a financial public
relations firm at the then fair market value of the underlying stock. Such
warrants have an exercise price of $4.25 per share and expire August 2002.
The Company valued these Warrants using the Black Scholes method.
In February 1998, the Company issued 14,117 warrants to holders of Series A
Preferred Stock who exchanged their shares of Series A Preferred for Common
Stock. These Warrants have an exercise price of $3.625, and were issued below
the market value of underlying stock on date of grant and expire December 2002.
The Company valued these Warrants using the Black Scholes method.
In April 1998, the Company issued 50,000 warrants to a financial advisor with an
exercise price of $5.88. These warrants were issued below the market value of
the underlying stock on the date of grant and expire April 2003. In this
connection, the Company valued these warrants under the Black Scholes method.
In September 1998, the Company issued 75,000 warrants to an investment banking
firm, of these warrants, 37,500 have an exercise price of $3.63, equal to the
then market value of the underlying stock at the date of grant. The remaining
37,500 warrants have an exercise price of $5.00. These warrants expire September
2001. The Company valued these warrants using the Black Scholes method.
In October 1998, in connection with the acquisition of SMI, the Company issued
100,000 warrants to the shareholders of SMI. The exercise price is $8.00 per
share, expiring October 2003.
All values of warrants, except those related to acquisitions and capital
raising activities are charged to operations.
8. 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 1998 and 1997, the Company granted options to purchase 93,000
and 57,000 shares of common stock, respectively. In December 1998, the Company
granted options to purchase 36,000 shares to three Directors who joined the
Board at that time. Each option has a term of five years and is exercisable
commencing six months following the date of grant.
38
<PAGE> 39
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 60,000 and 20,000 shares were granted under the 1993 Plan in 1998 and
1997, respectively, at the then fair market value of the underlying shares. At
December 31, 1998, options to purchase 148,875 shares under the 1993 Plan were
exercised, and options to purchase 502,550 shares were outstanding at exercise
prices ranging from $2.125 to $4.3125 per share. Options to purchase an
aggregate of 835,000 and 400,000 shares were granted under the 1996 Plan in 1998
and 1997, respectively, at the then fair market value of the underlying shares.
As of December 31, 1998 options to purchase 1,200,000 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, 1998, options granted under all plans 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.
FASB Statement No. 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 1998 and
1997, respectively: no dividends; expected volatility of 46% and 25%, risk-free
interest rates of 5.5% and 6% and expected lives of 3.7 and 2 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:
39
<PAGE> 40
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997
------------ ----------
<S> <C> <C>
AS REPORTED
Net (loss) income from Continuing Operations $ (9,389,454) $1,417,724
Net Income from Discontinued Operations, net of taxes -- $ 131,671
------------ ----------
Net (loss) Income $ (9,389,454) $1,549,395
PRO FORMA
Net (loss) income from Continuing Operations $ (9,871,648) $1,399,729
Net income from Discontinued Operations, net of $71,000 and
$34,000 of taxes $ -- $ 131,671
------------ ----------
Net (loss) income $ (9,871,648) $1,531,400
AS REPORTED - BASIC
(Loss) earnings per share - basic
From continuing operations $ (1.68) $ 0.52
Discontinued operations, net of taxes -- 0.05
------------ ----------
(Loss) earnings per share $ (1.68) $ 0.57
============ ==========
PRO FORMA - BASIC
(Loss) earnings per share - basic
From continuing operations $ (1.76) $ 0.51
Discontinued operations, net of taxes -- 0.05
------------ ----------
(Loss) earnings per share $ (1.76) $ 0.56
============ ==========
AS REPORTED - DILUTED
(Loss) earnings per share - diluted
From continuing operations $ (1.68) $ 0.38
Discontinued operations, net of taxes -- 0.03
------------ ----------
(Loss) earnings per share $ (1.68) $ 0.41
============ ==========
PRO FORMA - DILUTED
(Loss) earnings per share - diluted
From continuing operations $ (1.76) $ 0.37
Discontinued operations, net of taxes -- 0.03
------------ ----------
(Loss) earnings per share $ (1.76) $ 0.40
============ ==========
</TABLE>
40
<PAGE> 41
A summary of the status of the Company's three stock option plans as of December
31, 1998 and 1997, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1998
1998 SHARES WEIGHTED-AVG. 1997
(000) EXERCISE 1997 SHARES WEIGHTED AVG.
PRICE (000) EXERCISE PRICE
--------- ----------- --------- --------------
<S> <C> <C> <C> <C>
OUTSTANDING AT
BEGINNING OF YEAR 1,701 $ 2.81 1,369 $ 2.60
GRANTED 1,196 $ 5.99 372 $ 3.57
EXERCISED (240) $ 2.38 (40) $ 2.53
FORFEITED (189) $ 3.48
--------- ----------- --------- --------
OUTSTANDING AT YEAR-END 2,468 $ 4.34 1,701 $ 2.81
========= =========== ========= ========
OPTIONS EXERCISABLE AT YEAR-END 1,565 $ 3.98 1,223 $ 2.63
========= =========== ========= ========
WEIGHTED-AVERAGE FAIR VALUE OF
OPTIONS GRANTED $ 2.06 .53
</TABLE>
The following table summarizes information about fixed stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER WEIGHTED- WEIGHTED- NUMBER AVERAGE
OUTSTANDING AT AVERAGE AVERAGE EXERCISABLE AT EXERCISE PRICE
RANGE OF 12/31/98 REMAINING EXERCISE PRICE 12/31/98 (EXERCISABLE
EXERCISE PRICES (000) CONTRACTUAL LIFE (ALL OPTIONS) (000) OPTIONS ONLY)
--------------- ------------------------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.13-3.00 954 1.7 $2.41 800 $2.38
$3.01-5.00 498 3.1 $4.19 291 $3.93
$5.01-6.00 759 4.2 $5.78 217 $5.72
$6.01-8.50 257 4.5 $7.57 257 $7.57
--------------------------------------------------------------------------------------------------
2,468 3.0 $4.34 1,565 $3.98
==================================================================================================
</TABLE>
9. DISCONTINUED OPERATIONS, NET OF TAX.
On January 30, 1998, the Company sold 100% of the common stock of a wholly owned
subsidiary, the Kover Group, Inc. ("Kover") to MPK holding, LP ("MPK"), MPK is
owned by Phillip W. Kubec. 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"). In July 1998, MPK prepaid the
MPK Note and Kover Note plus accrued interest. The Company received $1,350,000
in cash and a new $150,000 promissory note from MPK ("the New Note"). Interest
on the New Note is payable monthly at the rate of 8.25% per annum, with the
principal balance due at the end of eleven years.
Kover's operations and the gain resulting from the sale of Kover were not
material for the year ended December 31, 1998.
41
<PAGE> 42
Net assets and statement of operations highlights of Kover, the discontinued
janitorial segment as of and for the year ended December 31, 1997 consist of
the following; such amounts for 1998 were not material.
1997
-----------
Cash and cash equivalents --
Accounts receivable, net of allowances 657,881
Current portion of notes receivable from franchisees 1,552,698
Other current assets 253,213
Notes receivable from franchisees, net of current
portion 943,495
Property, plant and equipment 138,353
Accounts payable and accrued liabilities (912,731)
Other liabilities --
------------
Net assets of discontinued operations $ 2,632,909
============
Revenues $ 11,470,750
Expenses (11,268,079)
------------
(Loss) Income before tax provision $ 202,671
Tax provision (71,000)
------------
Income from Discontinued operations $ 131,671
============
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
10. INCOME TAXES
At December 31, 1998, the Company had Federal net operating loss carryforwards
of approximately $11,132,000 that expire from 2004 through 2018. The Company
continually reviews the adequacy of the valuation allowance and recognizes tax
benefits when it is more likely than not that the benefits will be realized. For
financial reporting purposes, a valuation allowance of $3,194,000 at December
31, 1998 has been recognized to offset the net deferred tax assets related to
these carryforwards and other net deferred tax assets. Management has assessed
that it is more likely than not that these net deferred tax assets would not be
realized through future taxable income. No valuation allowance at December 31,
1997 had been recognized, principally due to the gain from its fire insurance
settlement. The Company has recorded an income tax benefit of $581,000 in 1998
principally due to the reversing of the net deferred tax liability reflected at
December 31, 1997. The Company had an income tax provision of $627,768 in 1997
as a result of providing principally for the gain on the fire insurance
settlement. Realization of the benefits related to the net operating loss
carryforwards may be limited in any one year due to the Section 382 change of
ownership rules.
<TABLE>
<CAPTION>
December 31
1998 1997
----------- -----------
<S> <C> <C>
CURRENT DEFERRED TAX ASSETS
Allowance for bad debts $ 260,000 $ 83,000
Reserve for medical costs 77,000
Other 9,000 38,000
----------- -----------
Total 346,000 121,000
----------- -----------
NONCURRENT DEFERRED TAX ASSETS & (LIABILITIES)
Difference in basis of property, plant and equipment (1,560,000) (352,000)
Difference in basis due to gain on Insurance settlement (555,000)
Difference in basis in intangible assets (84,000)
Net operating loss carryforwards 4,299,000 205,000
Nonexercised stock options and warrants 193,000
----------- -----------
Total 2,848.000 (702,000)
----------- -----------
Net deferred tax asset (liability)
before valuation allowance 3,194,000 (581,000)
Valuation allowance for net
deferred tax assets (3,194,000) --
----------- -----------
Net deferred tax asset (liability) $ -- $ (581,000)
=========== ===========
</TABLE>
The provision (benefit) for income taxes from continuing and discontinued
operations consists of the following components:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------------------------------
CONTINUING CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS
---------- ---------- ------------
<S> <C> <C> <C>
Current:
Federal $ -- $ (76,000) $ 96,000
State -- 75,000 21,000
--------- --------- ---------
-- (1,000) 117,000
--------- --------- ---------
Deferred:
Federal (476,000) 515,768 (38,000)
State (105,000) 113,000 (8,000)
--------- --------- ---------
(581,000) 628,768 (46,000)
--------- --------- ---------
$(581,000) $ 627,768 $ 71,000
========= ========= =========
</TABLE>
43
<PAGE> 44
The reconciliation between the provision (benefit) for income taxes and the
amount which results from applying the federal statutory tax rate of 34% to
income (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------------------
CONTINUING CONTINUING DISCONTINUED
OPERATIONS OPERATIONS OPERATIONS
----------------- -----------------------------
<S> <C> <C> <C>
Income tax expense (credit) at statutory
federal rate $(3,406,000) $695,000 $69,000
State taxes, net of federal (taxes) benefit (69,000) 125,000 8,000
Amortization of goodwill 50,000 -- --
Non-deductible expenses 32,000 24,768 3,000
Alternative minimum tax -- 20,000 0
Reversal of valuation allowance net
of state tax benefit 2,812,000 (237,000) (9,000)
---------------------------------------------
$(581,000) $627,768 $71,000
=============================================
</TABLE>
11. LEASES
The Company leases office and warehouse space and transportation and equipment
under various operating leases that expire through 2004. 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, 1998 and 1997, amounted to $1,221,377 and $192,006,
respectively.
Future minimum payments, by year and in the aggregates under capital and
noncancellable operating leases with initial or remaining terms of one year
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ ------------
<S> <C> <C>
1999 $ 803,893 $ 450,883
2000 629,060 407,813
2001 210,385 296,043
2002 109,341 219,461
2003 and thereafter 44,522 101,127
------------ ------------
Total minimum lease payments remaining $ 1,797,201 $ 1,475,327
Less amount representing interest 215,632 ============
------------
Present value of net minimum lease payments 1,581,569
------------
Capital lease obligations-current portion 679,935
------------
Capital lease obligations-long term portion $ 901,634
============
</TABLE>
44
<PAGE> 45
12. RELATED PARTY TRANSACTIONS
During 1998 and 1997, the Company paid a law firm, in which the Chairman of the
Board is a shareholder, $214,225 and $171,298, respectively, for services in
assisting with acquisitions 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 consolidated Balance Sheets. In connection with Mr. Stauber's
resignation, his notes aggregating $153,950 are secured by the Company's stock
owned by him and made payable through July 1, 2001.
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.
On June 2, 1998, the Company loaned to Milton J. Wallace, Daniel Stauber,
Karen Bass Stauber (Daniel Stauber's wife) and Arthur G. Shapiro $63,750,
$63,750, $10,200 and $38,250, respectively in connection with exercise of
options to purchase 31,250, 31,250, 5,000 and 18,750 shares of common stock
expiring on such date. The loans represented 85% of the exercise price of the
options. The principal balances of such loans accrue interest at the prime rate
(currently 8.25%), adjusted annually. Principal, plus accrued interest is
payable semi annually on January 1 and July 1 of each year amortized over a five
year period;
13. 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 must make improvements at the SDSSC incinerator during 1999-2000 of
approximately $6 million to meet new emission standard requirements which will
take effect in the year 2000. All other competitors will have to meet the same
standards. Several alternatives are currently being
45
<PAGE> 46
considered to finance these costs. There is no guarantee that this financing
will be available to the Company and if the improvements are not made it is
unlike that the facility will be allowed to operate by State and/or Federal
regulatory bodies. In addition, the Company plans to incur another $1 million in
company-wide improvements.
At December 31, 1998, the Company was committed to purchase incineration
services under a take-or-pay contract, with fixed, minimum or escalating price
provisions. The contract was renegotiated in April of 1999 and, such commitments
are estimated to be $1,244,000, $882,000, $900,000, $918,000 and $936,000 for
years ending December 31, 1999 through 2004, and $2,311,000 thereafter.
In January 1999 the former stockholders of Med-Waste, Inc., an Alabama
corporation, filed a lawsuit against the Company. The lawsuit alleges fraud,
misrepresentations, breach of contract and failure to pay on a promissory note
given as part of the purchase price. In June 1999, the Company terminated the
employment of the former stockholders for "cause". The Company intends to
vigorously defend the lawsuit and believes it has meritorious defenses to the
claims. In addition, the Company expects to file a counterclaim for breach of
contract, fraud and misrepresentation in connection with the purchase of the
corporation. Plaintiff's counsel recently withdrew from the case and new counsel
was engaged. In view of these circumstances and the early stage of discovery,
the Company and counsel are unable to predict the outcome of this case at this
time.
On April 9, 1999, W. Fred Bonham filed a complaint against the Company. On
January 7, 1999, the Company terminated Mr. Bonham's employment for "cause".
Mr. Bonham alleges in this complaint that the Company violated his Employment
Agreement by failing to pay Bonham certain compensation after his discharge
from the Company. In his complaint, Bonham seeks compensatory damages,
pre-judgment interest, costs and reasonable attorney's fees. Specifically,
Bonham seeks his base salary ($175,000) due for the remaining term of his
Employment Agreement,as well as various stock options. This case is in the
early stages of discovery. Accordingly, the Company and counsel are unable to
predict the outcome of this case at this time.
On June 16, 1999, a complaint was filed against the Company, and certain former
officers and directors. The Plaintiff seeks to certify a class action against
the Defendants for the purported securities violations. Specifically, the
complaint seeks relief for violations of Section 10(b) of the Securities
Exchange Act of 1934 (the "Exchange Act") and Rule 10(b)-5, promulgated
thereunder, as well a purported violations violation of Section 20(a) of the
Exchange Act. The complaint alleges that the Defendants purportedly issued
false and misleading statements as to the Company's results of operations and
that, specifically, earnings and earnings per share of the Company for each of
the quarterly reports issued for the first, second and third quarters of the
1998 fiscal year were fraudulently misstated. Plaintiff seeks to recover damages
on behalf of himself and the putative class he represents purportedly sustained
as a result of the violations of the securities law alleged in the Complaint.
Plaintiff also seeks to recover attorney's fees and costs incurred in the
litigation. No discovery has commenced and the size of the plaintiff class is
not yet determined. Accordingly, the Company and counsel are unable to predict
the outcome of this case.
The Company is or may become involved in various lawsuits, claims and
proceedings in the normal course of business, including those pertaining to
product liability, environmental, safety and health, and employment matters.
The Company records liabilities when loss amounts are determined to be probable
and reasonably estimatable. Insurance recoveries are recorded only when claims
for recovery are settled. Although generally the outcome of litigation cannot
be predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavorably to the Company, management believes, based on facts
presently known, that the outcome of such legal proceedings and claims, other
than those previously disclosed, will not have a material adverse effect on the
Company's financial position, liquidity, or future results of operations.
14. SHAREHOLDERS' EQUITY
On November 7, 1997 the Company sold 551,725 shares of common stock, and 20,064
warrants pursuant to Regulation S as promulgated pursuant to the Securities Act
of 1933, as amended, and 1,103,447 shares Common Stock pursuant to Regulation D
raising net proceeds of approximately $5.4 million.
In 1997, the Company completed a private placement of 42,929 shares of 9%,
(subject to increases as defined) Redeemable Convertible Series A Preferred
Stock (the "Series A Preferred Stock") raising net proceeds of approximately
$3.9 million. In February 1998 14,100 shares of Series A Preferred were
exchanged for 388,935 shares of Common Stock and 14,117 Warrants. 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 of $100. Each holder is entitled to receive $100 per
share in the event of liquidation and may be redeemed at the option of the
Company for a price of $1.00. The Company can force conversion of the Series A
under certain circumstances as defined. The dividend provision is cumulative.
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<PAGE> 47
A reconciliation of the numerator and denominator of (loss) earnings per share
follows:
<TABLE>
<CAPTION>
For the years ended 1998 1997
---------------------------------------- -------------------------------------
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 $(9,389,454) $ 1,417,724
Less: Preferred stock dividends 274,382 96,680
-----------------------------------------------------------------------------
Basic EPS
(Loss) income available to common $(9,663,536) 5,764,566 $ (1.68) $ 1,321,044 2,559,905 $0.52
shareholders
effect of Dilutive Securities
Warrants 53,634
Options 499,482
Reduction of interest 163,704 809,827
-----------------------------------------------------------------------------
Diluted EPS
Income (loss) available to common
shareholders $(9,663,536) 5,764,566 $ (1.68) $ 1,484,748 3,922,848 $0.38
-----------------------------------------------------------------------------
</TABLE>
Options to purchase 2,468,000 shares of Common Stock from $2.13 to $8.50 and
stock warrants to purchase 658,494 shares from $2.38 to $8.00 were not included
in diluted EPS, as their effect would be anti-dilutive. The options and
warrants, which expire from 1999 to 2003, were still outstanding at the end of
year 1998. Stock options to purchase 231,250 shares of Common Stock from $3.38
to $6.00 per share and warrants of 287,284 shares of common stock from $4.25 to
$8.70 per share were outstanding during 1997, but were not included in the
computation of diluted EPS because the exercise prices were greater than the
average market price of the common shares in 1997. The warrants, which expire
from 1999 to 2003, were still outstanding as of the end of year 1998. 530,000
additional shares relating to guaranteed purchase price contingencies in
connection with 1998 acquisitions were not included in diluted earnings per
share as their effect would be anti-dilutive.
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 1998, leases of approximately $407,000 were sold to third parties with
recourse; no such sales occurred in 1997. The Company has estimated that no
obligation under the recourse provision exists based on the excellent credit
rating of the autoclave customers. The current portion of the net investment in
sales-type leases is included in accounts receivable in 1997. The components of
the net investment in sales-type leases aggregated $527,000 in 1997. These notes
from autoclave sales in 1997 were non-interest bearing and discounted to a
leasing company.
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 operational 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 EVENTS
Subsequent to December 31, 1998 the Company discovered that the financial
information released in their 1998 10-QSB reports filed with the Securities and
Exchange Commission (SEC) misstated actual results of operations. At that time
the Company's bank credit facility was placed on hold. Since that time the
Company has operated with no readily available operating credit facility. The
Banks have not demanded payment on the existing loan balance, as they are
allowed to do under the terms of the agreement, due to the existing violations
of financial covenants. It is not determinable at this time if the Banks will
demand payment or if the loan agreement will be revised. In December 1998 and/or
subsequent to December 31, 1998 the Company's top management was terminated
and/or resigned and an investigation of the financial reporting and control
systems were conducted by an independent counsel. The Company also voluntarily
withdrew from listing its securities in the NASDAQ Small Cap Market Stock
Exchange (NASDAQ) because of the delays in complying with the filing
requirements of the SEC and because it no longer met certain continued listing
criteria of NASDAQ.
By letter dated July 19, 1999, the Securities and Exchange Commission ("SEC")
advised the Company that it is conducting an informal inquiry into the
accounting procedures utilized by the Company. The SEC has requested that the
Company voluntarily provide certain records and other information by August 19,
1999. The Company intends to comply fully with such request and cooperate with
the SEC in its inquiry.
47
<PAGE> 48
In the six months ended June 30, 1999, options to purchase an aggregate of
1,298,500 shares of Common Stock expired or were cancelled. As of June 30, 1999,
options to purchase 104,050 and 435,000 shares were outstanding under the 1993
and 1996 plans, respectively.
18. GOING CONCERN
The Company's consolidated financials are presented on the going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. During 1997 and 1998, the Company purchased
several companies in the medical waste business in contemplation of integrating
the acquisitions into the Company's core business. Unfortunately, the Company
was unable to successfully integrate and achieve profitability from these
acquisitions. In addition, internal growth was limited due to the Company's
inability to formulate an effective marketing plan, integrate its acquisitions
and manage the Company's growth. In early 1999, new management replaced prior
management, and the Company began its plan to aggressively control costs,
control expansion efforts and focus on the Company's core business. The Company
is currently seeking additional working capital for operations and capital of
approximately $6 million for required improvements components to the SDSSC
incinerator during 1999 to 2000 to meet new emission standards. In addition, the
Company is seeking another $1 million for other company-wide improvements.
The Company is also in discussion with several lenders for additional funds, as
well as obtaining a waiver to cure its financial covenant violations.
Discussions are also being held with private investors to raise equity capital.
The Company believes the additional loan and equity proceeds, if obtained, will
be adequate to fund its on-going operations.
The Company's continued existence is dependent upon its ability to resolve its
liquidity problems principally by implementing cost reduction strategies and
obtaining positive results from increased marketing efforts.
The financial statements do not include any adjustments to reflect the possible
future effective on the recoverability and classification of assets for the
amount of classification of liabilities that may result from the possible
inability of the Company to continue as a going concern. There is no assurance
that the Company will be able to achieve its recovery plan as described above.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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<PAGE> 49
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to
the executive officers and directors of the Company as of June 30, 1999
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ ------ ------------------------------------------------
<S> <C> <C>
Milton J. Wallace(1) (4)............ 63 Chairman of the Board
Carlos Campos....................... 42 Director/President/Chief Executive Officer
George Mas.......................... 48 Vice President/Chief Financial Officer
Ross Johnston....................... 44 Vice President - Legal Affairs
William F. Bonham................... 55 Director
William D. Dolan ................... 73 Director
Douglas Hailey(4)................... 37 Director
Kendrick Meek (2)................... 33 Director
Michael Recca(1) (2)................ 48 Director
Arthur G. Shapiro, M.D.(1) (3) (4).. 60 Director
Charles J. Simons(1) (2) (3)........ 81 Director
</TABLE>
- -------------------------
(1) Member of Executive Committee.
(2) Member of the Compensation and Stock Option Committee.
(3) Member of the Audit Committee.
(4) Member of the Nominating Committee.
49
<PAGE> 50
MILTON J. WALLACE Mr. Wallace has been Chairman of the Board of the
Company since June 1993 and a Director since 1991. Mr. Wallace has been a
practicing attorney in Miami, Florida for over 30 years and is currently a
shareholder of the law firm of Wallace, Bauman, Legon, Fodiman & Shannon, P.A.
He was chairman of the board of directors of Home Intensive Care, Inc., a
provider of dialysis and home infusion therapy services from December 1989 until
July 1993, when it was sold to W.R. Grace & Co. Mr. Wallace is the Chairman of
the Board of Renex Corp., a dialysis provider and a director of Imperial
Industries, Inc. a construction materials manufacturer. He is a director of
several private companies and is chairman of the Dade County, Florida Housing
Finance Authority.
50
<PAGE> 51
CARLOS CAMPOS Mr. Campos was hired as Chief Operating Officer of the Company as
of January 11, 1999. He was named Acting Chief Executive Officer (CEO) on
March 17, 1999 and formally named President President and CEO on June 10, 1999.
He also was appointed to the Board of Directors in July of 1999. Prior thereto,
Mr. Campos was the founder, President and CEO of MedX, Inc. the largest medical
waste company in Florida in the 1980's and early `90's before it was acquired by
BFI.
GEORGE MAS Mr. Mas has been Vice President and Chief Financial Officer
of the Company since January 1999. Prior thereto, he was Director of Finance for
Althin Medical Inc. where he was employed from 1992 to 1998. From 1981 to 1990
he was Vice President of Burnham Products, Inc. in Wichita, Kansas. Prior to
that time he was Director of Internal Audit for Hesston Corporation and an Audit
Manager with the accounting firm of Deloitte, Haskins and Sells.
ROSS JOHNSTON. Mr. Johnston has been Vice President-Legal Affairs of
the Company since January 1999. Prior thereto, from 1994 to 1998 he was Director
of Public Affairs for Browning Feris Industries-Dade County Florida. From 1989
to 1994 he was Vice President of Legal Affairs for MedX, Inc.
WILLIAM F. BONHAM Mr. Bonham has been a director of the Company since
November 1997. From June 1998 until January 1999, he served as the Company's
Vice President/Chief Operating Officer. From June 1997 until June 1998, he
served as the Company's Vice President of Operations. From October 1995 until
June 1997, Mr. Bonham was the president of Bonham Management Group, Inc. which
managed a medical waste autoclave facility. The Company acquired certain of the
assets of Bonham Management Group, Inc. in November 1997. Prior thereto, from
1990 to 1995 Mr. Bonham was a vice president of Bio-Medical Waste, Inc., a
medical waste hauling and treatment company.
WILLIAM DOLAN, D.D.S. Dr. Dolan has been a Director of the Company
since 1993. Dr. Dolan is a retired dentist and previously maintained a private
practice of dentistry for over 30 years until his retirement in 1995. He is a
director of the Dade County, Florida Housing Finance Authority.
DOUGLAS HAILEY. Mr. Hailey has been a director of the Company since
December 1998. Mr. Hailey has been vice President of the Investment Banking
division of Taglich Brothers, D'Amadeo, Wagner and Company, Inc., a New
York-based full service brokerage firm specializing in the microcap segment of
the public equities markets since 1994. Prior to joining Taglich Brothers, Mr.
Hailey spent five years with Weatherly Financial Group, a small private equity
firm that specialized in sponsoring leveraged buyouts. Mr. Hailey holds an MBA
in Finance from the University of Texas.
KENDRICK MEEK Mr. Meek has been a development representative for the
Wackenhut Corporation, a provider of security services. Prior thereto, from
March 1994 through November 1994, he was President of F&L Security Services,
Inc., a security consulting firm. From March 1989 until March 1994, he was
employed by the Florida Highway Patrol, the last three years of which he served
as a captain. Mr. Meek is a State Senator in the Florida State Legislature.
MICHAEL RECCA. Mr. Recca has been a director of the Company since
December 1998. Mr. Recca has been President of Recca & Company, Inc., a
financial consulting firm. He has also served as Chairman of the Board of Harvey
Electronics, Inc., an electronics retailer. He was first a consultant then an
employee of Taglich Brothers, D'Amedeo, Wagner & Company, Inc. ("Taglich
brothers"). Taglich Brothers acted as placement agent for private placements for
the
51
<PAGE> 52
Company in January and October 1997, and November 1998. In connection with the
Private Placement in October 1997, Taglich Brothers had the right to appoint a
representative to the Company's Board of Directors. Mr. Recca serves as Taglich
Brothers' representative. Mr. Recca is a director of Industrial Fire and Safety,
Inc. a provider of fire suppression services.
ARTHUR G. SHAPIRO, M.D., F.A.C.O.G. Dr. Shapiro has held an
appointment to the University of Miami School of Medicine as a professor of
clinical obstetrics and gynecology in the division of reproductive endocrinology
since January 1995. From 1985 until 1995, he was engaged in the private practice
of medicine. From 1970 until 1983, he was employed by the University of Miami
School of Medicine most recently as a professor. He is a graduate of Harvard
Medical School and is board certified in obstetrics and gynecology,
endocrinology and laser surgery. He is a Fellow in the American College of
Obstetrics and Gynecology and has been elected to become a Fellow by the
American College of Endocrinology. Dr. Shapiro was the Corporate Medical
Director of Home Intensive Care, Inc. and served on its board of directors from
1985 until July 1993. He serves as vice-chairman of Renex Corp.
CHARLES J. SIMONS Mr. Simons has been a director of the Company since
December 1998. Mr. Simons is the Chairman of the Board of G.W. Plastics, Inc., a
plastics manufacturer, and is an independent management and financial
consultant. From 1940 to 1981, he was employed by Eastern Airlines, last serving
as Vice Chairman, Executive Vice President and as a Director of Renex Corp. and
Viragen, Inc., a pharmaceutical manufacturer and a number of private companies.
BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes. The
members of each class serve for staggered three year terms, including three
Class I directors (William Dolan, D.D.S., Charles J. Simons and Douglas Hailey),
three Class II directors (Kendrick Meek, William F. Bonham, Michael Recca) and
three Class III Directors (Milton J. Wallace, Carlos Campos and Arthur G.
Shapiro). Class I, II and III director terms expire upon the election of
directors at the annual meeting of shareholders to be held in 2001, 1999 and
2000, respectively. Directors hold office until the expiration of their
respective terms and until their successors are elected, or until death,
resignation or removal. Each officer serves at the discretion of the Board of
Directors, subject to certain contractual rights described below.
COMMITTEES OF THE BOARD
The Board has established a number of standing committees to assist
it in the discharge of its responsibilities. The principal responsibilities of
each standing committee are described below. Actions taken by any committee of
the Board are reported to the Board of Directors, usually at the next Board
meeting. The Board has standing Executive, Audit, Compensation and Stock Option
and Nominating Committees.
EXECUTIVE COMMITTEE: The Executive Committee is composed of Messrs.
Wallace, Hailey and Simons and Dr. Shapiro. When the Board of Directors is not
in session, the Executive Committee possesses all of the powers of the Board,
other than certain powers reserved by Delaware law to the Board. Although the
Executive Committee has broad powers, in practice it only takes formal action in
a specific matter when it would be impractical to call a meeting of the Board.
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<PAGE> 53
COMPENSATION AND STOCK OPTION COMMITTEE: The Compensation and Stock
Option Committee, composed of Messrs. Meek, Recca and Simons. The Compensation
and Stock Option Committee reviews the Company's general compensation policies
and procedures; establishes salaries and benefit programs for the Chief
Executive Officer and other executive officers of the Company and its
subsidiaries; reviews, approves and establishes performance targets and awards
under incentive compensation plans for its executive officers; and reviews and
approves employment agreements. The Compensation and Stock Option Committee also
administers the Company's 1993 and 1996 Employee Stock Option Plans. The
Compensation and Stock Option Committee has the authority to determine, among
other things, to whom to grant options, the amount of options, the terms of
options and the exercise prices thereof. Prior to January 1999, the Company
maintained separate Compensation and Stock Option Committees
AUDIT COMMITTEE: The Audit Committee is presently composed of Mr.
Simons, as Chairman and Dr. Shapiro. The principal duties of the Audit Committee
are to recommend the appointment of independent auditors; meet with the
Company's independent auditors to review the arrangements for, and scope of, the
audit by the independent auditors and the fees related to such work; review the
independence of the independent auditors; consider the adequacy of the system of
internal accounting controls; review and monitor the Company's policies
regarding conflicts of interest; and discuss with management and the independent
accountants the Company's annual financial statements.
NOMINATING COMMITTEE: The Nominating Committee is presently composed of
Messrs. Hailey and Wallace and Dr. Shapiro. The Nominating Committee recommends
to the Board director nominees for election by stockholders. It also reviews the
qualification of, and recommends to the Board, candidates to fill Board
vacancies as they may occur during the year. The Committee considers suggestions
from stockholders and other sources regarding possible candidates for director.
Such suggestions, together with appropriate biographical information, should be
submitted to the Secretary of the Corporation.
DIRECTORS' COMPENSATION:
Directors who are employees of the Company or its subsidiaries do not
receive any compensation for their service as members of the Board of Directors.
Directors who are not employees of the Company receive an annual retainer of
$2,500, payable quarterly and are reimbursed for expenses which may be incurred
by them in connection with the business and affairs of the Company. In addition,
non-employee directors receive options granted under the Directors' Stock Option
Plan ("Directors' Plan") based upon specific criteria set forth in the
Directors' Plan. See "Compensation - Directors Stock Option Plan".
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE The following table summarizes the
compensation earned by, and paid to, the Company's President and Chief Executive
Officer ("CEO") and for each other executive officer who received compensation
in excess of $100,000 for any year in the three (3) year period ended December
31, 1998 (the "Named Executive Officers").
53
<PAGE> 54
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
------------------------
OTHER LONG-TERM
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS
--------------------------- ---- ------ ----- ------------ ------------------
<S> <C> <C> <C> <C>
Milton J. Wallace................... 1998 $ 88,220 $ 65,000 $17,908 400,000
Chairman of the Board 1997 84,000 46,400 100,000
1996 80,000 26,400 100,000
Daniel A. Stauber(2)................ 1998 $192,500 $123,000 $18,000 400,000
Former President/Chief Executive 1997 183,000 72,890 100,000
Officer 1996 163,000 72,890 100,000
Michael D. Elkin(3)................. 1998 $125,000 $ 50,000 $ 7,200 35,000
Former Vice President 1997 116,874 10,000 10,000
Chief Financial Officer 1996 107,100 5,300 25,000
William F. Bonham(4)................ 1998 $175,000 -- 30,000
Former Vice President 1997 100,961 -- 100,000
Chief Operating Officer 1996 -- -- --
</TABLE>
(1) The Company provides its executive officers with certain non-cash group
life and health benefits, generally available to all salaried employees and
are not included in this table pursuant to applicable Securities and
Exchange Commission rules. Except as indicated above, no executive officers
listed above received aggregate personal benefits or prerequisites that
exceeded the lesser of $50,000 or 10% of such individual's total annual
salary and bonus in any year above.
(2) Mr. Stauber resigned as President/Chief Executive Officer and as a
Director, as of June 10, 1999
(3) Mr. Elkin resigned as Vice president/chief financial Officer effective
December 31, 1998
(4) Mr. Bonham was employed by the Company commencing June 1, 1997. Mr.
Bonham's employment was terminated effective January 7, 1999.
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<PAGE> 55
OPTIONS GRANTED IN LAST FISCAL YEAR The following table sets forth
information concerning grants of stock options to the CEO and each other Named
Executive Officer named on the Summary Compensation Table above, for the year
ended December 31, 1998:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------
NUMBER OF SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS OPTIONS GRANTED TO PRICE PER EXPIRATION
NAME GRANTED(1) EMPLOYEES IN FISCAL YEAR(3) SHARE(2)(3) DATE
- ----------------- -------------------- --------------------------- ----------- ----------
<S> <C> <C> <C> <C>
Milton J. Wallace 100,000 11.17% $ 4.88 2/2003
300,000(4) 33.52 5.88 4/2003
Daniel A. Stauber 100,000(5) 11.17 4.88 2//2003
300,000(5) 33.52 5.88 4/2003
Michael D. Elkin 35,000(5) 3.91 5.88 4/2003
William F. Bonham 30,000(5) 3.35 5.88 4/2003
</TABLE>
(1) All the above options were granted pursuant to the Company's 1993 or 1996
Employee Stock Option Plans ("1993 Plan" or "1996 Plan", respectively).
Subject to the terms and conditions of the 1993 and 1996 Plans, the Stock
Option Committee has the authority and discretion, among other things as to
whom to grant options, the number of options, the terms of options,
including vesting requirements and the exercise prices of options may
modify, extend or renew outstanding options granted under the Employee
Plan. Each option entitles the holder to purchase one share of common
stock. Each option granted above vested twenty-five (25%) percent six (6)
months following the date of grant; twenty-five percent (25%) on the first
anniversary of the grant date; and twenty-five percent (25%) on each
anniversary thereafter. In October 1995, the Company's Stock Option
Committee approved the acceleration of vesting requirements of
substantially all options previously granted under the 1993 Plan, became
immediately exercisable by the holders thereof.
(2) The option exercise price may be paid, subject to the requirements of Rule
16b-3 promulgated by the Securities and Exchange Commission, by delivery of
shares already owned by such optionee.
(3) Total options granted in 1998 was for 895,000 shares of Common Stock.
(4) Such options were cancelled by agreement between the Company and
Mr. Wallace in June 1999.
(5) Such options were terminated effective with the termination of their
respective employment.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR END OPTION
VALUES. The following table sets forth certain aggregated option information for
the CEO and each named Executive Officer named in the Summary Compensation Table
for the year ended December 31, 1998:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE UNEXERCISED OPTIONS DECEMBER 31, 1998(2)
EXERCISE REALIZED(1) --------------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Milton J. Wallace 31,250 $34,375 416,000 400,000 $357,750 $68,750
Daniel A. Stauber 31,250 $34,375 416,000 400,000 $357,750 $68,750
Michael D. Elkin(3) -- -- -- -- -- --
William F. Bonham -- -- 57,500 72,500 -0- -0-
</TABLE>
(1) Value realized represents the positive difference between the exercise
price of the options and the market price of the common stock on December
31, 1998 of $3.50.
(2) The value of unexercised options represents the positive difference between
the exercise price of the options and the market price of the common stock
at December 31, 1998 of $3.50.
(3) Mr. Elkin's employment, and all options previously issued to Mr. Elkin,
were terminated as of December 31, 1998.
EMPLOYMENT AGREEMENTS
Milton J. Wallace serves as Chairman of the Board pursuant to an employment
agreement expiring December 31, 2001. Mr. Wallace's base salary was $84,000 in
1998. Base Salary is increased in each year by the greater of (a) five percent
(5%) or (b) the cost of living index for the prior year. Mr. Wallace also
receives a car allowance and certain other non-cash benefits,
55
<PAGE> 56
such as health, life and disability insurance. Mr. Wallace is eligible to
participate in such incentive bonus plans adopted from time to time by the
Company's Board of Directors. The Agreement provides that in the event of a
change of control of the Company, Mr. Wallace is entitled to terminate his
employment agreement and receive as compensation three (3) times the sum of (a)
his base salary and (b) any bonus received in the twelve (12) months prior to
such change of control. The employment agreement contains a two year
non-competition agreement.
Carlos Campos serves as the Company's President /Chief Executive Officer
pursuant to a five year employment agreement expiring December 31, 2003. The
Employment Agreement provides for a base salary of $186,000. Base Salary is
increased in each year by greater of (i) $10,000, or (ii) the percentage
increase, if any, of the consumer price index. Mr. Campos receives a car
allowance and certain other non-cash benefits such as health, life and
disability benefits. Mr. Campos is eligible to participate in such incentive
bonus plans adopted from time to time by the Company's Board of Directors. The
Employment Agreement contains an eighteen (18) month non-competition agreement.
George Mas serves as the Company's Vice President/Chief Financial Officer
pursuant to a one year employment agreement which automatically renews on
January 1 of each year if notice of termination is not given by either party at
least thirty (30) days prior to January 1 of each year. The Employment Agreement
provides for a base salary of $115,000 increased by the greater of (a) 5%; or
(b) the cost of living index for the prior year plus a guaranteed bonus of
$10,000 for 1999. Mr. Mas receives a car allowance and certain other non-cash
benefits such as health, life and disability benefits. Mr. Mas is eligible to
participate in such incentive bonus plans adopted from time to time by the
Company's Board of Directors. The Employment Agreement contains a one (1) year
non-competition agreement.
The Company previously had employment agreements with Daniel A. Stauber and W.
Fred Bonham as President/Chief Executive Officer and Vice President/Chief
Operating Officer, respectively. Mr. Stauber resigned as President/CEO
effective June 10, 1999 and the Employment Agreement was terminated as of that
date with no additional compensation payable to Mr. Stauber. Mr. Bonham's
employment was terminated for "cause" on January 7, 1999. See "Legal
Proceedings" above.
STOCK OPTION PLANS
EMPLOYEE PLANS
The Company has a 1993 Employee Stock Option Plan ("1993 Plan") and a 1996
Employee Stock Option Plan ("1996 Plan") which provide for the grant of options
to purchase up to 750,000 and 1,400,000 shares of Common Stock to officers and
other employees, respectively. The 1993 and 1996 Plans are designed as an
incentive program to cause employees to increase their interest in the Company's
performance and to aid in attracting and retaining qualified personnel. The 1993
and 1996 Plans are administered by the Compensation and Stock Option Committee.
During fiscal 1998, options to purchase an aggregate of 835,000 shares of Common
Stock were granted at exercise prices ranging from $4.88 to $5.88 under the 1993
and 1996 Plans. As of December 31, 1998, options to purchase an aggregate
1,702,550 shares of Common Stock were outstanding under the 1993 and 1996 Plans
at exercise prices ranging from $2.13 to $5.88. During the six months ended June
30, 1999, Options to purchase an aggregate of 1,298,000 shares of common stock
expired or were cancelled. As of June 30, 1999 options to purchase 104,050 and
435,000 shares were outstanding under the 1993 and 1996 Plans respectively.
Options granted under each Plan have a term of five (5) years from the date of
their respective grants. Options are not exercisable under any circumstances for
six (6) months after grant. Options are subject to three (3) year vesting
schedules from the date of grants.
All options granted under the 1993 and 1996 Plans become fully vested and
immediately exercisable upon the occurrence of a "Change of Control." The
Employee Plan defines Change of Control to mean the occurrence of any of the
following: (i) the acquisition (other than from the Company directly) by any
"person" group or entity within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934) of beneficial ownership of twenty-five (25%)
percent or more of the outstanding common stock of the Company; (ii) if the
individuals who served on the Board as of June 1993, no longer constitute a
majority of the members of the Board of Directors; provided, however, any person
who becomes a director subsequent to June 1993, who was elected to fill a
vacancy by a majority of the directors then serving on the Board of directors
shall be considered a member prior to June 1993; (iii) the stockholders of the
Company approve a merger reorganization or consolidation of the Company whereby
the stockholders of the Company immediately prior to such approval do not,
immediately after consummation of such reorganization, merger or consolidation,
own more than 50% of the voting stock of the surviving entity; or (iv) a
liquidation or dissolution of the Company, or the sale of all or substantially
all of the Company's assets.
56
<PAGE> 57
DIRECTORS PLAN
The Company's Directors Stock Option Plan (the "Directors' Plan") presently
provides for the grant of options of up to 500,000 shares of Common Stock. All
non-employee directors are eligible to receive grants of option ("Eligible
Directors"). Each Eligible Director receives automatic, non-discretionary annual
grants of options based upon specific criteria set forth in the Directors' Plan.
Each year, each Eligible Director receives options to purchase 3,000 shares of
common stock for service on the Board, options to purchase 3,000 shares for
service on each permanent committee (other than the Executive Committee) and
options to purchase 3,000 shares for services as a Committee Chairman (other
than the Executive Committee). Eligible Directors who serve on the Executive
Committee receive options to purchase 6,000 shares, with additional options to
purchase 6,000 shares for the Chairman of the Executive Committee.
The exercise price of each option granted under the Directors' Plan is equal to
the fair market value of the Common Stock on the date of grant. All options
granted are for a period of five (5) years and are exercisable commencing six
(6) months after the grant date. During 1998, options to purchase 93,000 shares
of Common Stock were granted to Eligible Directors at exercise prices ranging
from $3.50 of $6.06 per share. As of December 31, 1998, options to purchase
437,500 shares of Common Stock were outstanding under the Directors' Plan, at
exercise prices ranging from $2.13 to $6.06. As of December 31, 1998, there were
no shares of Common Stock available for grants of options under the Directors
Plan.
57
<PAGE> 58
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of July 1, 1999 with respect to
the beneficial ownership of the Company's Common Stock by (i) each director of
the Company, (iii) each Named Executive Officer; (ii) all directors and
executive officers as a group, and (iii) each person known by the Company to be
the beneficial owner of more than five percent (5%) of Common Stock of the
Company.
<TABLE>
<CAPTION>
PERCENT OF
SHARES
NUMBER OF SHARES BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OWNED(2)
- ----------------------------------------------------- -------------------- --------------
<S> <C> <C>
William F. Bonham.................................... 250,000(3) 3.71%
William W. Dolan..................................... 55,875(4) *
Douglas Hailey....................................... 52,293(5) *
Kendrick Meek........................................ 12,250(6) *
Michael Recca........................................ 64,586(7) *
Arthur G. Shapiro, M.D............................... 335,754(8) 4.98
Charles Simons....................................... 23,000(9) *
Daniel A. Stauber.................................... 149,420(10) 2.22
Milton J. Wallace.................................... 569,382 8.45
Lancer Offshore, Inc................................. 566,666 8.41
Kaya Flamboyan 9
Wilmstad, Curacao
Netherland Antilles
Peter Salas.......................................... 690,590(12) 10.25
129 East 17th Street
New York, NY 10003
Dolphin Offshore Partners, L.P....................... 690,590(12) 10.25
129 East 17th Street
New York, NY 10003
Craig Sanford........................................ 600,000(13) 8.91
1307 S. Pennsylvania Avenue
Morrisville, PA 19067
Mark E. Brady........................................ 645,727(14) 9.59
c/o Eubel, Brady & Suttman Management, Inc.
7777 Washington Drive
Dayton, OH 45459
Ronald L. Eubel...................................... 645,727(14) 9.59
c/o Eubel, Brady & Suttman Management, Inc.
7777 Washington Drive
Dayton, OH 45459
Robert J. Suttman, II................................ 645,727(14) 9.59
c/o Eubel, Brady & Suttman Management, Inc.
7777 Washington Drive
Dayton, OH 45459
Bernie Holtgreive.................................... 529,989(14) 7.87
c/o Eubel, Brady & Suttman Management, Inc.
7777 Washington Drive
Dayton, OH 45459
Eubel, Brady & Suttman Management, Inc............... 529,989(14) 7.87
7777 Washington Drive
Dayton, OH 45459
All officers and directors as a group (9 persons).... 1,437,392(15) 21.34
</TABLE>
* Less than one percent.
58
<PAGE> 59
(1) Except as set forth herein, all Common Stock is directly owned and the sole
investment and voting power are held by the person named. Unless otherwise
stated the address of each individual named above is c/o the Company, 6175
N.W. 153rd Street, Suite 324, Miami Lakes, Florida 33014.
(2) Based upon 6,733,980 shares of Common Stock outstanding and such shares of
Common Stock such individual has the right to acquire within 60 days.
(3) Includes 50,000 shares of Common Stock issuable upon exercise of options.
(4) Includes 37,000 shares of Common Stock issuable upon exercise of options.
(5) Includes (i) 6,000 shares of Common Stock issuable upon exercise of options
and (ii) 46,293 shares of Common Stock issuable upon the exercise of
warrants.
(6) Includes 12,250 shares of Common Stock issuable upon exercise of options.
(7) Includes (i) 12,000 shares as Common Stock issuable upon exercise of
options and (ii) 52,586 shares of Common Stock issuable upon the exercise
of warrants.
(8) Except as set forth herein, all shares of Common Stock are owned jointly by
Dr. Shapiro and his wife. Includes (i) 13,375 shares of Common Stock owned
by a corporation of which Dr. Shapiro is a director and shareholder and
(ii) 178,500 shares of Common Stock issuable upon exercise of options.
(9) Includes 18,000 shares of Common Stock issuable upon exercise of options.
(10) Includes 5,834 shares owned by his wife.
(11) Except as set forth herein, all shares of Common Stock are owned jointly by
Mr. Wallace and his wife. Includes (i) 13,375 shares of Common Stock
beneficially owned by a corporation of which Mr. Wallace is president,
director and a controlling shareholder (ii) 2,500 shares owned by his wife
as custodian for a minor child; (iii) 400,000 shares of Common Stock
issuable upon exercise of options; (iv) 5,882 shares of Common Stock
issuable upon conversion of Series A Preferred Stock; (v) 11,664 shares
owned by his Individual Retirement Account; and (vi) 1,000 shares owned by
his spouse's Individual Retirement Account.
(12) the shares indicated above are owned by Dolphin Offshore Partners, LP.
Peter Salas is the General Partner of Dolphin. Includes 20,063 shares of
Common Stock issuable upon the exercise of warrants.
(13) Includes 100,000 shares of Common Stock issuable upon the exercise of
warrants.
(14) The address of each individual named above is c/o Eubel, Brady & Suttman
Management, Inc., 7777 Washington Drive, Dayton, OH 45459. Messrs. Brady,
Eubel, Holtgreive and Suttman are investment advisors and have
discretionary control over the shares listed above, although the shares are
owned by other individuals and entities. Includes shares of common Stock
issuable upon conversion of Series A Preferred Stock and exercise of
warrants.
(15) Includes (i) 713,750 shares of Common Stock issuable upon exercise of
options; and (ii) 98,879 shares of Common Stock issuable upon the exercise
of warrants.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Milton J. Wallace, the Company's Chairman of the Board, is a shareholder of
the law firm of Wallace, Bauman, Legon, Fodiman & Shannon, P.A. Such law firm
acts as general counsel to the Company and received legal fees of $214,225 and
$171,298 in 1998 and 1997 respectively.
On November 10, 1997, the Company purchased substantially all of the assets
and business of Bonham Management Group, Inc. William F. Bonham, a director of
the Company, was the sole shareholder of BMG. The Company paid to $850,000 in
cash and 200,000 shares of Company common stock, $.001 par value. The Company
received credits at closing amounting to $250,000 for necessary repairs and
maintenance at the facility, as well as miscellaneous credits for advances made
under a management agreement entered into as of June 1, 1997 and terminated at
the Closing of the purchase.
59
<PAGE> 60
In February 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. Taglich Brothers, D'Amedeo, Wagner &
Company, Incorporated ("Taglich Bros.") served as the placement agent in
connection with the offering and received a commission of $270,000. In addition,
Taglich Bros. received warrants to purchase 102,558 shares of common stock which
it distributed to its affiliates. Each warrant entitles the holder to purchase
one share of common stock at $2.925 until February 2002. Douglas Hailey, a
director of the Company is a Vice President of Taglich Bros. and received
warrants to purchase 10,256 shares. Michael Recca, a director of the Company,
was an employee of Taglich Bros. and received warrants to purchase 16,410
shares.
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. Taglich Bros. served as the placement agent in
connection with the offering and received a commission of $386,721. In addition,
Taglich Bros. received warrants to purchase 101,104 shares of common stock which
it distributed to its affiliates. Each warrant entitles the holder to purchase
one share of common stock at $4.25 per share until October 31, 2002. Douglas
Hailey, a director of the Company is a Vice President of Taglich Bros. and
received warrants to purchase 23,300 shares. Michael Recca, a director of the
Company, was an employee of Taglich Bros. and received warrants to purchase
16,078 shares.
In November 1997, the Company sold an aggregate of 1,600,002 shares
in a private placement exempt from the registration requirement or the
Securities Act of 1933 as amended, raising net proceeds of approximately $5.4
million. Taglich Bros. served as the placement agent in connection with the
offering and received a commission of $379,000. In addition, Taglich Bros.
nominees received warrants to purchase 31,582 shares of common stock at $4.50
per share until December 8, 2002 and 70,180 shares of common stock at $5.00 per
share until November 6, 2002, all of which it distributed to its affiliates.
Douglas Hailey, a director of the Company is a Vice President of Taglich Bros.
and received warrants to purchase 7,754 and 15,239 shares, respectively. Michael
Recca, a director of the Company, was an employee of Taglich Bros. and received
warrants to purchase 4,859 and 15,239 shares, respectively.
On January 30, 1998, the Company sold 100% of the common stock of a wholly
owned subsidiary, the Kover Group, Inc. ("Kover") to MPK holding, LP ("MPK"),
MPK is owned by Phillip W. Kubec. 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"). In July 1998, MPK
prepaid the MPK Note and Kover Note plus accrued interest. The Company received
$1,350,000 in cash and a new $150,000 promissory note from MPK ("the New Note").
Interest on the New Note is payable monthly at the rate of 8.25% per annum, with
the principal balance due at the end of eleven years.
On June 2, 1998, the Company loaned to Milton J. Wallace, Daniel Stauber,
Karen Bass Stauber (Daniel Stauber's wife) and Arthur G. Shapiro $63,750,
$63,750, $10,200 and $38,250, respectively in connection with exercise of
options to purchase 31,250, 31,250, 5,000 and 18,750 shares of common stock
expiring on such date. The loans represented 85% of the exercise price of the
options. The principal balances of such loans accrue interest at the prime rate
(currently 8.25%), adjusted annually. Principal, plus accrued interest is
payable semi annually on January 1 and July 1 of each year amortized over a five
year period;
60
<PAGE> 61
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Index
2.1 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]
2.2 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]
2.3 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]
2.4 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]
2.5 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]
2.6 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]
2.7 Stock Purchase Agreement entered into as of the 11th day of August,
1998 by and between Med/Waste, Inc., a Delaware corporation, Sanford Motors,
Inc., a Pennsylvania corporation, East Coast Medical Waste, Inc., a New Jersey
corporation, Bucks County Resource and Recovery, Inc., a Pennsylvania
corporation, Craig Sanford and Mary Jo Sanford. [Incorporated by reference to
the Company's Form 8-K dated October 2, 1998, File No. 0-22294]
2.8 First Amendment to Stock Purchase Agreement dated September 1, 1998
by and between Med/Waste, Inc., a Delaware corporation, Sanford Motors, Inc., a
Pennsylvania corporation, East Coast Medical Waste, Inc., a New Jersey
corporation, Bucks County Resource and Recovery, Inc., a Pennsylvania
corporation, Craig Sanford and Mary Jo Sanford. [Incorporated by reference to
the Company's Form 8-K dated October 2, 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 Registrant's Certificate of Adoption of Resolutions of the Board of
Directors of Med/Waste, Inc. to Provide for the Designation, Preferences,
Rights, Qualifications, Limitations or Restrictions Thereof, of the Series A
Preferred Stock, 9% Redeemable Convertible Series. [Incorporated by reference to
the Company's 1997 Form 10-KSB, File No. 0-22294]
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. [Incorporated by reference to the
Company's 1997 Form 10-KSB, File No. 0-22294]
3.4 Registrant's Certificate of Adoption of the Board of Directors of
Med/Waste, Inc. Providing for the Designation, Preferences, Rights,
Qualifications, Limitations or Restrictions Thereof of the Series B Junior
Participating Preferred Stock [Incorporated by reference to the Company's
Current Report on Form 8-K, File No.-022294]
3.5 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 Common Stock Certificate [Incorporated by reference to the
Company's Registration Statement on Form SB-2, File No. 33-67684]
4.2 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.
[Incorporated by reference to the Company's 1997 Form 10-KSB, File No. 0-22294]
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].
61
<PAGE> 62
10.2 Employment Agreement by and between Med/Waste, Inc. and Milton J.
Wallace dated January 1, 1996 [Incorporated by reference to the Company's 1997
Form 10-KSB, File No. 0-22294].
10.3 Employment Agreement by and between Med/Waste, Inc. and George Mas
dated January 4, 1999
10.4 Employment Agreement by and between Med/Waste, Inc. and Carlos
Campos dated January 11, 1999
10.5 Employment Agreement by and between Med/Waste, Inc. and Ross
Johnston dated January 26, 1999
10.6 1993 Employee Stock Option Plan [Incorporated by reference to the
Company's Registration Statement on Form SB-2, File No. 33-67684]
10.7 Directors Stock Option Plan [Incorporated by reference to the
Company's Registration Statement on Form SB-2, File No. 33-67684]
10.8 1996 Employee Stock Option Plan [Incorporated by reference to the
Company's Proxy Statement for the 1996 Annual Stockholders' Meeting, File No.
0-22294]
10.9 Consolidating, Amended and Restated Credit Agreement, dated as of
the 31st day of December, 1998, by and among Med/Waste, Inc., and Union Planters
Bank, N.A., successor by merger with Union Planters Bank of Florida, a Florida
banking corporation, f/k/a Capital Bank, a Florida banking corporation, as Agent
for the Lenders.
11 Computation of net income (loss) per share
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, 1998:
(i) Form 8-K dated October 2, 1998, File No. 0-22294 related to the
Company's purchase of Sanford Motors, Inc., a Pennsylvania corporation, East
Coast Medical Waste, Inc., a New Jersey corporation and Bucks County Resource
and Recovery, Inc., a Pennsylvania corporation.
(ii) Form 8K dated November 6, 1998, File No. 0-22294 related to the
Company's adoption of a Shareholder Rights Plan.
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<PAGE> 63
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: July 31, 1999 By: /s/ CARLOS CAMPOS
------------------------------------------------
CARLOS CAMPOS 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
- --------------------------------- Chairman of the Board of Directors July 31, 1999
MILTON J. WALLACE
/s/ CARLOS CAMPOS
- --------------------------------- Director/President/Chief Executive Officer July 31, 1999
CARLOS CAMPOS
- --------------------------------- Director July , 1999
WILLIAM F. BONHAM
/s/ WILLIAM DOLAN
- --------------------------------- Director July 31, 1999
WILLIAM DOLAN, D.D.S.
/s/ DOUGLAS HAILEY
- --------------------------------- Director July 31, 1999
DOUGLAS HAILEY
/s/ GEORGE MAS
- --------------------------------- Vice President/Chief Financial Officer July 31, 1999
GEORGE MAS
/s/ KENDRICK MEEK
- --------------------------------- Director July 31, 1999
KENDRICK MEEK
/s/ MICHAEL RECCA
- --------------------------------- Director July 31, 1999
MICHAEL RECCA
/s/ ARTHUR G. SHAPIRO
- --------------------------------- Director July 31, 1999
ARTHUR G. SHAPIRO, M.D.
/s/ CHARLES J. SIMONS
- --------------------------------- Director July 31, 1999
CHARLES J. SIMONS
</TABLE>
63
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") entered into as of the
1st day of January, 1999 by and between MED/WASTE, INC., a Delaware corporation
(the "Company"), and GEORGE MAS ("MAS").
R E C I T A L S:
A. The Company is engaged in the medical waste management
business (the "Business");
B. The Company desires to employ MAS as Vice President of Finance
and Chief Financial Officer on the terms and condition herein; and
C. The Company believes that it is in the best interest of the
Company to assure MAS of a secure minimum compensation and to diminish the
inevitable distraction of MAS 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 MAS as Vice President of Finance and Chief Financial Officer of the
Business during the term set forth in this Agreement. MAS 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 MAS's education, expertise and job
responsibilities. MAS shall report to the President of the Company or such other
officer as determined appropriate in the discretion of the Board of Directors.
All actions of MAS shall be subject and subordinate to the review and approval
of the Board of Directors and all committees thereunder.
2.2. Devotion of Time. During the term of this Agreement,
MAS 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 MAS and to use reasonable best efforts to perform
faithfully and efficiently such responsibilities. During this Agreement, it
shall not be a violation of this Agreement for MAS to (i) serve on corporate,
civic or charitable boards or committees; or (ii) manage personal investments,
so long as such activities do not interfere with the performance of MAS's
responsibilities with the Company and which companies are not in competition
with the Company.
<PAGE> 2
2.3. Location of Employment. Unless otherwise agreed by MAS,
MAS's principal place of employment shall be in within Dade, Broward or Palm
Beach County, Florida at such locations and facilities determined by the Board
of directors.
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 by the Company for Cause. The Company may
terminate MAS's employment effective upon written notice, if such termination is
for "Cause." For purposes of this Agreement, "Cause" is defined as:
3.2.1. death of MAS;
3.2.2. a material default or breach by MAS of any of the
provisions of this Agreement;
3.2.3. failure to follow reasonable and lawful directives
of the Company's Board of Directors, which are consistent with MAS's job
responsibilities and performance;
3.2.4. actions by MAS constituting fraud, embezzlement
or dishonesty which result in a conviction of a criminal offense not overturned
on appeal;
3.2.5. intentionally furnishing false, misleading, or
omissive information to the Company's Board of Directors or any committee
thereof;
3.2.6. actions constituting a breach of the
confidentiality of the Business and/or trade secrets of the Company which is
materially detrimental to the Company;
3.2.7. the commission of an act by MAS involving moral
turpitude;
3.2.8. intoxication by alcohol or drugs during the
performance of duties on more than one occasion; or
3.2.9. in the event that MAS shall become mentally or
physically disabled (as hereinafter defined) so as to be unable to perform his
duties for a period of thirty (30) days. During such disability and prior to
termination, MAS shall continue to receive his Base Salary and other
compensation and benefits herein. Disability for the purposes herein shall be
the inability of MAS to perform his duties as determined by an independent
physician mutually chosen by the Company and MAS.
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<PAGE> 3
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.
3.3. 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 MAS the Severance
Payment described in Section 4.6 herein.
3.4. Termination by MAS. MAS 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 MAS terminates this Agreement under this Section 3.4 prior to a
Change of Control, MAS shall be entitled to severance equal to three (3) months
Base Salary. If MAS terminates this Agreement under this Section 3.4 following a
Change of Control, MAS shall be entitled to the Severance Payment as provided in
Section 4.6.
3.5. Change of Control. Change of Control is defined for the
purposes of this Agreement as any of the following acts:
3.5.1. 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 fifty (50%) 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
3.5.2. 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
3.5.3. 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.
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3.6. 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. In the event that
the Agreement is not renewed by the Company at the end of the first year of
employment, MAS shall be entitled to receive a severance payment equal to three
(3) months of Base Salary and the Bonus payable in accordance with the terms
hereof, payable in three equal monthly installments on the first day of each
month commencing on the first day of the month following non-renewal.
4. COMPENSATION AND BENEFITS.
4.1. Salary. For the first year of the term of this Agreement,
Company shall pay to MAS, a base salary at a total annual rate of $115,000 (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.
4.2. Cost of Living Increase. MAS's Base Salary shall be
automatically increased on January 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. At the end of each year during the term hereof,
MAS shall be entitled to a bonus in the amount of $10,000, payable by March 31,
of the next succeeding year. In addition, MAS 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 MAS 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 MAS during the term of this Agreement. Nothing set
forth herein shall obligate the Company to pay MAS any bonus or incentive
compensation.
4.4. Stock Options. Upon the execution of this Agreement, MAS
shall receive options to purchase 25,000 shares of common stock pursuant to the
Company's 1993 Employee Stock Option Plan. Such options shall have a term of
five (5) years and shall have an exercise price equal to the closing sale price
of the Company's common stock on January 4, 1999 as reported by NASDAQ. Of such
options, 8,250 shall vest immediately upon grant; provided however, such options
shall not be exercisable for a period of six months. The balance of such options
shall vest on January 4, 2000. In the event of a change of control, MAS shall
receive an option to purchase an additional 25,000 shares of common stock on
identical terms as the grant discussed above; provided however, that all such
options shall vest immediately upon a change
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<PAGE> 5
of control. MAS 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 MAS's employment is
terminated, prior to a Change of Control, in accordance with Section 3.3, MAS
shall receive a termination payment ("Termination Payment") equal to the sum of
(a) the Base Salary payments MAS would have received had his employment
continued for the remaining term of this Agreement; and (b) nine months' Base
Salary in effect at the time of termination; provided however, if this Agreement
is terminated in the first year of employment, MAS shall be entitled to three
months Base Salary , plus a prorated portion of the Bonus payable in Section 4.2
herein. 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
MAS's employment is terminated following a Change of Control, MAS shall be
entitled to the Severance Payment equal to two (2) times his existing Base
Salary, plus the bonus payable in accordance with section 4.2 herein. The
Severance 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.
4.7. Additional Benefits.
4.7.1. Vacation. MAS shall be entitled to a minimum
of three (3) weeks paid vacation during each twelve-month period during the term
of this Agreement; provided however, no vacation may be taken during the first
six months of this Agreement, nor may any vacation period extend longer than
fourteen (14) consecutive days. Any vacation not taken, will not be paid in cash
and will not cumulate from year to year. In addition, MAS 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.
4.7.2. Automobile Expenses. During the term of this
Agreement, the Company shall pay to MAS an automobile expense allowance of $500
per month. Such automobile allowance shall be inclusive of insurance, gasoline,
maintenance, depreciation and all other expenses for MAS's personal automobile.
4.7.3. Reimbursement of Expenses. MAS shall be reimbursed
by the Company for all Business expenses which are reasonably incurred by MAS 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. MAS 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 MAS and each of his
dependents during the term hereof.
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5. REPRESENTATIONS BY MAS. MAS 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. MAS 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. MAS 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 MAS in the course of his employment
are the exclusive property of the Company and MAS 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 MAS
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.
7. RESTRICTIVE COVENANT. As an inducement to cause the Company to
enter into this Agreement, MAS 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. MAS 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. MAS 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 MAS shall not directly or indirectly aid or assist any other person, firm or
corporation to do any of the aforesaid acts.
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<PAGE> 7
7.3. Solicitation of Employees. MAS 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 MAS 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 MAS to comply with
such covenants, the Company would not have entered into this Agreement. Such
covenants by the MAS shall be construed as agreements independent of any other
provision of this Agreement and the existence of any claim or cause of action
MAS 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. MAS 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. MAS 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 MAS's ability to obtain employment commensurate
with MAS's abilities and on terms fully acceptable to MAS. MAS acknowledges that
MAS will be receiving significant information regarding the Business which MAS
has not previously received and would not receive without being employed by the
Company. MAS acknowledges and confirms that such information would cause the
Company serious injury and loss if used by MAS for the benefit of a competitor.
8. REMEDIES. MAS hereby acknowledges, covenants and agrees that
in the event of a material default or breach by MAS 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. MAS 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.
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<PAGE> 8
90 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.
100 INDEMNIFICATION. The Company hereby indemnifies MAS 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 MAS, 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 MAS that he will repay such fees if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to indemnification.
110 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 MAS
without the written consent of
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the other party, it being understood that the obligations and performance of
this Agreement are personal in nature.
120 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:
MAS:
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The Company: MED/WASTE, INC.
6175 N. W. 153rd Street, Bay Suite 324
Miami Lakes, Florida 33014
Attention: Daniel A. Stauber
with a copy to: BRYAN W. BAUMAN, ESQ.
Wallace, Bauman, Legon, Fodiman & Shannon, P.A.
1200 Brickell Avenue, Suite 1720
Miami, Florida 33131
or such other address given by such party to the other party at any time
hereafter.
130 ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement between the parties with respect to the subject matter hereof.
140 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.
150 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.
160 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.
170 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.
180 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.
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190 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
---------------------------------------
GEORGE MAS
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") entered into as of the seventh
day of January, 1999 by and between MED/WASTE, INC., a Delaware corporation (the
"Company"), and CARLOS CAMPOS ("CAMPOS").
R E C I T A L S:
A. The Company is engaged in the medical waste management business
through its wholly owned subsidiaries (the "Business");
B. CAMPOS has substantial experience in the operation and management of
the medical waste business; and
C. The Company desires to employ CAMPOS as the Company's Executive Vice
President and Chief Operating Officer and CAMPOS 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 CAMPOS of a secure minimum compensation and to diminish the inevitable
distraction of CAMPOS 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 retains and
employs CAMPOS as Executive Vice President, Chief Operating Officer of the
Business during the term of this Agreement, and the Officers of the Company
shall use best efforts to have CAMPOS elected as a Director of the Board once
Mr. Bonham resigns or is removed from the Board. CAMPOS shall perform such
duties as are usually performed by an Executive Vice President and Chief
Operating 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
<PAGE> 2
and consistent with the Company's operations, taking into account CAMPOS'
education, expertise and job responsibilities. CAMPOS shall report directly to
the Chief Executive Officer AND THE BOARD OF DIRECTORS OF THE COMPANY. All major
actions of CAMPOS shall be subject and subordinate to the review and approval of
the Chief Executive Officer and 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,
CAMPOS 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 CAMPOS and to use best efforts to perform
faithfully and efficiently such responsibilities. During this Agreement, it
shall not be a violation of this agreement for CAMPOS to (i) serve on corporate,
civic or charitable boards or committees; (ii) deliver lectures, fulfill
speaking engagements or teach at educational institutions; or (iii) manage
personal investments (i.e. HACIENDA CAMAEL) so long as such activities do not
significantly interfere with the performance of CAMPOS' responsibilities with
the Company and which investments are not in direct 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 apply to CAMPOS and the Company for any business
opportunities in the medical or solid waste industries or such other industry in
which the Company operates during the term of this Agreement.
2.4. LOCATION OF EMPLOYMENT. Unless otherwise agreed by
CAMPOS, CAMPOS' principal place of employment shall be in a mutually agreeable
location and facility within Miami-Dade 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 on December 31, 2003,
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 CAMPOS' employment upon thirty (30)
days written notice for the following reasons: if
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<PAGE> 3
3.2.1. A material default or breach by CAMPOS 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
CAMPOS' job responsibilities and performance.
CAMPOS 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 CAMPOS 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 CAMPOS' 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. Notwithstanding any termination herein, the
provisions of Sections 7, 8, 9, 10, 11 and 12 shall remain in full force and
effect.
3.3. TERMINATION BY THE COMPANY FOR CAUSE. The Company may
terminate CAMPOS' 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 CAMPOS;
3.3.2. Actions by CAMPOS constituting fraud,
embezzlement or dishonesty;
3.3.3. Furnishing MATERIAL false, misleading, or
omissive information to the Company's Board of Directors or any committee
thereof;
3.3.4. Actions constituting a MATERIAL breach of the
confidentiality of the Business and/or trade secrets of the Company;
3.3.5. The commission of an act by CAMPOS involving
moral turpitude WHICH IS EVIDENCED BY ACTUAL DETRIMENTAL IMPACT 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 IS EVIDENCED BY ACTUAL
DETRIMENTAL IMPACT on the business or reputation of the Company; or
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<PAGE> 4
3.3.7. Any action which constitutes insubordination
as to the Company's Board of Directors.
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. Notwithstanding any termination herein, the provisions of
Sections 7, 8, 9, 10, 11 and 12 shall remain in full force and effect.
3.4. TERMINATION WITHOUT CAUSE BY THE COMPANY. The Company
shall have the right to terminate this Agreement without cause on thirty (30)
days written notice. Upon termination by the Company without cause, the Company
shall not be liable for any further compensation, other than remaining Base
Salary which would have been paid for the balance of the term of this Agreement
if it were not terminated. The payment under this Section 3.4 shall be payable
in cash on the same dates and in the same process as Base Salary was payable
prior to the effective date of termination. Notwithstanding any termination
herein, the provisions of Sections 7, 8, 9, 10, 11 and 12 shall remain in full
force and effect during the balance of the term and WHILE PAYMENTS ARE BEING
MADE; provided however, that in the event of any breach of the provisions of
Sections 7 or 8, the Company shall thereafter immediately terminate all payments
which shall not be the Company's exclusive remedy for such breach. If and when
the payments cease, so shall the obligations of Sections 8, 9, 10, 11 and 12.
3.5. TERMINATION BY CAMPOS. CAMPOS 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, or if Company requires CAMPOS to be based at any office outside
of Miami-Dade County. Such notice shall set forth in reasonable detail the facts
underlying the default. If CAMPOS terminates this Agreement under this Section
3.5, CAMPOS shall be entitled to the remaining Base Salary which would have been
paid for the balance of the term of this Agreement if it were not terminated.
The payment under this Section 3.5 shall be payable in cash on the same dates
and in the same process as Base Salary was payable prior to the effective date
of termination. So long as the Company continues to make payment of Base Salary
herein, the provisions of Sections 7, 8, 9, 10, 11 and 12 shall remain in full
force and effect; provided however, that in the event of any breach of the
provisions of Sections 7 or 8, the Company shall thereafter have the right to
immediately terminate all payments which shall not be the Company's exclusive
remedy for such breach.
3.6. TERMINATION BY CAMPOS UPON CHANGE OF CONTROL. CAMPOS may
terminate this Agreement upon thirty (30) days written notice at any time within
ninety (90) days after a "Change of Control" occurs. Upon such termination,
CAMPOS
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<PAGE> 5
shall be entitled to the greater of (a) $500,000 or (b) the remaining
Base Salary which would have been paid for the balance of the term of this
Agreement if it were not terminated pursuant to this Section 3.6. Such severance
upon a change of control shall be payable in cash 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. 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 fifty (50%) 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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<PAGE> 6
4. COMPENSATION AND BENEFITS.
4.1. SALARY. For the first year of the term of this Agreement,
Company shall pay to CAMPOS, not less often than monthly, a base salary at a
total annual rate of $185,000 (the "Base Salary"), payable in cash. For each
year commencing January 1, 2000, Base Salary shall be the prior year's Base
Salary increased in accordance with Section 4.2 herein. The parties acknowledge
and agree that it is the Company's goal to increase Base Salary to $225,000 as
soon as the Board of Directors determine in its sole discretion that the
Company's profitability can support such Base Salary. Notwithstanding, there is
no requirement that Base Salary be so increased other than in accordance with
Section 4.2 herein. Base Salary shall be paid in regular payroll intervals
consistent with payroll policy established by the Company from time to time.
4.2. COST OF LIVING INCREASE. CAMPOS' Base Salary shall be
automatically increased on January 1 of each year commencing January 1, 2000
(the "Yearly Increase") by the greater of (i) $10,000, 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 CAMPOS to earn a bonus based upon certain goals and objectives to
be established in such Incentive Bonus Plan, including profitability of the
Company. Such Bonus, if any shall be payable in cash within ninety (90) days
following the end of such fiscal year.
4.4. STOCK OPTIONS. Upon the Commencement Date herein, the
Company shall cause to be granted to CAMPOS options to purchase an aggregate of
100,000 shares of the Company's common stock, $.001 par value pursuant to the
Company's 1996 Employee Stock Option Plan. The exercise price shall be the
closing sale price of the company's common stock on the Commencement Date as
reported on the NASDAQ Small Cap Market. Such Options shall have a term of five
years and shall vest and be exercisable 50% six months following the
Commencement Date and the balance on the first anniversary of the Commencement
Date. Notwithstanding, vesting of options shall immediately accelerate upon an
event of Change of Control as defined
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<PAGE> 7
in Section 3.5 herein. All other terms and conditions of the options shall be
governed by the provisions of the 1996 Employee Stock Option Plan. In addition,
CAMPOS 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.
4.5. ADDITIONAL BENEFITS.
4.5.1. VACATION. CAMPOS shall be entitled to a
minimum of three (3) weeks paid vacation during each twelve-month period during
the term of this Agreement. Any vacation not taken, will not be paid in cash and
will not cumulate from year to year. In addition, CAMPOS 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.
4.5.2. AUTOMOBILE EXPENSES. During the term of this
Agreement, the Company pay to CAMPOS an automobile expense allowance of $800 per
month. Such automobile allowance shall be inclusive of insurance, gasoline,
maintenance, depreciation and all other expenses associated therewith.
4.5.3. REIMBURSEMENT OF EXPENSES. CAMPOS shall be
reimbursed by the Company for all Business expenses which are reasonably
incurred by CAMPOS in the performance of his duties under this Agreement. All
reimbursable travel expenses shall be in accordance with mutually agreeable and
reasonable policy.
4.5.4. PARTICIPATION IN EMPLOYEE BENEFIT PLANS.
CAMPOS and his dependents 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.
5. DISABILITY.
5.1. DISABILITY. In the event that CAMPOS shall become
mentally or physically Disabled (as hereinafter defined) so as to be unable to
fully perform his duties herein, CAMPOS shall continue to receive his Base
Salary for 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, CAMPOS remains incapacitated (hereinafter
"Permanent Disability"), the Company shall have the right to immediately
terminate this Agreement. The Company shall not have any liability
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<PAGE> 8
thereafter for any further compensation or benefits. Notwithstanding any
termination herein, the provisions of Sections 6, 7, 8, 9, 10 and 11 shall
remain in full force and effect;
5.2. DEFINITION OF DISABILITY. Disability for the purposes of
this Section 5 shall mean the inability of CAMPOS to perform his duties as
described herein as determined by an independent physician mutually acceptable
to the Company and CAMPOS.
6. REPRESENTATION BY CAMPOS. CAMPOS 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. CAMPOS
represents and warrants that he is not subject of any restrictive covenants
under any other agreements prohibiting his performance in full hereunder, or
which would subject the Company to any claims for tortious interference.
7. CONFIDENTIALITY AND NON-DISCLOSURE OF INFORMATION.
7.1. CONFIDENTIALITY. CAMPOS 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; pricing; the
Company's Business techniques, computer programs and printouts; identity of
prospective customers; 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, unless the information is legally
compelled or already exists in the public domain.
7.2. OWNERSHIP OF INFORMATION. CAMPOS recognizes that all
records, customer lists, supplier lists, material cost data, files,
correspondence with customers and suppliers of material and services, computer
printouts, contacts, 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, its
customers and suppliers, made or received by CAMPOS in the course of his
employment are the exclusive property of the Company and CAMPOS holds and uses
same as trustee for the Company and subject to the Company's sole
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<PAGE> 9
control and will deliver same to the Company at the termination of his
employment, or earlier if so requested by the Company in writing, unless the
information is legally compelled or already exists in the public domain. All of
such information which if lost or used by CAMPOS 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, CAMPOS covenants and agrees that during his employment and,
for a period of eighteen (18) months after he ceases to be employed by the
Company, for any reason other than Section 3.4:
8.1. RESTRICTION. CAMPOS will not be an employee, agent,
director, stockholder or owner (except of not more than controlling interest of
the 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, firms,
proprietorship, corporation, partnership, association, entity or venture engaged
in the provision of services or supplies similar to the Business (a "Competing
Business") within any state in which the Company or any of its subsidiaries at
the termination of this Agreement maintain any operations, whether hauling,
sales, treatment or disposal (the "Restricted Area").
8.2. SOLICITATION OF BUSINESS. CAMPOS 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 CAMPOS 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. CAMPOS 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 of other employee to terminate
employment with the Company for the purpose of obtaining employment by a
Competing Business in the Restricted Area.
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<PAGE> 10
9. ACKNOWLEDGMENT. CAMPOS HEREBY ACKNOWLEDGES AND UNDERSTANDS THIS
AGREEMENT INHIBITS CAMPOS' ABILITY TO WORK FOR THE SAME OR SIMILAR KIND OF
BUSINESS FOR A PERIOD OF EIGHTEEN (18) MONTHS AFTER THE END OF CAMPOS'
EMPLOYMENT WITH THE COMPANY. CAMPOS 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.
CAMPOS 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 CAMPOS' ability to obtain employment commensurate with
CAMPOS' ability and on terms fully acceptable to CAMPOS. CAMPOS acknowledges
that CAMPOS will be receiving significant information regarding the Business
which CAMPOS has not previously received and would not receive without being
employed by the Company. CAMPOS acknowledges and confirms that such information
would cause the Company serious injury and loss if used by CAMPOS for the
benefit of a competitor.
10. MATERIAL VIOLATION. A violation of Sections 7 or 8 shall constitute
a material and substantial breach of this Agreement and shall result in the
imposition of the Company's remedies contained in Section 12. CAMPOS
acknowledges that compliance with the provisions of Sections 7 and 8 are
necessary to protect the goodwill and proprietary interests of the Company and
is a material condition of employment.
11. MATERIAL COVENANTS. It is understood by and between the parties
that the forgoing covenants set forth in Sections 7 and 8 are essential elements
of this Agreement, and that but for the agreement of CAMPOS to comply with such
covenants, the Company would not have entered into this Agreement. Such
covenants by CAMPOS shall be construed as agreements independent of any other
provision of this Agreement and the existence of any claim or cause of action
CAMPOS 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.
12. REMEDIES. CAMPOS hereby acknowledges, covenants and agrees that in
the event of a material default or breach under this Agreement:
12.1. INJUNCTIVE RELIEF. The Company will suffer irreparable
and continuing damages as a result of such breach and its remedy at law will be
inadequate. CAMPOS agrees that in the event of a violation of 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
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<PAGE> 11
security and to any other equitable relief the court deems proper; and
12.2 TERMINATION OF SEVERANCE. The Company shall immediately
cease any payments owing to CAMPOS and shall have no further obligations
thereunder;
12.3. 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.
13. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses, sections, subdivisions, or subsections 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.
14. INDEMNIFICATION. The Company agrees to indemnify CAMPOS 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 CAMPOS, 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 CAMPOS that he will repay such fees if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to indemnification.
15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties hereto and their successors and assigns. 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. The Company shall be in material breach of this Agreement if any
such ITS 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.
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<PAGE> 12
16. 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;
(iii) through a nationally recognized overnight courier; or (iv) via facsimile,
to the party at their addresses below:
CAMPOS: P.O. Box 971758
Miami, Florida 33197-1758
With a copy to: S. Daniel Ponce
Hanzman, Criden, Chaykin, Ponce & Wiese, P.A.
First Union Financial Center, Suite 2100
Miami, FL 33131
The Company: Med/Waste, Inc.
6175 N.W. 153rd Street, Suite 324
Miami Lakes, Florida 33014
Attention: Chief Executive Officer
With a copy to: BRYAN W. BAUMAN, ESQ.
Wallace, Bauman, Legon, Fodiman &
Shannon, P.A.
1200 Brickell Avenue, Suite 1720
Miami, Florida 33131
or such other address given by such party to the other party at any time
hereafter.
17. ENTIRE AGREEMENT. This Agreement contains the sole and entire
agreement between the parties with respect to the subject matter hereof.
18. 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.
19. 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.
20. 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.
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<PAGE> 13
21. 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.
22. ATTORNEY'S 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/Chief Executive Officer
----------------------------------
CARLOS CAMPOS
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") entered into as of the eleventh
day of January, 1999 by and between MED/WASTE, INC., a Delaware corporation (the
"Company"), and ROSS. M. JOHNSTON ("JOHNSTON").
R E C I T A L S:
A. The Company is engaged in the medical waste management business
through its wholly owned subsidiaries (the "Business");
B. JOHNSTON has substantial experience in the operation and management
of the medical waste business; and
C. The Company desires to employ JOHNSTON as the Company's Vice
President of Legal Affairs and JOHNSTON 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 JOHNSTON of a secure minimum compensation and to diminish the
inevitable distraction of JOHNSTON 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 retains and
employs JOHNSTON as Vice President of Legal Affairs of the Business during the
term set forth in this Agreement. JOHNSTON shall perform such duties as are
usually performed by a Vice President of Legal Affairs 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
JOHNSTON's education, expertise and job responsibilities. JOHNSTON shall report
directly to the Chief Operating Officer and
<PAGE> 2
the Board of Directors of the Company. All major actions of JOHNSTON shall be
subject and subordinate to the review and approval of the Chief Operating
Officer and 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,
JOHNSTON 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 JOHNSTON and to use best efforts to perform
faithfully and efficiently such responsibilities. During this Agreement, it
shall not be a violation of this agreement for JOHNSTON to (i) serve on
corporate, civic or charitable boards or committees; (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions; or (iii)
manage personal investments so long as such activities do not significantly
interfere with the performance of JOHNSTON's responsibilities with the Company
and which investments are not in direct 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 apply to JOHNSTON and the Company for any
business opportunities in the medical or solid waste industries or such other
industry in which the Company operates during the term of this Agreement.
2.4. LOCATION OF EMPLOYMENT. Unless otherwise agreed by
JOHNSTON, JOHNSTON's principal place of employment shall be in a mutually
agreeable location and facility within Miami-Dade 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 on DECEMBER 31, 1999,
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 BY THE COMPANY FOR CAUSE. The Company may
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<PAGE> 3
terminate JOHNSTON's employment effective upon written notice, if such
termination is for "Cause." For purposes of this Agreement, "Cause" is defined
as:
3.2.1. Death of JOHNSTON;
3.2.2. A material default or breach by JOHNSTON of
any of the provisions of this Agreement;
3.2.3. Failure to follow reasonable and lawful
directives of the Company's Board of Directors, which are consistent with
JOHNSTON's job responsibilities and performance;
3.2.4. Actions by JOHNSTON constituting fraud,
embezzlement or dishonesty which result in a conviction of a criminal offense
not overturned on appeal;
3.2.5. Intentionally furnishing MATERIAL false,
misleading, or omissive information to the Company's Board of Directors or any
committee thereof;
3.2.6. Actions constituting a breach of the
confidentiality of the Business and/or trade secrets of the Company which is
materially detrimental to the Company;
3.2.7. The commission of an act by JOHNSTON involving
moral turpitude;
3.2.8. Intoxication by alcohol or drugs during the
performance of duties on more than one occasion; or
3.2.9. In the event that JOHNSTON shall become
mentally or physically disabled (as hereinafter defined) so as to be unable to
perform his duties for a period of thirty (30) days. During such disability and
prior to termination, JOHNSTON shall continue to receive his Base Salary and
other compensation and benefits herein. Disability for the purposes herein shall
be the inability of JOHNSTON to perform his duties as determined by an
independent physician mutually chosen by the Company and JOHNSTON.
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.
3.3. TERMINATION WITHOUT CAUSE. The Company shall have the
right to
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<PAGE> 4
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 JOHNSTON the Severance
Payment described in Section 4.6 herein.
3.4. TERMINATION BY JOHNSTON. JOHNSTON 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 JOHNSTON terminates this Agreement under this Section
3.4, prior to a Change of Control, JOHNSTON shall be entitled to severance equal
to three (3) months Base Salary. If JOHNSTON terminates this Agreement under
this Section 3.4 following a Change of Control, JOHNSTON shall be entitled to
the Severance Payment as provided in Section 4.6 herein.
3.5. Change of Control is defined for the purposes of this
Agreement as any of the following acts:
3.5.1. 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 fifty (50%) 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
3.5.2. 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
3.5.3. 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,
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<PAGE> 5
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.
3.6. 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. In the event that
the Agreement is not renewed by the Company at the end of the first year of
employment, JOHNSTON shall be entitled to receive a severance payment equal to
three (3) months of Base Salary and the Bonus payable in accordance with the
terms hereof, payable in three equal monthly installments on the first day of
each month commencing on the first day of the month following non-renewal.
4. COMPENSATION AND BENEFITS.
4.1. SALARY. For the first year of the term of this Agreement,
Company shall pay to JOHNSTON, a base salary at a total annual rate of $80,000
(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. COST OF LIVING INCREASE. JOHNSTON's Base Salary shall be
automatically increased on January 1 of each year (the "Yearly Cash Increase")
by the greater of (i) five percent (5%), 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. At the end of each year during the term hereof,
JOHNSTON shall be entitled to a bonus in the amount of $10,000, payable by March
Page 5 of 13
<PAGE> 6
31, of the next succeeding year. In addition, JOHNSTON 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
JOHNSTON 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 a all, of an incentive bonus plan for any given year or to
grant additional or discretionary bonuses to JOHNSTON during the term of this
Agreement. Nothing set forth herein shall obligate the Company to pay JOHNSTON
any bonus or incentive compensation.
4.4. STOCK OPTIONS. Upon the Commencement Date herein, the
Company shall cause to be granted to JOHNSTON options to purchase an aggregate
of 5,000 shares of the Company's common stock, $.001 par value pursuant to the
Company's 1996 Employee Stock Option Plan. The exercise price shall be the
closing sale price of the company's common stock on the Commencement Date as
reported on the NASDAQ Small Cap Market. Such Options shall have a term of five
years and shall vest and be exercisable 50% six months following the
Commencement Date and the balance on the first anniversary of the Commencement
Date. Notwithstanding, vesting of options shall immediately accelerate upon an
event of Change of Control as defined in Section 3.5 herein. In the event of a
change of control, JOHNSTON shall receive an option to purchase an additional
5,000 shares of common stock on identical terms as the grant discussed above;
provided however, that all such options shall vest immediately upon a change of
control. JOHNSTON shall be eligible from time to time to receive grants of stock
options, under a stock option plan or otherwise, in such amount and at such
times as determined by the Board of Directors or any committee thereof.
4.5. ADDITIONAL BENEFITS.
4.5.1. VACATION. JOHNSTON shall be entitled to a
minimum of three (3) weeks paid vacation during each twelve-month period during
the term of this Agreement; provided however, no vacation may be taken during
the first six months of this Agreement, nor may any vacation period extend
longer that fourteen (14) consecutive days. Any vacation not taken, will not be
paid in cash and will not cumulate from year to year. In addition, JOHNSTON
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.
4.5.2. AUTOMOBILE EXPENSES. During the term of this
Agreement, the Company pay to JOHNSTON an automobile expense allowance of $350
per month.
Page 6 of 13
<PAGE> 7
Such automobile allowance shall be inclusive of insurance, gasoline,
maintenance, depreciation and all other expenses associated therewith.
4.5.3. REIMBURSEMENT OF EXPENSES. JOHNSTON shall be
reimbursed by the Company for all Business expenses which are reasonably
incurred by JOHNSTON 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.
4.5.4. PARTICIPATION IN EMPLOYEE BENEFIT PLANS.
JOHNSTON 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
JOHNSTON and each of his dependents during the term
4.6. CHANGE OF CONTROL SEVERANCE PAYMENT. In the
event that JOHNSTON's employment is terminated following a Change of Control,
JOHNSTON shall be entitled to the Severance Payment equal to two (2) times his
existing Base Salary, plus the bonus payable in accordance with section 4.3
herein. The Severance 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 months.
5. REPRESENTATION BY JOHNSTON. JOHNSTON 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. JOHNSTON 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; pricing; the
Company's Business techniques, computer programs and printouts; identity of
prospective customers; 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
Page 7 of 13
<PAGE> 8
borrowing costs; or other information concerning the business or its employees,
UNLESS THE INFORMATION IS LEGALLY COMPELLED OR ALREADY EXISTS IN THE PUBLIC
DOMAIN.
6.2. OWNERSHIP OF INFORMATION. JOHNSTON recognizes that all
records, customer lists, supplier lists, material cost data, files,
correspondence with customers and suppliers of material and services, computer
printouts, contacts, 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, its
customers and suppliers, made or received by JOHNSTON in the course of his
employment are the exclusive property of the Company and JOHNSTON 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, UNLESS THE INFORMATION IS
LEGALLY COMPELLED OR ALREADY EXISTS IN THE PUBLIC DOMAIN. All of such
information which if lost or used by JOHNSTON 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.
7. RESTRICTIVE COVENANT. As an inducement to cause the Company to enter
into this Agreement, JOHNSTON 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. JOHNSTON 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, firms,
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 or Palm Beach counties (the "Restricted Area").
7.2. SOLICITATION OF BUSINESS. JOHNSTON 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 JOHNSTON 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. JOHNSTON will not directly or
Page 8 of 13
<PAGE> 9
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 for the purpose of obtaining employment by a
Competing Business in the Restricted Area.
7.4. 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 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 JOHNSTON to comply with
such covenants, the Company would not have entered into this Agreement. Such
covenants by JOHNSTON shall be construed as agreements independent of any other
provision of this Agreement and the existence of any claim or cause of action
JOHNSTON 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. JOHNSTON 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. JOHNSTON 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 JOHNSTON's ability to obtain
employment commensurate with JOHNSTON's ability and on terms fully acceptable to
JOHNSTON. JOHNSTON acknowledges that JOHNSTON will be receiving significant
information regarding the Business which JOHNSTON has not previously received
and would not receive without being employed by the Company. JOHNSTON
acknowledges and confirms that such information would cause the Company serious
injury and loss if used by JOHNSTON for the benefit of a competitor.
8. REMEDIES. JOHNSTON hereby acknowledges, covenants and agrees that in
the event of a material default or breach under this Agreement:
Page 9 of 13
<PAGE> 10
8.1. INJUNCTIVE RELIEF. The Company will suffer irreparable
and continuing damages as a result of such breach and its remedy at law will be
inadequate. JOHNSTON agrees that in the event of a violation of 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
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 subsections 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 JOHNSTON 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 JOHNSTON, 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 JOHNSTON that he will repay such fees if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to indemnification.
11. SUCCESSORS AND ASSIGNS.
11.1. SUCCESSORS. This Agreement shall be binding upon the
parties
Page 10 of 13
<PAGE> 11
hereto and their successors and assigns. For purposes of this Agreement,
the term "Successor" of Company shall include:
11.1.1. Any person or entity, whether direct or
indirect, whether by purchase, merger, consolidation, operation of law,
assignment, or otherwise acquires or controls:
11.1.1.1. All or substantially all of the
assets of Company; or
11.1.1.2. 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;
11.1.1.3. 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 JOHNSTON
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;
(iii) through a nationally recognized overnight courier; or (iv) via facsimile,
to the party at their addresses below:
JOHNSTON: 1000 Quayside Terrace, #1412
Miami, Florida 33138
The Company: Med/Waste,Inc.
6175 N.W. 153rd Street, Suite 324
Miami Lakes, Florida 33014
Attention: Chief Executive Officer
Page 11 of 13
<PAGE> 12
With a copy to: BRYAN W. BAUMAN, ESQ.
Wallace, Bauman, Legon, Fodiman &
Shannon, P.A.
1200 Brickell Avenue, Suite 1720
Miami, Florida 33131
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. ATTORNEY'S 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.
[This space intentionally left blank.]
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<PAGE> 13
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/Chief Executive Officer
----------------------------------
ROSS M. JOHNSTON
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EXHIBIT 10.9
================================================================================
CONSOLIDATING, AMENDED
AND RESTATED
CREDIT AGREEMENT
DATED AS OF DECEMBER 31, 1998
BY AND AMONG
MED/WASTE, INC.,
THE SUBSIDIARY BORROWERS,
AS BORROWERS,
THE LENDERS REFERRED TO HEREIN,
AND
UNION PLANTERS BANK, N.A.,
AS AGENT
================================================================================
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS.............................................................................1
SECTION 1.1. Definitions......................................................1
SECTION 1.2. General.........................................................13
SECTION 1.3. Other Definitions and Provisions................................13
ARTICLE II
REVOLVING CREDIT FACILITY..............................................................13
SECTION 2.1. Revolving Credit Loans..........................................13
SECTION 2.2. Borrowing Base..................................................13
SECTION 2.3. Revolving Credit Notes..........................................14
SECTION 2.4. Termination of Revolving Credit Facility........................14
SECTION 2.5. Use of Proceeds.................................................14
ARTICLE III
CONVERTIBLE CREDIT FACILITY............................................................14
SECTION 3.1. Convertible Credit Loans........................................14
SECTION 3.2. Conversion......................................................15
SECTION 3.3. Convertible Credit Notes........................................15
SECTION 3.4. Termination of Convertible Credit Facility......................15
SECTION 3.5. Use of Proceeds.................................................15
ARTICLE IV
GENERAL LOAN PROVISIONS................................................................15
SECTION 4.1. Procedure for Advances of Loans.................................15
SECTION 4.2. Repayment of Loans..............................................16
SECTION 4.3. Interest........................................................16
SECTION 4.4. Notice and Manner of Conversion or Continuation of Loans........19
SECTION 4.5. Fees............................................................19
SECTION 4.6. Manner of Payment...............................................20
SECTION 4.7. Crediting of Payments and Proceeds..............................20
SECTION 4.8. Changed Circumstances...........................................20
SECTION 4.9. Indemnity.......................................................22
SECTION 4.10. Capital Requirements............................................22
SECTION 4.11. Taxes...........................................................23
SECTION 4.12. Adjustments.....................................................24
SECTION 4.13. Nature of Obligations of Lenders Regarding Extensions
of Credit; Assumption by the Agent..............................24
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ARTICLE V
CLOSING: CONDITIONS OF CLOSING AND BORROWING...........................................25
SECTION 5.1. Closing.........................................................25
SECTION 5.2. Conditions to Closing and Initial Extensions of Credit..........25
SECTION 5.3. Conditions to All Loans.........................................28
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWERS........................................28
SECTION 6.1. Representations and Warranties..................................28
SECTION 6.2. Survival of Representations and Warranties, Etc.................34
ARTICLE VII
FINANCIAL INFORMATION AND NOTICES......................................................34
SECTION 7.1. Financial Statements and Projections............................34
SECTION 7.2. Officer's Compliance Certificate................................35
SECTION 7.3. Accountants' Certificate........................................36
SECTION 7.4. Other Certificates and Reports..................................36
SECTION 7.5. Notice of Litigation and Other Matters..........................37
SECTION 7.6. Accuracy of Information.........................................38
ARTICLE VIII
AFFIRMATIVE COVENANTS..................................................................38
SECTION 8.1. Preservation of Corporate Existence and Related Matters.........38
SECTION 8.2. Maintenance of Property.........................................38
SECTION 8.3. Insurance.......................................................38
SECTION 8.4. Accounting Methods and Financial Records........................38
SECTION 8.5. Payment and Performance of Obligations..........................38
SECTION 8.6. Compliance With Laws and Approvals..............................39
SECTION 8.7. Environmental Laws..............................................39
SECTION 8.8. Compliance with ERISA...........................................39
SECTION 8.9. Compliance With Agreements......................................39
SECTION 8.10. Conduct of Business.............................................40
SECTION 8.11. Visits and Inspections..........................................40
SECTION 8.12. Year 2000 Compliance............................................40
SECTION 8.13. Further Assurances..............................................40
ARTICLE IX
FINANCIAL COVENANTS....................................................................40
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ARTICLE X
NEGATIVE COVENANTS.....................................................................41
SECTION 10.1. Limitations on Debt............................................41
SECTION 10.2. Limitations on Contingent Obligations..........................41
SECTION 10.3. Limitations on Liens...........................................42
SECTION 10.4. Limitations on Loans, Advances, Investments and
Acquisitions...................................................42
SECTION 10.5. Limitations on Mergers and Liquidation.........................43
SECTION 10.6. Limitations on Sale of Assets..................................44
SECTION 10.7. Limitations on Dividends and Distributions.....................44
SECTION 10.8. Limitations on Exchange and Issuance of Capital Stock..........44
SECTION 10.9. Transactions with Affiliates...................................44
SECTION 10.10. Certain Accounting Changes.....................................44
SECTION 10.11. Amendments, Payments and Prepayments of Subordinated Debt......45
SECTION 10.12. Restrictive Agreements.........................................45
SECTION 10.13. Capital Expenditures...........................................45
ARTICLE XI
DEFAULT AND REMEDIES...................................................................45
SECTION 11.1. Events of Default..............................................45
SECTION 11.2. Remedies.......................................................48
SECTION 11.3. Rights and Remedies Cumulative; Non-Waiver; etc................48
ARTICLE XII
THE AGENT..............................................................................48
SECTION 12.1. Appointment....................................................48
SECTION 12.2. Declaration of Duties..........................................49
SECTION 12.3. Exculpatory Provisions.........................................49
SECTION 12.4. Reliance by the Agent..........................................49
SECTION 12.5. Notice of Default..............................................50
SECTION 12.6. Non-Reliance on the Agent and Other Lenders....................50
SECTION 12.7. Indemnification................................................51
SECTION 12.8. The Agent in Its Individual Capacity...........................51
SECTION 12.9. Resignation of the Agent; Successor Agent......................51
ARTICLE XIII
MISCELLANEOUS..........................................................................52
SECTION 13.1. Notices........................................................52
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SECTION 13.2. Expenses; Indemnity...........................................53
SECTION 13.3. Set-off.......................................................53
SECTION 13.4. Governing Law.................................................53
SECTION 13.5. Consent to Jurisdiction.......................................54
SECTION 13.6. Waiver of Jury Trial..........................................54
SECTION 13.7. Reversal of Payments..........................................54
SECTION 13.8. Injunctive Relief.............................................54
SECTION 13.9. Accounting Matters............................................54
SECTION 13.10. Successors and Assigns; Participations........................55
SECTION 13.11. Amendments, Waivers and Consents..............................57
SECTION 13.12. Performance of Duties.........................................58
SECTION 13.13. All Powers Coupled with Interest..............................58
SECTION 13.14. Survival of Indemnities.......................................58
SECTION 13.15. Titles and Captions...........................................58
SECTION 13.16. Severability of Provisions....................................58
SECTION 13.17. Counterparts..................................................58
SECTION 13.18. Term of Agreement.............................................58
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Exhibits and Schedules
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EXHIBITS
Exhibit A - Form of Convertible Credit Note
Exhibit B - Form of Revolving Credit Note
Exhibit C - Form of Borrowing Base Certificate
Exhibit D - Form of Notice of Borrowing
Exhibit E - Form of Notice of Rate Conversion/Continuation
Exhibit F - Form of Officer's Compliance Certificate
Exhibit G - Form of Assignment and Acceptance
SCHEDULES
Schedule 1 - Lenders and Commitments
Schedule 6.1(a) - Jurisdictions of Organization and Qualification
Schedule 6.1(b) - Subsidiaries and Capitalization
Schedule 6.1(i) - ERISA Plans
Schedule 6.1(l) - Material Contracts
Schedule 6.1(m) - Labor and Collective Bargaining Agreements
Schedule 6.1(t) - Debt and Contingent Obligations
Schedule 6.1(u) - Litigation
Schedule 10.3 - Existing Liens
Schedule 10.4 - Existing Loans, Advances and Investments
</TABLE>
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<PAGE> 7
CONSOLIDATING, AMENDED AND RESTATED CREDIT AGREEMENT, dated
as of the 31st day of December, 1998, by and among MED/WASTE, INC., a
corporation organized under the laws of Delaware (the "Company"), each
SUBSIDIARY BORROWER (as hereinafter defined) (together with the Company, the
"Borrowers"), the Lenders who are or may become a party to this Agreement, and
UNION PLANTERS BANK, N.A., successor by merger with UNION PLANTERS BANK OF
FLORIDA, a Florida banking corporation, f/k/a CAPITAL BANK, a Florida banking
corporation, as Agent for the Lenders.
STATEMENT OF PURPOSE
A. The Company and Union Planters entered into a Loan Agreement dated
as of September 25, 1997, as amended (the "Existing Loan Agreement"),
establishing a revolving line of credit by Union Planters in favor of the
Company.
B. The Company and Union Planters entered into a Credit Agreement dated
as of November 4, 1997, as amended (the "Existing Credit Agreement"), providing
for term loans to the Company.
C. The Borrowers have requested, and the Lenders have agreed, to extend
certain credit facilities to the Borrowers on the terms and conditions of this
Agreement in order to refinance the Existing Loan Agreement and the Existing
Credit Agreement (collectively, the "Existing Agreements") and for other general
corporate purposes.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, such parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms when used in this
Agreement shall have the meanings assigned to them below:
"Affiliate" means, with respect to any Person, any other Person (other
than a Subsidiary) which directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such first Person or any of its Subsidiaries. The term "control" means (a) the
power to vote five percent (5%) or more of the securities or other equity
interests of a Person having ordinary voting power, or (b) the possession,
directly or indirectly, of any other power to direct or cause the direction of
the management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
"Agent" means Union Planters in its capacity as Agent hereunder, and
any successor thereto appointed pursuant to Section 12.9.
<PAGE> 8
"Agent's Office" means the office of the Agent specified in or
determined in accordance with the provisions of Section 13.1.
"Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder. On the Closing Date, the Aggregate Commitment shall be
Thirty-Five Million and No/100 Dollars ($35,000,000.00).
"Agreement" means this Consolidating, Amended and Restated Credit
Agreement, as amended or modified from time to time.
"Annualized" means converting interim financial results,'x', that have
been obtained over a fraction of a year, 'y', to an estimated annual result by
multiplying 'x' times the inverse of 'y' (1/'y').
"Applicable Law" means all applicable provisions of constitutions,
statutes, laws, rules, treaties, regulations and orders of all Governmental
Authorities and all orders and decrees of all courts and arbitrators.
"Applicable Margin" shall have the meaning assigned thereto in
Section 4.3(c).
"Assignment and Acceptance" shall have the meaning assigned thereto
in Section 13.10.
"Available Amount" shall have the meaning assigned thereto in
Section 2.2.
"Available Commitment" means, as to any Lender and either Commitment at
any time, an amount equal to the excess, if any, of (a) such Lender's applicable
Commitment over (b) such Lender's Extensions of Credit thereunder.
"Borrowing Base" shall have the meaning assigned thereto in
Section 2.2.
"Borrowing Base Certificate" shall have the meaning assigned thereto in
Section 2.2.
"Borrowers" shall have the meaning assigned thereto in the preamble
hereto.
"Business Day" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Miami, Florida and New York, New York, are open for the conduct
of their commercial banking business, and (b) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
any LIBOR Rate Loan, any day that is a Business Day described in clause (a) and
that is also a day for trading by and between banks in Dollar deposits in the
London interbank market.
"Capital Lease" means, with respect to the Borrowers, any lease of any
property that should, in accordance with GAAP, be classified and accounted for
as a capital lease on a Consolidated balance sheet of the Borrowers.
2
<PAGE> 9
"Change in Control" shall have the meaning assigned thereto in
Section 11.1(i).
"Closing Date" means the date of this Agreement or such later Business
Day upon which each condition described in Article V shall be satisfied or
waived in all respects in a manner acceptable to the Agent, in its sole
discretion.
"Code" means the Internal Revenue Code of 1986, and the rules and
regulations thereunder, each as amended or supplemented from time to time.
"Commitment" means, as to any Lender, the obligation of such Lender to
make Loans to the Borrowers hereunder in an aggregate principal amount at any
time outstanding not to exceed the amount set forth opposite such Lender's name
on Schedule 1 hereto, as the same may be reduced or modified at any time or from
time to time pursuant to Section 13.10.
"Commitment Percentage" means, as to any Lender at any time, the ratio
of (a) the amount of the Commitment of such Lender to (b) the Aggregate
Commitment of all of the Lenders.
"Consolidated" means, when used with reference to financial statements
or financial statement items of the Borrowers, such statements or items on a
consolidated basis in accordance with applicable principles of consolidation
under GAAP.
"Contingent Obligation" means, with respect to the Borrowers, without
duplication, any obligation, contingent or otherwise, of any such Person
pursuant to which such Person has directly or indirectly guaranteed any Debt or
other obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of any
such Person (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
condition or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part); provided, that the term Contingent Obligation shall not include
endorsements for collection or deposit in the ordinary course of business.
"Conversion Date" means July 31, 2000.
"Converted Loan" shall have the meaning assigned thereto in
Section 3.2.
"Converted Loan Maturity Date" means July 31, 2004.
"Convertible Credit Facility" means the convertible credit facility
established pursuant to Article III hereof.
"Convertible Credit Notes" means the separate promissory notes made by
the Borrowers payable to the order of each Lender, substantially in the form of
Exhibit A hereto, evidencing the
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Convertible Credit Facility, and any amendments and modifications thereto, any
substitutes therefor, and any replacements, restatements, renewals or extension
thereof, in whole or in part.
"Convertible Loan" means any loan made to the Borrowers pursuant to
Section 3.1.
"Credit Facilities" means the collective reference to the Revolving
Credit Facility and the Convertible Credit Facility.
"Current Assets" means, at any date, the aggregate amount of all assets
of the Borrowers which would be properly classified as current assets at such
date, but excluding all accounts receivable or other sums due from Affiliates,
and excluding deferred assets, all computed in accordance with GAAP applied on a
consistent basis.
"Current Liabilities" means, at any date, all liabilities (including
taxes and other proper accruals) of the Borrowers, which would be properly
classified as current liabilities at such date, but excluding deferred
liabilities, all computed in accordance with GAAP applied on a consistent basis.
"Current Ratio" means the ratio of Current Assets to Current
Liabilities.
"Debt" means, with respect to the Borrowers at any date and without
duplication, the sum of the following calculated in accordance with GAAP: (a)
all liabilities, obligations and indebtedness including but not limited to
obligations evidenced by bonds, debentures, notes or other similar instruments
of any such Person, (b) all obligations to pay the deferred purchase price of
property or services of any such Person, except trade payables arising in the
ordinary course of business, (c) all obligations of any such Person as lessee
under Capital Leases, (d) all Debt of any other Person secured by a Lien on any
asset of any such Person, (e) all Contingent Obligations of any such Person, (f)
all obligations, contingent or otherwise, of any such Person relative to the
face amount of letters of credit, whether or not drawn, including without
limitation any reimbursement obligation, and banker's acceptances issued for the
account of any such Person and (g) all obligations incurred by any such Person
pursuant to Hedging Agreements.
"Default" means any of the events specified in Section 11.1 which with
the passage of time, the giving of notice or any other condition, would
constitute an Event of Default.
"Dollars" or "$" means, unless otherwise qualified, dollars in lawful
currency of the United States.
"EBIT" means, for any period, the aggregate of net income (or loss) of
the Borrowers for such period, determined in accordance with GAAP, plus the sum
of the following amounts for such period in accordance with GAAP, to the extent
included in the determination of such net income (loss): (a) interest expense
and agent's fees on indebtedness (including the Obligations), and (b) income tax
expense.
"EBITDA" means, for any period, the aggregate of net income (or loss)
of the Borrowers for such period, determined in accordance with GAAP, plus the
sum of the following amounts for such
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<PAGE> 11
period in accordance with GAAP, to the extent included in the determination of
such net income (loss): (a) interest expense and agent's fees on indebtedness
(including the Obligations), (b) income tax expense, and (c) amortization and
depreciation.
"Eligible Receivables" means all genuine, bona fide (i) Instruments
evidencing purchase money indebtedness owing to any of the Borrowers arising
from the sale of inventory comprised of medical waste processing equipment, and
(ii) Accounts, as such term is defined in the UCC, (valued net of any sales tax
included in the invoiced amount, the maximum amount of any discounts or other
reductions) of any of the Borrowers arising in the ordinary course of business,
each as to which the Agent, on behalf of the Lenders, has a first priority
perfected Lien subject only to Permitted Liens, excluding: (a) Accounts
outstanding for ninety (90) days or more from the date of invoice; (b)
Instruments under which any payment is past due for ninety (90) days or more
from its due date; (c) Accounts or Instruments owing from any Affiliate of any
of the Borrowers; (d) Accounts or Instruments owed by a creditor of any of the
Borrowers or which are in dispute or subject to any counterclaim, deduction,
contra-account or offset; (e) Accounts or Instruments owing by any debtor which
is not Solvent; (f) Accounts arising from a sale on a bill-and-hold, guaranteed
sale, sale-or-return, sale-on-approval, consignment or similar basis or which
is subject to repurchase, return, rejection, repossession, loss or damage; (g)
Accounts or Instruments owed by a debtor outside the United States or in the
State of Minnesota or the State of New Jersey (unless the applicable Borrower
has qualified to do business in such state or filed a current Notice of Business
Activities report in such state); (h) Accounts as to which the goods giving rise
to the Account have not been delivered to and accepted by the account debtor or
the service giving rise to the Account has not been completely performed or
which do not represent a final sale; (i) Accounts owed by the United States of
America, unless the applicable Borrower shall have complied, to the Agent's
satisfaction, with the Federal Assignment of Claims Act; (j) the total Accounts
owed by an account debtor and its Affiliates exceeding a credit limit
established by the Agent, in its discretion (to the extent of such excess); (k)
any Account evidenced by chattel paper or reduced to judgment; (l) the total
unpaid Accounts of the account debtor and its Affiliates which exceed 10% of the
total Accounts of the Borrowers (to the extent of such excess); (m) Accounts
which, by contract, subrogation, mechanics' lien laws or otherwise, are subject
to claims by the creditors or other third parties or which are owed by account
debtors as to whom any creditor of any Borrower (including any bonding company)
has lien rights; (n) other Accounts or Instruments the validity, collectibility
or amount of which is determined in good faith by any Borrower or the Agent to
be doubtful; (o) any Account or Instrument for which there is any discount,
allowance, claim, set-off, counterclaim or Lien which has not been disclosed in
writing to the Agent; (p) any Account to the extent it is not for a liquidated
amount; and (q) any other Account or Instrument which the Agent, upon notice to
the Company, deems ineligible, in its sole credit judgment. No Account or
Instrument shall be an Eligible Receivable if any representation, warranty or
covenant herein relating thereto shall be inaccurate or violated. Unless the
Borrowers notify the Agent in writing to the contrary, the Borrowers shall be
deemed to have made a continuing representation and warranty that each Eligible
Receivable has not become ineligible.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of a
Borrower or any ERISA Affiliate or (b)
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<PAGE> 12
has at any time within the preceding six years been maintained for the employees
of a Borrower or any current or former ERISA Affiliate.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities, relating to
the protection of human health or the environment, including, but not limited
to, requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Materials. Environmental
Laws include, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss. 9601 et. seq.), the Hazardous
Material Transportation Act (49 U.S.C. ss. 331 et. seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901 et. seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251 et. seq.), the Clean Air Act (42
U.S.C. ss. 7401 et. seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601
et. seq.), the Safe Drinking Water Act (42 U.S.C. ss. 300, et. seq.), the
Environmental Protection Agency's regulations relating to underground storage
tanks (40 C.F.R. Parts 280 and 281), and the Occupational Safety and Health Act
(29 U.S.C. ss. 651 et. seq.), analogous state statutes, and the rules and
regulations promulgated under the foregoing as such statutes are amended or
modified from time to time.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
the rules and regulations thereunder, each as amended or modified from time to
time.
"ERISA Affiliate" means any Person who together with a Borrower is
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.
"Eurodollar Reserve Percentage" means, for any day, the percentage
(expressed as a decimal and rounded upwards, if necessary, to the next higher
1/100th of 1%) which is in effect for such day as prescribed by the Federal
Reserve Board (or any successor) for determining the maximum reserve requirement
(including without limitation any basic, supplemental or emergency reserves) in
respect of Eurocurrency liabilities or any similar category of liabilities for a
member bank of the Federal Reserve System in New York City.
"Event of Default" means any of the events specified in Section 11.1,
provided that any requirement for passage of time, giving of notice, or any
other condition, has been satisfied.
"Extensions of Credit" means, as to any Lender under either Credit
Facility at any time, an amount equal to the aggregate principal amount of all
Loans made by such Lender then outstanding under such Credit Facility.
"Federal Funds Rate" means the rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) representing the daily effective
federal funds rate as quoted by the Agent and confirmed in Federal Reserve Board
Statistical Release H.15 (519) or any successor or substitute publication
selected by the Agent. If, for any reason, such rate is not available, then
"Federal Funds Rate" shall mean a daily rate which is determined, in the opinion
of the Agent, to be the rate at which
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<PAGE> 13
federal funds are being offered for sale in the national federal funds market at
9:00 a.m. (Miami time). Rates for weekends or holidays shall be the same as the
rate for the most immediate preceding business day.
"Fiscal Year" means the fiscal year of the Borrowers ending on
December 31.
"Funded Debt" means, with respect to any Person, indebtedness of such
Person and its subsidiaries for borrowed money (determined in accordance with
GAAP), including, without limitation, indebtedness under Capital Leases.
"GAAP" means generally accepted accounting principles, as recognized by
the American Institute of Certified Public Accountants and the Financial
Accounting Standards Board, consistently applied and maintained on a consistent
basis for the Borrowers throughout the period indicated and consistent with the
prior financial practice of the Borrowers.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.
"Governmental Authority" means any nation, province, state or political
subdivision thereof, and any government or any Person exercising executive,
legislative, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Hazardous Materials" means any substances or materials (a) which are
or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants, chemical substances or mixtures or toxic substances under any
Environmental Law, (b) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human
health or the environment and are or become regulated by any Governmental
Authority, (c) the presence of which require investigation or remediation under
any Environmental Law or common law, (d) the discharge or emission or release of
which requires a permit or license under any Environmental Law or other
Governmental Approval, (e) which are deemed to constitute a nuisance, a trespass
or pose a health or safety hazard to persons or neighboring properties, (f)
which are materials consisting of underground or aboveground storage tanks,
whether empty, filled or partially filled with any substance, or (g) which
contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.
"Hedging Agreement" means any agreement with respect to an interest
rate swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection with
hedging the interest rate exposure of the Borrowers under this Agreement, and
any confirming letter executed pursuant to such hedging agreement, all as
amended or modified.
"Instruments" shall have the meaning ascribed thereto in the UCC.
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"Insurance Assignment" means an assignment to the Agent of an
acceptable policy insuring the life of David Stauber in an amount not less than
Five Million Dollars ($5,000,000).
"Interest Coverage Ratio" means the ratio, for the Borrowers'
immediately preceding fiscal quarter, of EBIT, to interest expense, determined
in accordance with GAAP consistently applied.
"Interest Period" shall have the meaning assigned thereto in
Section 4.3(b).
"Kover Note" means that certain subordinated promissory note dated July
7, 1998, in the principal amount of One Hundred Fifty Thousand Dollars
($150,000.00) made by The Kover Group, Inc., an Ohio corporation, to the
Company.
"Lender" means each Person executing this Agreement as a Lender set
forth on the signature pages hereto and each Person that hereafter becomes a
party to this Agreement as a Lender pursuant to Section 13.10.
"Lending Office" means, with respect to any Lender, the office of such
Lender maintaining such Lender's Commitment Percentage of the Loans.
"Liabilities" or "Total Liabilities" means, at any date, all
liabilities of the Borrowers computed in accordance with GAAP applied on a
consistent basis.
"LIBOR" means the rate for deposits in Dollars for a period equal to
the Interest Period selected which appears on the Telerate Page 3750 at
approximately 11:00 a.m. London time, two (2) Business Days prior to the
commencement of the applicable Interest Period. If, for any reason, such rate is
not available, then "LIBOR" shall mean the rate per annum at which, as
determined by the Agent, Dollars in the amount of $5,000,000 are being offered
to leading banks at approximately 11:00 a.m. London time, two (2) Business Days
prior to the commencement of the applicable Interest Period for settlement in
immediately available funds by leading banks in the London interbank market for
a period equal to the Interest Period selected.
"LIBOR Rate" means a rate per annum (rounded upwards, if necessary, to
the next higher 1/100th of 1%) determined by the Agent pursuant to the following
formula:
LIBOR Rate = LIBOR
----------------------------------
1.00-Eurodollar Reserve Percentage
"LIBOR Rate Loan" means any Loan bearing interest at a rate based upon
the LIBOR Rate as provided in Section 4.3(a).
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, Capital Lease or other
title retention agreement relating to such asset.
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"Loan" means any Revolving Loan or Convertible Loan, and all such Loans
collectively as the context requires.
"Loan Documents" means, collectively, this Agreement, the Notes, any
Hedging Agreement executed by any Lender, the Security Agreement, the Pledge
Agreement, the Note Assignment, the Mortgage, the Insurance Assignment and each
other document, instrument and agreement executed and delivered by the Borrowers
or their counsel in connection with this Agreement or otherwise referred to
herein or contemplated hereby, all as may be amended or modified from time to
time.
"Material Adverse Effect" means, with respect to any of the Borrowers,
a material adverse effect on the properties, business, prospects, operations or
condition (financial or otherwise) of any such Person or the ability of any such
Person to perform its obligations under the Loan Documents or Material
Contracts, in each case to which it is a party.
"Material Contract" means (a) any contract or other agreement, written
or oral, of any of the Borrowers involving monetary liability of or to any such
Person in an amount which exceeds, in any twelve (12) month period, an amount
equal to five percent (5%) of the product of four times the Borrowers' gross
revenues, determined in accordance with GAAP, for the immediately preceding
fiscal quarter, or (b) any other contract or agreement, written or oral, of any
of the Borrowers, the failure to comply with which could reasonably be expected
to have a Material Adverse Effect.
"Mortgage" means the Commercial Mortgage of Real Property dated of even
date with this Agreement, by Safety Disposal System of South Carolina, Inc., a
South Carolina corporation, to the Agent, on behalf of the Lenders.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA to which any Borrower or any ERISA Affiliate is making, or
is accruing an obligation to make, contributions within the preceding six years.
"Net Loss" means the net loss of the Borrowers for the period in
question after giving effect to deduction of or provision for all operating
expenses, all taxes and reserves (including reserves for deferred taxes and all
other proper deductions), all computed in accordance with GAAP applied on a
consistent basis.
"Net Worth" means, at any date (i) the aggregate amount at which all
assets of the Borrowers would be shown on a balance sheet at such date, less
(ii) Liabilities at such date, all computed in accordance with GAAP applied on a
consistent basis.
"Note Assignment" means the General Pledge Agreement executed by the
Company to the Agent, on behalf of the Lenders, dated as of the Closing Date,
assigning to the Agent, on behalf of the Lenders, the Kover Note and other
Instruments comprising Eligible Receivables.
"Notes" means the Revolving Credit Notes and the Convertible Credit
Notes; "Note" means any of such Notes.
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<PAGE> 16
"Notice of Borrowing" shall have the meaning assigned thereto in
Section 4.1(a).
"Notice of Rate Conversion/Continuation" shall have the meaning
assigned thereto in Section 4.4.
"Obligations" means, in each case, whether now in existence or
hereafter arising: (a) the principal of and interest on (including interest
accruing after the filing of any bankruptcy or similar petition) the Loans, (b)
all payment and other obligations owing by any of the Borrowers to any Lender or
the Agent under any Hedging Agreement and (c) all other fees and commissions
(including attorneys' fees), charges, indebtedness, loans, liabilities,
financial accommodations, obligations, covenants and duties owing by the
Borrowers to the Lenders, or the Agent, of every kind, nature and description,
direct or indirect, absolute or contingent, due or to become due, contractual or
tortious, liquidated or unliquidated, and whether or not evidenced by any note,
and whether or not for the payment of money under or in respect of this
Agreement, any Note or any of the other Loan Documents.
"Officer's Compliance Certificate" shall have the meaning assigned
thereto in Section 7.2.
"Other Taxes" shall have the meaning assigned thereto in Section
4.11(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
agency.
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or
Section 412 of the Code and which (a) is maintained for employees of any
Borrower or any ERISA Affiliates or (b) has at any time within the preceding six
years been maintained for the employees of any Borrower or any of their current
or former ERISA Affiliates.
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, business trust, joint venture, joint
stock company, pool, syndicate, sole proprietorship, unincorporated
organization, Governmental Authority or any other form of entity or group
thereof specifically listed herein.
"Plan" shall have the meaning assigned thereto in Section 6.1(x).
"Pledge Agreement" means the Pledge Agreement executed by the Company
to the Agent, on behalf of the Lenders dated as of the Closing Date.
"Prime Rate" means, at any time, the rate of interest quoted in The
Wall Street Journal, Money Rates Section as the "Prime Rate" (currently defined
as the base rate on corporate loans posted by at least 75% of the nation's
thirty (30) largest banks), with the Prime Rate in effect on the first day of a
month being applicable to the entire month. In the event that The Wall Street
Journal quotes more than one rate, or a range of rates as the Prime Rate, then
the Prime Rate shall mean the average of the quoted rates. In the event that The
Wall Street Journal ceases to publish a Prime Rate,
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then the Prime Rate shall be the average of the three largest U.S. money center
commercial banks, as determined by Union Planters.
"Prime Rate Loan" means any Loan bearing interest at a rate based upon
the Prime Rate as provided in Section 4.3(a).
"Register" shall have the meaning assigned thereto in Section 13.10(d).
"Required Lenders" means, at any date, any combination of holders of at
least seventy-five percent (75%) of the aggregate unpaid principal amount of the
Notes, or if no amounts are outstanding under the Notes, any combination of
Lenders whose Commitment Percentages aggregate at least seventy-five percent
(75%).
"Revolver Termination Date" means the earliest of the dates referred
to in Section 2.4.
"Revolving Credit Facility" means the revolving credit facility
established pursuant to Article II hereof.
"Revolving Credit Notes" means the separate promissory notes made by
the Borrowers payable to the order of each Lender, substantially in the form of
Exhibit A hereto, evidencing the Revolving Credit Facility, and any amendments
and modifications thereto, any substitutes therefor, and any replacements,
restatements, renewals or extension thereof, in whole or in part.
"Revolving Loan" means any loan made to the Borrowers pursuant to
Section 2.1.
"Security Agreement" means the Security Agreement executed by and among
the Borrowers and the Agent, on behalf of the Lenders, dated as of the Closing
Date.
"Security Documents" means the collective reference to the Security
Agreement, the Pledge Agreement, the Note Assignment, the Mortgage, the
Insurance Assignment and each other agreement or writing pursuant to which each
Borrower pledges or grants a security interest in any property or assets
securing the Obligations or any such Person guaranties the payment and/or
performance of the Obligations.
"Senior Funded Debt" means Funded Debt which does not constitute
Subordinated Debt.
"Solvent" means, as to the Borrowers on a particular date, that any
such Person (a) has capital sufficient to carry on its business and transactions
and all business and transactions in which it is about to engage and is able to
pay its debts as they mature, (b) owns property having a value, both at fair
valuation and at present fair saleable value, greater than the amount required
to pay its probable liabilities (including contingencies), and (c) does not
believe that it will incur debts or liabilities beyond its ability to pay such
debts or liabilities as they mature.
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"Subordinated Debt" means the collective reference to Debt on Schedule
6.1(t) hereof designated as Subordinated Debt and any other Debt of any Borrower
subordinated in right and time of payment to the Obligations on terms
satisfactory to the Required Lenders.
"Subsidiary" means as to any Person, any corporation, partnership or
other entity of which more than fifty percent (50%) of the outstanding capital
stock or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity is at the time, directly or indirectly, owned by or
the management is otherwise controlled by such Person (irrespective of whether,
at the time, capital stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency). Unless otherwise qualified, references to "Subsidiary" or
"Subsidiaries" herein shall refer to those of the Company.
"Subsidiary Borrower" means each Subsidiary listed as a Subsidiary
Borrower in Schedule 6.1(b) as amended from time to time in accordance with
Section 13.11.
"Taxes" shall have the meaning assigned thereto in Section 4.11(a).
"Termination Event" means: (a) a "Reportable Event" described in
Section 4043 of ERISA, or (b) the withdrawal of any Borrower or any ERISA
Affiliate from a Pension Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (c) the termination of a
Pension Plan, the filing of a notice of intent to terminate a Pension Plan or
the treatment of a Pension Plan amendment as a termination under Section 4041 of
ERISA, or (d) the institution of proceedings to terminate, or the appointment of
a trustee with respect to, any Pension Plan by the PBGC, or (e) any other event
or condition which would constitute grounds under Section 4042(a) of ERISA for
the termination of, or the appointment of a trustee to administer, any Pension
Plan, or (f) the partial or complete withdrawal of any Borrower or any ERISA
Affiliate from a Multiemployer Plan, or (g) the imposition of a Lien pursuant to
Section 412 of the Code or Section 302 of ERISA, or (h) any event or condition
which results in the reorganization or insolvency of a Multiemployer Plan under
Sections 4241 or 4245 of ERISA, or (i) any event or condition which results in
the termination of a Multiemployer Plan under Section 4041A of ERISA or the
institution by PBGC of proceedings to terminate a Multiemployer Plan under
Section 4042 of ERISA.
"UCC" means the Uniform Commercial Code as in effect in the State of
Florida.
"Union Planters" means Union Planters Bank, N.A., successor by merger
with Union Planters Bank of Florida, a Florida banking corporation, f/k/a
Capital Bank, a Florida banking corporation, and its successors.
"United States" means the United States of America.
"Wholly-Owned" means, with respect to a Subsidiary, a Subsidiary all of
the shares of capital stock or other ownership interests of which are, directly
or indirectly, owned or controlled by the Company and/or one or more of its
Wholly-Owned Subsidiaries.
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"Year 2000 Compliant" shall have the meaning assigned thereto in
Section 6.1(x).
SECTION 1.2. GENERAL. Unless otherwise specified, a reference in this
Agreement to a particular section, subsection, Schedule or Exhibit is a
reference to that section, subsection, Schedule or Exhibit of this Agreement.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and plural, and pronouns stated in
the masculine, feminine or neuter gender shall include the masculine, the
feminine and the neuter. Any reference herein to "Miami time" shall refer to the
applicable time of day in Miami, Florida.
SECTION 1.3. OTHER DEFINITIONS AND PROVISIONS.
(a) Use of Capitalized Terms. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings when
used in this Agreement, the Notes and the other Loan Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement.
(b) Miscellaneous. The words "hereof", "herein" and "hereunder" and
words of similar import, when used in this Agreement, shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
ARTICLE II
REVOLVING CREDIT FACILITY
SECTION 2.1. REVOLVING CREDIT LOANS. Subject to the terms and
conditions of this Agreement, each Lender severally agrees to make Revolving
Loans to the Borrowers from time to time from the Closing Date through the
Revolver Termination Date as requested by the Borrowers in accordance with the
terms of Section 4.1; provided, that (a) the aggregate principal amount of all
outstanding Revolving Loans (after giving effect to any amount requested) shall
not exceed the principal sum of Ten Million and No/100 Dollars ($10,000,000.00),
and (b) the principal amount of outstanding Loans from any Lender to the
Borrowers shall not at any time exceed such Lender's Commitment. Each Revolving
Loan by a Lender shall be in a principal amount equal to such Lender's
Commitment Percentage of the aggregate principal amount of Revolving Loans
requested on such occasion. Subject to the terms and conditions hereof, the
Borrowers may borrow, repay and reborrow Revolving Loans hereunder until the
Revolver Termination Date.
SECTION 2.2. BORROWING BASE. Anything in this Agreement and/or any
other Loan Document(s) to the contrary notwithstanding, the Borrowers shall not
be entitled to request a Revolving Loan if such Loan, when added to the
aggregate principal amount outstanding under the Revolving Credit Notes, would
cause same to exceed an amount equal to eighty percent (80%) of the Eligible
Receivables of the Borrowers; provided, however, that the aggregate amount of
Instruments included within Eligible Receivables shall not, at any time, exceed
One Million Four Hundred Thousand and No/100 Dollars ($1,400,000.00). All of the
foregoing (the "Borrowing Base") shall be calculated in accordance with a
borrowing base certificate (the "Borrowing Base
13
<PAGE> 20
Certificate") in the form attached hereto and made a part hereof as Exhibit C to
this Agreement, with appropriate insertions therein, or as may be subsequently
specified by the Agent. The Borrowers, the Agent and the Lenders agree that the
sum of all Revolving Loans, at any one time outstanding under the Revolving
Credit Facility, shall not exceed the lesser of the Borrowing Base or the
Revolving Credit Facility amount (the "Available Amount"). If, at any time, the
Available Amount is exceeded, the Borrowers shall promptly take such action as
may be required to conform with the provisions hereof and failure to do so,
within five (5) days after the Agent's notice of such failure to the Company,
shall constitute an Event of Default. Any repayment made pursuant to the
preceding sentence shall be accompanied by accrued interest on the amount repaid
and any amount required to be paid pursuant to Section 4.9 hereof.
SECTION 2.3. REVOLVING CREDIT NOTES. Each Lender's Revolving Loans and
the obligation of the Borrowers to repay such Loans shall be evidenced by a Note
executed by the Borrowers payable to the order of such Lender representing the
Borrowers' obligation to pay such Lender's Commitment Percentage of the
Revolving Credit Facility amount or, if less, the aggregate unpaid principal
amount of all Revolving Loans made and to be made by such Lender to the
Borrowers hereunder, plus interest and all other fees, charges and other amounts
due thereon. Each Revolving Credit Note shall be dated the date hereof and shall
bear interest on the unpaid principal amount thereof at the applicable interest
rate per annum specified in Section 4.3.
SECTION 2.4. TERMINATION OF REVOLVING CREDIT FACILITY. The Revolving
Credit Facility shall terminate on the earliest of (a) July 31, 1999, (b) the
date of the Agent's demand, and (c) the date of termination by the Agent, on
behalf of the Lenders pursuant to Section 11.2(a). The Borrowers shall repay the
outstanding principal amount of all Revolving Loans in full, together with all
accrued but unpaid interest thereon, on the Revolver Termination Date.
SECTION 2.5. USE OF PROCEEDS. The Borrowers shall use the proceeds of
the Revolving Loans to finance their accounts receivable and for working capital
and general corporate purposes.
ARTICLE III
CONVERTIBLE CREDIT FACILITY
SECTION 3.1. CONVERTIBLE CREDIT LOANS. Subject to the terms and
conditions of this Agreement, each Lender severally agrees to make Convertible
Loans to the Borrowers from time to time from the Closing Date through the
Conversion Date as requested by the Borrowers in accordance with the terms of
Section 4.1; provided, that the aggregate principal amount of all outstanding
Convertible Loans (after giving effect to any amount requested) shall not exceed
the principal sum of Twenty-Five Million and No/100 Dollars ($25,000,000.00),
and (b) the principal amount of outstanding Loans from any Lender to the
Borrowers shall not at any time exceed such Lender's Commitment. Each
Convertible Loan by a Lender shall be in a principal amount equal to such
Lender's Commitment Percentage of the aggregate principal amount of Convertible
Loans requested on such occasion. Subject to the terms and conditions hereof,
the Borrowers may borrow, repay and reborrow Convertible Loans hereunder until
the Conversion Date.
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<PAGE> 21
SECTION 3.2. CONVERSION. Provided that no Default or Event of Default
shall have occurred and be continuing upon the Conversion Date, the total
principal balance then outstanding under the Convertible Credit Notes shall, on
such date, be converted into a term loan (the "Converted Loan"). Principal
payments under the Converted Loan shall be due and payable in equal and
consecutive monthly installments, each in the amount equal to one eighty-fourth
(1/84th) of the aggregate principal balance of the Convertible Loans on the
Conversion Date, commencing on August 31, 2000 and continuing on the last day of
each month thereafter, plus one final payment of the total remaining principal
balance, together with all unpaid accrued interest, due and payable on or before
the Converted Loan Maturity Date. Any prepayment(s) of the Converted Loan shall
be applied to the installment(s) thereof in inverse order of their maturity and
shall be accompanied by the payment of all unpaid accrued interest on the amount
of such prepayment(s) to the date thereof.
SECTION 3.3. CONVERTIBLE CREDIT NOTES. Each Lender's Convertible Loans
and the obligation of the Borrowers to repay such Loans shall be evidenced by a
Note executed by the Borrowers payable to the order of such Lender representing
the Borrowers' obligation to pay such Lender's Commitment Percentage of the
Convertible Credit Facility amount or, if less, the aggregate unpaid principal
amount of all Convertible Loans made and to be made by such Lender to the
Borrowers hereunder, plus interest and all other fees, charges and other amounts
due thereon. Each Convertible Credit Note shall be dated the date hereof and
shall bear interest on the unpaid principal amount thereof at the applicable
interest rate per annum specified in Section 4.3.
SECTION 3.4. TERMINATION OF CONVERTIBLE CREDIT FACILITY. Upon the
Conversion Date, the Convertible Credit Facility shall expire and terminate, and
from and after the Conversion Date, no further Convertible Loans will be made.
SECTION 3.5. USE OF PROCEEDS. The Borrowers shall use the proceeds of
the Convertible Loans to finance capital expenditures and acquisitions,
including repayment of the seller financing provided for the incineration
facility assets purchased from Chambers Medical Technologies of South Carolina,
Inc., as well as for the payment of fees and expenses relating to closing of the
Credit Facilities.
ARTICLE IV
GENERAL LOAN PROVISIONS
SECTION 4.1. PROCEDURE FOR ADVANCES OF LOANS.
(a) Requests for Borrowing. The Borrowers shall give the Agent
irrevocable prior written notice in the form attached hereto as Exhibit D (a
"Notice of Borrowing") not later than 11:00 a.m. (Miami time) (i) on the same
Business Day as each Prime Rate Loan, and (ii) at least three (3) Business Days
before each LIBOR Rate Loan, of its intention to borrow, specifying (A) the date
of such borrowing, which shall be a Business Day, (B) the amount of such
borrowing, which shall be (x) with respect to Prime Rate Loans in an aggregate
principal amount of $100,000 or a
15
<PAGE> 22
whole multiple of $100,000 in excess thereof, and (y) with respect to LIBOR Rate
Loans in an aggregate principal amount of $1,000,000 or a whole multiple of
$500,000 in excess thereof, (C) whether the Loans are to be LIBOR Rate Loans or
Prime Rate Loans, and (D) in the case of a LIBOR Rate Loan, the duration of the
Interest Period applicable thereto. Notices received after 11:00 a.m. (Miami
time) shall be deemed received on the next Business Day. The Agent shall
promptly, but by no later than 2:00 p.m. (Miami time) on the day deemed received
by the Agent, notify the Lenders of each Notice of Borrowing.
(b) Disbursement of Loans. Not later than 3:00 p.m. (Miami time) on the
proposed borrowing date, provided that the making of such Loans is in accordance
with the terms of this Agreement, each Lender will make available to the Agent,
for the account of the Borrowers, at the office of the Agent, in funds
immediately available to the Agent, such Lender's Commitment Percentage of the
Loans to be made on such borrowing date. The Borrowers hereby irrevocably
authorize the Agent to disburse the proceeds of each borrowing requested
pursuant to this Section 4.1 in immediately available funds by crediting such
proceeds to a deposit account of the Company maintained with the Agent or by
wire transfer to such account as may be agreed upon by the Company and the Agent
from time to time. Subject to Section 4.13 hereof, the Agent shall not be
obligated to disburse the proceeds of any Loan requested pursuant to this
Section 4.1 until each Lender shall have made available to the Agent its
Commitment Percentage of such Loan.
SECTION 4.2. REPAYMENT OF LOANS.
(a) Optional Repayments. Provided that the aggregate outstanding
principal balance of all Loans shall not be reduced below $1,000, the Borrowers
may, at any time and from time to time, repay the Loans, in whole or in part,
upon at least three (3) Business Days' irrevocable notice to the Agent with
respect to LIBOR Rate Loans and irrevocable notice received before 11:00 a.m.
(Miami time) with respect to Prime Rate Loans, specifying the date and amount of
repayment and whether the repayment is of LIBOR Rate Loans or Prime Rate Loans,
or a combination thereof, and, if of a combination thereof, the amount allocable
to each. Notices received after 11:00 a.m. (Miami time) shall be deemed received
on the next Business Day. Upon receipt of such notice, the Agent shall promptly,
but by no later than 2:00 p.m. (Miami time) on the day deemed received by the
Agent, notify each Lender. If any such notice is given, the amount specified in
such notice shall be due and payable on the date set forth in such notice.
Partial repayments shall be in an aggregate amount of $100,000 or a whole
multiple of $100,000 in excess thereof with respect to Prime Rate Loans, and
$1,000,000 or a whole multiple of $500,000 in excess thereof with respect to
LIBOR Rate Loans.
(b) Limitation on Repayment of LIBOR Rate Loans. The Borrowers may not
repay any LIBOR Rate Loan on any day other than on the last day of the Interest
Period applicable thereto unless such repayment is accompanied by any amount
required to be paid pursuant to Section 4.9 hereof.
SECTION 4.3. INTEREST.
(a) Interest Rate Options. Subject to the provisions of this Section
4.3, at the election of the Company, the aggregate principal balance of the
Notes or any portion thereof shall bear
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<PAGE> 23
interest at the Prime Rate or the LIBOR Rate plus or minus, as applicable in
each case, the Applicable Margin as set forth below. The Company shall select
the rate of interest and Interest Period, if any, applicable to any Loan at the
time a Notice of Borrowing is given pursuant to Section 4.1 or at the time a
Notice of Rate Conversion/Continuation is given pursuant to Section 4.4. Each
Loan or portion thereof bearing interest based on the Prime Rate shall be a
"Prime Rate Loan", and each Loan or portion thereof bearing interest based on
the LIBOR Rate shall be a "LIBOR Rate Loan". Any Loan or any portion thereof as
to which the Company has not duly specified an interest rate as provided herein
shall be deemed a Prime Rate Loan.
(b) Interest Periods. In connection with each LIBOR Rate Loan, the
Company, by giving notice at the times described in Section 4.3(a), shall elect
an interest period (each, an "Interest Period") to be applicable to such Loan,
which Interest Period shall be a period of one (1), two (2), or three (3) months
with respect to each LIBOR Rate Loan; provided that:
(i) the Interest Period shall commence on the date of advance
of or conversion to any LIBOR Rate Loan and, in the case of immediately
successive Interest Periods, each successive Interest Period shall
commence on the date on which the next preceding Interest Period
expires;
(ii) if any Interest Period would otherwise expire on a day
that is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day; provided, that if any Interest Period
would otherwise expire on a day that is not a Business Day but is a day
of the month after which no further Business Day occurs in such month,
such Interest Period shall expire on the next preceding Business Day;
(iii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the relevant calendar
month at the end of such Interest Period;
(iv) no Interest Period shall extend beyond the later of
either the Converted Loan Maturity Date or the Revolver Termination
Date, and Interest Periods shall be selected by the Company so as to
permit the Borrowers to make the required principal payments under the
Converted Loan pursuant to Section 3.2 without payment of any amounts
pursuant to Section 4.9; and
(v) there shall be no more than six (6) Interest Periods
outstanding at any time.
(c) Applicable Margin. The Applicable Margin provided for in Section
4.3(a) with respect to the Loans (the "Applicable Margin") shall (i) on the
Closing Date equal the percentages set forth in the certificate delivered
pursuant to Section 5.2(d)(iv) and (ii) for each fiscal quarter thereafter be
determined by reference to the ratio of Funded Debt (at the most recent fiscal
quarter end) to the annualized trailing six months' EBITDA as of the end of the
fiscal quarter immediately preceding the delivery of the applicable Officer's
Compliance Certificate as follows:
17
<PAGE> 24
<TABLE>
<CAPTION>
APPLICABLE MARGIN PER ANNUM
FUNDED DEBT/EBITDA RATIO PRIME RATE LIBOR RATE
- ------------------------ ---------- ----------
<S> <C> <C>
< 1.50:1 -0.25% +2.25%
- -
< 2.50:1 and >1.50:1 +0.00% +2.50%
- -
< 3.50:1 and >2.50:1 +0.25% +2.75%
- -
> 3.50:1 +0.50% +3.00%
</TABLE>
Adjustments, if any, in the Applicable Margin shall be made by the Agent on the
first Business Day of the third month following each fiscal quarter end of the
Borrowers. Subject to Section 4.3(d), in the event the Borrowers fail to deliver
such financial statements and certificate within the time required by Section
7.2(c) hereof, the Applicable Margin shall be the highest Applicable Margin set
forth above until the delivery of such financial statements and certificate.
(d) Default Rate. Upon the occurrence and during the continuance of an
Event of Default, in addition to the other remedies available under this
Agreement, (i) the Borrowers shall no longer have the option to request LIBOR
Rate Loans, (ii) all outstanding LIBOR Rate Loans shall bear interest at a rate
per annum two percent (2%) in excess of the rate then applicable to LIBOR Rate
Loans until the end of the applicable Interest Period and thereafter at a rate
equal to two percent (2%) in excess of the rate then applicable to Prime Rate
Loans, and (iii) all outstanding Prime Rate Loans shall bear interest at a rate
per annum equal to two percent (2%) in excess of the rate then applicable to
Prime Rate Loans. Interest shall continue to accrue on the Notes after the
filing by or against the Borrowers of any petition seeking any relief in
bankruptcy or under any act or law pertaining to insolvency or debtor relief,
whether state, federal or foreign.
(e) Interest Payment and Computation. Interest on each Prime Rate Loan
shall be payable in arrears on the last Business Day of each month commencing
January 31, 1999; interest on each LIBOR Rate Loan shall be payable on the last
day of each Interest Period applicable thereto. All interest rates, fees and
commissions provided hereunder shall be computed on the basis of a 360-day year
and assessed for the actual number of days elapsed.
(f) Maximum Rate. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the Notes
charged or collected pursuant to the terms of this Agreement or pursuant to any
of the Notes exceed the highest rate permissible under any Applicable Law which
a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that the Lenders
have charged or received interest hereunder in excess of the highest applicable
rate, the rate in effect hereunder shall automatically be reduced to the maximum
rate permitted by Applicable Law and the Lenders shall, at the Agent's option,
either promptly refund to the Borrowers any interest received by the Lenders in
excess of the maximum lawful rate or apply such excess to the principal balance
of the Obligations. It is the intent hereof that the Borrowers not pay or
contract to pay, and that neither the Agent nor any Lender receive or contract
to receive, directly or indirectly in any manner whatsoever, interest in excess
of that which may be paid by the Borrowers under Applicable Law.
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<PAGE> 25
SECTION 4.4. NOTICE AND MANNER OF CONVERSION OR CONTINUATION OF LOANS.
Provided that no Event of Default has occurred and is then continuing, the
Borrowers shall have the option to (a) convert at any time all or any portion of
its outstanding Prime Rate Loans in a principal amount equal to $1,000,000 or
any whole multiple of $500,000 in excess thereof into one or more LIBOR Rate
Loans, or (b) upon the expiration of any Interest Period, (i) convert all or any
part of its outstanding LIBOR Rate Loans in a principal amount equal to $100,000
or a whole multiple of $100,000 in excess thereof into Prime Rate Loans, or (ii)
continue such LIBOR Rate Loans in a principal amount equal to $1,000,000 or any
whole multiple of $500,000 in excess thereof as LIBOR Rate Loans. Whenever the
Borrowers desire to convert or continue Loans as provided above, the Company
shall give the Agent irrevocable prior written notice in the form attached as
Exhibit E (a "Notice of Rate Conversion/Continuation") not later than 11:00 a.m.
(Miami time) three (3) Business Days before the day on which a proposed
conversion or continuation of such Loan is to be effective specifying (A) the
Loans to be converted or continued, and, in the case of any LIBOR Rate Loan to
be converted or continued, the last day of the Interest Period therefor, (B) the
effective date of such conversion or continuation (which shall be a Business
Day), (C) the principal amount of such Loans to be converted or continued, and
(D) the Interest Period to be applicable to such converted or continued LIBOR
Rate Loan. Notices received after 11:00 a.m. (Miami time) shall be deemed
received on the next Business Day. The Agent shall promptly, but by no later
than 2:00 p.m. (Miami time) on the day deemed received by the Agent, notify the
Lenders of such Notice of Rate Conversion/Continuation.
SECTION 4.5. FEES.
(a) Non-Usage Fee. Commencing on the Closing Date, the Borrowers shall
pay to the Agent, for the account of the Lenders, a non-refundable non-usage fee
at a rate per annum equal to one quarter of one percent (0.25%) on the average
daily unused portion of the Convertible Credit Facility. The non-usage fee shall
be payable in arrears on the last Business Day of each fiscal quarter during the
term of this Agreement commencing March 31, 1999, until and on the Conversion
Date. Such non-usage fee shall, on the date received, be distributed by the
Agent to the Lenders pro rata in accordance with the Lenders' respective
Commitment Percentages.
(b) Facility Fees. On the Closing Date, the Borrowers shall pay to the
Agent, non-refundable facility fees in the amounts of (i) Twenty-Five Thousand
and No/100 Dollars ($25,000.00) for the Revolving Credit Facility, with each
Lender, except Union Planters, to be paid 50 basis points on its pro rata
portion thereof (Republic National Bank of Miami: $10,714.29; BankAtlantic:
$9,285.71; The Provident Bank: $8,571.43), and (ii) One Hundred Eighty-Seven
Thousand Five Hundred and No/100 Dollars ($187,500.00) for the Convertible
Credit Facility for the account of the Lenders.
(c) Agent's Fees. In order to compensate the Agent for structuring and
syndicating the Loans and for its obligations hereunder, the Borrowers agree to
pay to the Agent, for its account, monthly an Agent's fee at a rate equal to one
quarter of one (.25%) percent per annum calculated upon the average daily
principal balance of the outstanding Loans during the immediately preceding
month (or part thereof) while this Agreement is in effect and for so long
thereafter as any of the
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<PAGE> 26
Obligations are outstanding, which fee shall be payable on the last Business Day
of each month in arrears.
SECTION 4.6. MANNER OF PAYMENT. Each payment by the Borrowers on
account of the principal of or interest on the Loans or of any fee, commission
or other amounts payable to the Lenders under this Agreement or any Note shall
be made not later than 1:00 p.m. (Miami time) on the date specified for payment
under this Agreement to the Agent, for the account and benefit of the Lenders
pro rata in accordance with their respective Commitment Percentages at the
Agent's Office, in Dollars, in immediately available funds and shall be made
without any set-off, counterclaim or deduction whatsoever. Any payment received
after such time but before 2:00 p.m. (Miami time) on such day shall be deemed a
payment on such date for the purposes of Section 11.1, but for all other
purposes shall be deemed to have been made on the next succeeding Business Day.
Any payment received after 2:00 p.m. (Miami time) shall be deemed to have been
made on the next succeeding Business Day for all purposes. Upon receipt by the
Agent of each such payment, the Agent shall credit each Lender's account with
its pro rata share of such payment in accordance with such Lender's Commitment
Percentage and shall wire advice of the amount of such credit to each Lender on
the Business Day on which such amount is received by the Agent. Subject to
Section 4.3(b)(ii), if any payment under this Agreement or any Note shall be
specified to be made upon a day which is not a Business Day, it shall be made on
the next succeeding day which is a Business Day and such extension of time shall
in such case be included in computing any interest if payable along with such
payment.
SECTION 4.7. CREDITING OF PAYMENTS AND PROCEEDS. In the event that the
Borrowers shall fail to pay any of the Obligations when due and the Obligations
have been accelerated pursuant to Section 11.2, all payments received by the
Lenders upon the Notes and the other Obligations and all net proceeds from the
enforcement of the Obligations shall be applied first to all expenses then due
and payable by the Borrowers hereunder, then to all indemnity obligations then
due and payable by the Borrowers hereunder, then to all fees then due and
payable, then to accrued and unpaid interest on the Notes, and any termination
payments due in respect of a Hedging Agreement with any Lender (pro rata in
accordance with all such amounts due), and then to the principal amount of the
Notes, in that order.
SECTION 4.8. CHANGED CIRCUMSTANCES.
(a) Circumstances Affecting LIBOR Rate Availability. If, with respect
to any Interest Period, the Agent or any Lender (after consultation with Agent)
shall determine that, by reason of circumstances affecting the foreign exchange
and interbank markets generally, deposits in Eurodollars, in the applicable
amounts, are not being quoted via Telerate Page 3750 or offered to the Agent or
such Lender for such Interest Period, then the Agent shall forthwith give notice
thereof to the Company. Thereafter, until the Agent notifies the Company that
such circumstances no longer exist, the obligation of the Lenders to make LIBOR
Rate Loans and the right of the Borrowers to convert any Loan to or continue any
Loan as a LIBOR Rate Loan shall be suspended, and the Borrowers shall repay in
full (or cause to be repaid in full) the then outstanding principal amount of
each such LIBOR Rate Loans, together with accrued interest thereon, on the last
day of the then current Interest Period applicable to such LIBOR Rate Loan or
convert the then outstanding principal
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<PAGE> 27
amount of each such LIBOR Rate Loan to a Prime Rate Loan as of the last day of
such Interest Period.
(b) Laws Affecting LIBOR Rate Availability. If, after the date hereof,
the introduction of, or any change in, any Applicable Law or any change in the
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any of their respective Lending
Offices) with any request or directive (whether or not having the force of law)
of any such Authority, central bank or comparable agency, shall make it unlawful
or impossible for any of the Lenders (or any of their respective Lending
Offices) to honor its obligations hereunder to make or maintain any LIBOR Rate
Loan, such Lender shall promptly give notice thereof to the Agent and the Agent
shall promptly give notice to the Company and the other Lenders. Thereafter,
until the Agent notifies the Company that such circumstances no longer exist,
(i) the obligations of the Lenders to make LIBOR Rate Loans and the right of the
Borrowers to convert any Loan or continue any Loan as a LIBOR Rate Loan shall be
suspended and thereafter the Company may select only Prime Rate Loans hereunder,
and (ii) if any of the Lenders may not lawfully continue to maintain a LIBOR
Rate Loan to the end of the then current Interest Period applicable thereto as a
LIBOR Rate Loan, the applicable LIBOR Rate Loan shall immediately be converted
to a Prime Rate Loan for the remainder of such Interest Period.
(c) Increased Costs. If, after the date hereof, the introduction of, or
any change in, any Applicable Law, or in the interpretation or administration
thereof by any Governmental Authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any of the
Lenders (or any of their respective Lending Offices) with any request or
directive (whether or not having the force of law) of such Authority, central
bank or comparable agency:
(i) shall subject any of the Lenders (or any of their respective
Lending Offices) to any tax, duty or other charge with respect to any
Note or shall change the basis of taxation of payments to any of the
Lenders (or any of their respective Lending Offices) of the principal
of or interest on any Note or any other amounts due under this
Agreement in respect thereof (except for changes in the rate of tax on
the overall net income of any of the Lenders (or any of their
respective Lending Offices) imposed by the jurisdiction in which such
Lender is organized or is or should be qualified to do business or
such Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors
of the Federal Reserve System), special deposit, insurance or capital
or similar requirement against assets of, deposits with or for the
account of, or credit extended by any of the Lenders (or any of their
respective Lending Offices) or shall impose on any of the Lenders (or
any of their respective Lending Offices) or the foreign exchange and
interbank markets any other condition affecting any Note;
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<PAGE> 28
and the result of any of the foregoing is to increase the costs to any of the
Lenders of maintaining any LIBOR Rate Loan or to reduce the yield or amount of
any sum received or receivable by any of the Lenders under this Agreement or
under the Notes in respect of a LIBOR Rate Loan, then such Lender shall promptly
notify the Agent, and the Agent shall promptly notify the Company of such fact
and demand compensation therefor and, within fifteen (15) days after such notice
by the Agent, the Borrowers shall pay to such Lender such additional amount or
amounts as will compensate such Lender or Lenders for such increased cost or
reduction. The Agent will promptly notify the Company of any event of which it
has knowledge which will entitle such Lender to compensation pursuant to this
Section 4.8(c); provided, that the Agent shall incur no liability whatsoever to
the Lenders or the Borrowers in the event it fails to do so. The amount of such
compensation shall be determined, in the applicable Lender's sole discretion,
based upon the assumption that such Lender funded its Commitment Percentage of
the LIBOR Rate Loans in the London interbank market, and using any reasonable
attribution or averaging methods which such Lender deems appropriate and
practical. A certificate of such Lender setting forth the basis for determining
such amount or amounts necessary to compensate such Lender shall be forwarded to
the Company through the Agent and shall be conclusively presumed to be correct
save for manifest error.
SECTION 4.9. INDEMNITY. The Borrowers each hereby jointly and severally
indemnify each of the Lenders against any loss or expense which may arise or be
attributable to each Lender's obtaining, liquidating or employing deposits or
other funds acquired to effect, fund or maintain any Loan (a) as a consequence
of any failure by the Borrowers to make any payment when due of any amount due
hereunder in connection with a LIBOR Rate Loan, (b) due to any failure of the
Borrowers to borrow on a date specified therefor in a Notice of Borrowing or
Notice of Rate Continuation/Conversion or (c) due to any payment, prepayment or
conversion of any LIBOR Rate Loan on a date other than the last day of the
Interest Period therefor. The amount of such loss or expense shall be
determined, in the applicable Lender's sole discretion, based upon the
assumption that such Lender funded its Commitment Percentage of the LIBOR Rate
Loans in the London interbank market, and using any reasonable attribution or
averaging methods which such Lender deems appropriate and practical. A
certificate of such Lender setting forth the basis for determining such amount
or amounts necessary to compensate such Lender shall be forwarded to the Company
through the Agent and shall be conclusively presumed to be correct save for
manifest error.
SECTION 4.10. CAPITAL REQUIREMENTS. If either (a) the introduction of,
or any change in, or in the interpretation of, any Applicable Law or (b)
compliance with any guideline or request from any central bank or comparable
agency or other Governmental Authority (whether or not having the force of law),
has or would have the effect of reducing the rate of return on the capital of,
or has affected or would affect the amount of capital required to be maintained
by, any Lender or any corporation controlling such Lender as a consequence of,
or with reference to the Credit Facilities and other credit facilities of this
type, below the rate which the Lender or such other corporation could have
achieved but for such introduction, change or compliance, then within five (5)
Business Days after written demand by any such Lender, the Borrowers shall pay
to such Lender, from time to time as specified by such Lender, additional
amounts sufficient to compensate such Lender or other corporation for such
reduction. A certificate as to such amounts submitted to the Company and the
Agent by such Lender, shall, in the absence of manifest error, be presumed to be
correct and binding for all purposes.
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<PAGE> 29
SECTION 4.11. TAXES.
(a) Payments Free and Clear. Any and all payments by the Borrowers
hereunder or under the Notes shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholding, and all liabilities with respect thereto excluding, (i)
in the case of each Lender and the Agent, income and franchise taxes imposed by
the jurisdiction under the laws of which such Lender or the Agent (as the case
may be) is organized or is or should be qualified to do business or any
political subdivision thereof and (ii) in the case of each Lender, income and
franchise taxes imposed by the jurisdiction of such Lender's Lending Office or
any political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note to any Lender or
the Agent, (A) the sum payable shall be increased as may be necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 4.11) such Lender or the Agent (as
the case may be) receives an amount equal to the amount such party would have
received had no such deductions been made, (B) the Borrowers shall make such
deductions, (C) the Borrowers shall pay the full amount deducted to the relevant
taxing authority or other authority in accordance with applicable law, and (D)
the Borrowers shall deliver to the Agent evidence of such payment to the
relevant taxing authority or other authority in the manner provided in Section
4.11(d).
(b) Stamp and Other Taxes. In addition, the Borrowers shall pay any
present or future stamp, registration, recordation or documentary taxes or any
other similar fees or charges or excise or property taxes, levies of the United
States or any state or political subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Loans, the other Loan Documents, or the perfection of any rights or security
interests in respect thereto (hereinafter referred to as "Other Taxes").
(c) Indemnity. The Borrowers shall each jointly and severally indemnify
each Lender and the Agent for the full amount of Taxes and Other Taxes
(including, without limitation, any Taxes and Other Taxes imposed by any
jurisdiction on amounts payable under this Section 4.11) paid by such Lender or
the Agent (as the case may be) and any liability (including penalties, interest
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted. Such indemnification
shall be made within thirty (30) days from the date such Lender or the Agent (as
the case may be) makes written demand therefor.
(d) Evidence of Payment. Within thirty (30) days after the date of any
payment of Taxes or Other Taxes, the Borrowers shall furnish to the Agent, at
its address referred to in Section 12.1, the original or a certified copy of a
receipt evidencing payment thereof or other evidence of payment satisfactory to
the Agent.
(e) Delivery of Tax Forms. Each Lender organized under the laws of a
jurisdiction other than the United States or any state thereof shall deliver to
the Company, with a copy to the Agent,
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on the Closing Date or concurrently with the delivery of the relevant Assignment
and Acceptance, as applicable, (i) two United States Internal Revenue Service
Forms 4224 or Forms 1001, as applicable (or successor forms), properly completed
and certifying, in each case, that such Lender is entitled to a complete
exemption from withholding or deduction for or on account of any United States
federal income taxes, and (ii) an Internal Revenue Service Form W-8 or W-9 or
successor applicable form, as the case may be, to establish an exemption from
United States backup withholding taxes. Each such Lender further agrees to
deliver to the Company, with a copy to the Agent, a Form 1001 or 4224 and Form
W-8 or W-9, or successor applicable forms or manner of certification, as the
case may be, on or before the date that any such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form previously delivered by it to the Company, certifying, in the case
of a Form 1001 or 4224, that such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes (unless, in any such case, an event (including, without limitation,
any change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required, which renders such forms
inapplicable or the exemption to which such forms relate unavailable and such
Lender notifies the Company and the Agent that it is not entitled to receive
payments without deduction or withholding of United States federal income taxes)
and, in the case of a Form W-8 or W-9, establishing an exemption from United
States backup withholding tax.
(f) Survival. Without prejudice to the survival of any other agreement
of the Borrowers hereunder, the agreements and obligations of the Borrowers
contained in this Section 4.11 shall survive the payment in full of the
Obligations and the termination of the Credit Facilities.
SECTION 4.12. ADJUSTMENTS. If any Lender (a "Benefitted Lender") shall,
at any time, receive any payment of all or part of its Extensions of Credit, or
interest thereon, or if any Lender shall, at any time, receive any collateral in
respect to its Extensions of Credit (whether voluntarily or involuntarily, by
setoff or otherwise) in a greater proportion than any such payment to and
collateral received by any other Lender, if any, in respect of such other
Lender's Extensions of Credit, or interest thereon, such Benefitted Lender shall
purchase, for cash, from the other Lenders, such portion of each such other
Lender's Extensions of Credit, or shall provide such other Lenders with the
benefits of any such collateral, or the proceeds thereof, as shall be necessary
to cause such Benefitted Lender to share the excess payment or benefits of such
collateral or proceeds, ratably with each of the Lenders; provided, that if all
or any portion of such excess payment or benefits is thereafter recovered from
such Benefitted Lender, such purchase shall be rescinded, and the purchase price
and benefits returned to the extent of such recovery, but without interest. The
Borrowers agree that each Lender so purchasing a portion of another Lender's
Extensions of Credit may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
SECTION 4.13. NATURE OF OBLIGATIONS OF LENDERS REGARDING EXTENSIONS OF
CREDIT; ASSUMPTION BY THE AGENT. The obligations of the Lenders under this
Agreement to make the Loans are several and are not joint or joint and several.
Unless the Agent shall have received notice from a Lender prior to a proposed
borrowing date that such Lender will not make available to the Agent such
Lender's ratable portion of the amount to be borrowed on such date (which notice
shall not release such Lender of its obligations hereunder), the Agent may
assume that such Lender has made
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such portion available to the Agent on the proposed borrowing date in accordance
with Section 4.1(b) and the Agent may, in reliance upon such assumption, make
available to the Borrowers on such date a corresponding amount. If such amount
is made available to the Agent on a date after such borrowing date, such Lender
shall pay to the Agent, on demand, an amount, until paid, equal to $250 plus the
product of (a) the amount of such Lender's Commitment Percentage of such
borrowing, times (b) the daily average Federal Funds Rate during such period, as
determined by the Agent, times (c) a fraction, the numerator of which is the
number of days that elapse from and including such borrowing date to the date on
which such Lender's Commitment Percentage of such borrowing shall have become
immediately available to the Agent and the denominator of which is 360. A
certificate of the Agent with respect to any amounts owing under this Section
shall be conclusive, absent manifest error. If such Lender's Commitment
Percentage of such borrowing is not made available to the Agent by such Lender
within three (3) Business Days of such borrowing date, the Agent shall be
entitled to recover such amount made available by the Agent with interest
thereon at the rate per annum applicable to Prime Rate Loans hereunder, on
demand, from the Borrowers. The failure of any Lender to make its Commitment
Percentage of any Loan available shall not relieve it or any other Lender of its
obligation, if any, hereunder to make its Commitment Percentage of such Loan
available on such borrowing date, but no Lender shall be responsible for the
failure of any other Lender to make its Commitment Percentage of such Loan
available on the borrowing date.
ARTICLE V
CLOSING: CONDITIONS OF CLOSING AND BORROWING
SECTION 5.1. CLOSING. The closing shall take place as of December 31,
1998, or on such other date as the parties hereto shall mutually agree.
SECTION 5.2. CONDITIONS TO CLOSING AND INITIAL EXTENSIONS OF CREDIT.
The obligation of the Lenders to close this Agreement and to make the initial
Loan is subject to the satisfaction of each of the following conditions:
(a) Executed Loan Documents. This Agreement, the Notes, the Mortgage,
the Security Agreement, the Pledge Agreement, the Note Assignment shall have
been duly authorized, executed and delivered to the Agent by the parties
thereto, shall be in full force and effect and no default shall exist
thereunder, and the Borrowers shall have delivered original counterparts thereof
to the Agent.
(b) Closing Certificates; etc.
(i) Officers' Certificates of the Borrowers. The Agent shall
have received a certificate from the chief executive officer or chief
financial officer of each of the Borrowers, in form and substance
satisfactory to the Agent, to the effect that all representations and
warranties of the Borrowers contained in this Agreement and the other
Loan Documents are true, correct and complete; that the Borrowers are
not in violation of any of the covenants contained in this Agreement
and the other Loan Documents; that, after giving effect to the
transactions contemplated by this Agreement, no Default or Event of
Default has occurred and is continuing; and that the Borrowers have
satisfied each of the closing conditions.
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(ii) Certificates of Secretaries of the Borrowers. The Agent shall
have received a certificate of the secretary or assistant secretary of
each of the Borrowers certifying that attached thereto is a true and
complete copy of the articles of incorporation of such Borrower and
all amendments thereto, certified as of a recent date by the
appropriate Governmental Authority in its jurisdiction of
incorporation; that attached thereto is a true and complete copy of
the bylaws of such Borrower as in effect on the date of such
certification; that attached thereto is a true and complete copy of
resolutions duly adopted by the Board of Directors of such Borrower
authorizing the borrowings contemplated hereunder and the execution,
delivery and performance of this Agreement and the other Loan
Documents to which it is a party; and as to the incumbency and
genuineness of the signature of each officer of such Borrower
executing Loan Documents to which it is a party.
(iii) Certificates of Good Standing. The Agent shall have received
long-form certificates as of a recent date of the good standing of the
Borrowers under the laws of their respective jurisdictions of
organization and each other jurisdiction where the Borrowers are
qualified to do business and a certificate of the relevant taxing
authorities of such jurisdictions certifying that such Person has
filed required tax returns and owes no delinquent taxes.
(iv) Opinions of Counsel. The Agent shall have received favorable
opinions of counsel to the Borrowers addressed to the Agent and the
Lenders with respect to the Borrowers, the Loan Documents and such
other matters as the Lenders shall reasonably request.
(v) Tax Forms. The Agent shall have received copies of the United
States Internal Revenue Service forms required by Section 4.11(e)
hereof.
(c) Consents; Defaults.
(i) Governmental and Third Party Approvals. All necessary
approvals, authorizations and consents, if any be required, of any
Person and of all Governmental Authorities and courts having
jurisdiction with respect to the transactions contemplated by this
Agreement and the other Loan Documents shall have been obtained.
(ii) No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or
proposed before any Governmental Authority to enjoin, restrain, or
prohibit, or to obtain substantial damages in respect of, or which is
related to or arises out of this Agreement or the other Loan Documents
or the consummation of the transactions contemplated hereby or
thereby, or which, in the Agent's discretion, would make it
inadvisable to consummate the transactions contemplated by this
Agreement and such other Loan Documents.
(iii) No Event of Default. No Default or Event of Default shall
have occurred and be continuing.
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(d) Financial Matters.
(i) Financial Statements. The Agent shall have received the most
recent audited Consolidated financial statements of the Borrowers for
the year ended December 31, 1997 and unaudited Consolidated financial
statements for the three-month and nine-month periods ended September
30, 1998, all in form and substance satisfactory to the Agent.
(ii) Financial Condition Certificates. Each of the Borrowers shall
have delivered to the Agent a certificate, in form and substance
satisfactory to the Agent, and certified as accurate by the chief
executive officer or chief financial officer of each of the Borrowers,
that (A) each of the Borrowers is Solvent, (B) each of the Borrowers'
payables are current and not past due, (C) attached thereto is a pro
forma balance sheet of the Borrowers setting forth on a pro forma
basis the financial condition of the Borrowers on a Consolidated basis
as of that date, reflecting on a pro forma basis the effect of the
transactions contemplated herein, including all fees and expenses in
connection therewith, and evidencing compliance on a pro forma basis
with the covenants contained in Articles IX and X hereof and (D)
attached thereto are the financial projections previously delivered to
the Agent representing the good faith opinions of the Borrowers and
senior management thereof as to the projected results contained
therein.
(iii) Payment at Closing. There shall have been paid by the
Borrowers to the Agent and the Lenders the fees set forth or
referenced in Section 4.5 and any other accrued and unpaid fees or
commissions due hereunder (including, without limitation, legal fees
and expenses), and to any other Person such amount as may be due
thereto in connection with the transactions contemplated hereby,
including all taxes, fees and other charges in connection with the
execution, delivery, recording, filing and registration of any of the
Loan Documents.
(iv) Applicable Margin Certificate. The Borrowers shall have
delivered to the Agent a certificate executed by the chief financial
officer or treasurer of each of the Borrowers setting forth the
calculation of the Applicable Margin pursuant to Section 4.3(c).
(e) Miscellaneous.
(i) Notice of Borrowing. The Agent shall have received written
instructions from the Borrowers to the Agent directing the payment of
any proceeds of Loans made under this Agreement that are to be paid on
the Closing Date.
(ii) Proceedings and Documents. All opinions, certificates and
other instruments and all proceedings in connection with the
transactions contemplated by this Agreement shall be satisfactory in
form and substance to the Lenders. The Lenders shall have received
copies of all other instruments and other evidence as the Lender may
reasonably request, in form and substance satisfactory to the Lenders,
with respect to the transactions contemplated by this Agreement and
the taking of all actions in connection therewith.
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(iii) Due Diligence and Other Documents. The Borrowers shall have
delivered to the Agent such other documents, certificates and opinions
as the Agent reasonably requests.
SECTION 5.3. CONDITIONS TO ALL LOANS. The obligations of the Lenders
to make any Loan is subject to the satisfaction of the following conditions
precedent on the relevant borrowing date:
(a) Continuation of Representations and Warranties. The
representations and warranties contained in Article VI shall be true and
correct on and as of such borrowing date with the same effect as if made on and
as of such date.
(b) No Existing Default. No Default or Event of Default shall have
occurred and be continuing hereunder on the borrowing date with respect to such
Loan or after giving effect to the Loans to be made on such date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BORROWERS
SECTION 6.1. REPRESENTATIONS AND WARRANTIES. To induce the Agent to
enter into this Agreement and the Lenders to make the Loans, each of the
Borrowers hereby represents and warrants to the Agent and Lenders that:
(a) Organization; Power; Qualification. Each of the Borrowers is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation, has the power and authority to
own its properties and to carry on its business as now being and hereafter
proposed to be conducted and is duly qualified and authorized to do business in
each jurisdiction in which the character of its properties or the nature of its
business requires such qualification and authorization. The jurisdictions in
which the Borrowers are organized and qualified to do business are described on
Schedule 6.1(a).
(b) Ownership. Each Subsidiary of the Company is listed on Schedule
6.1(b). The capitalization of the Borrowers consists of the number of shares,
authorized, issued and outstanding, of such classes and series, with or without
par value, described on Schedule 6.1(b). All outstanding shares have been duly
authorized and validly issued and are fully paid and nonassessable. The Company
owns 100% of the capital stock of each Subsidiary Borrower. There are no
outstanding stock purchase warrants, subscriptions, options, securities,
instruments or other rights of any type or nature whatsoever, which are
convertible into, exchangeable for or otherwise provide for or permit the
issuance of capital stock of the Borrowers, except as described on Schedule
6.1(b).
(c) Authorization of Agreement, Loan Documents and Borrowing. Each of
the Borrowers has the right, power and authority and has taken all necessary
corporate and other action to authorize the execution, delivery and performance
of this Agreement and each of the other Loan
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Documents to which it is a party in accordance with their respective terms.
This Agreement and each of the other Loan Documents have been duly executed and
delivered by the duly authorized officers of the Borrowers party thereto, and
each such document constitutes the legal, valid and binding obligation of the
Borrowers party thereto, enforceable in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar state or federal debtor relief laws from time to time in
effect which affect the enforcement of creditors' rights in general and the
availability of equitable remedies.
(d) Compliance of Agreement, Loan Documents and Borrowing with Laws,
Etc. The execution, delivery and performance by the Borrowers of the Loan
Documents to which each such Person is a party, in accordance with their
respective terms, the borrowings hereunder and the transactions contemplated
hereby do not and will not, by the passage of time, the giving of notice or
otherwise, (i) require any Governmental Approval or violate any Applicable Law
relating to any of the Borrowers, (ii) conflict with, result in a breach of or
constitute a default under the articles of incorporation, bylaws or other
organizational documents of any of the Borrowers or any indenture, agreement or
other instrument to which such Person is a party or by which any of its
properties may be bound or any Governmental Approval relating to such Person,
or (iii) result in or require the creation or imposition of any Lien upon or
with respect to any property now owned or hereafter acquired by such Person
other than Liens arising under the Loan Documents.
(e) Compliance with Law; Governmental Approvals. Each of the Borrowers
(i) has all Governmental Approvals required by any Applicable Law for it to
conduct its business, each of which is in full force and effect, is final and
not subject to review on appeal and is not the subject of any pending or, to
the best of its knowledge, threatened attack by direct or collateral
proceeding, and (ii) is in compliance with each Governmental Approval
applicable to it and in compliance with all other Applicable Laws relating to
it or any of its respective properties.
(f) Tax Returns and Payments. Each of the Borrowers has duly filed or
caused to be filed all federal, state, local and other tax returns required by
Applicable Law to be filed or has filed appropriate extensions thereof, and has
paid, or made adequate provision for the payment of, all federal, state, local
and other taxes, assessments and governmental charges or levies upon it and its
property, income, profits and assets which are due and payable. No Governmental
Authority has asserted any Lien or other claim against any of the Borrowers
with respect to unpaid taxes which has not been discharged or resolved. The
charges, accruals and reserves on the books of the Borrowers in respect of
federal, state, local and other taxes for all Fiscal Years and portions thereof
since the organization of any of the Borrowers are, in the judgment of the
Borrowers, adequate, and the Borrowers do not anticipate any additional taxes
or assessments for any of such years.
(g) Intellectual Property Matters. Each of the Borrowers owns or
possesses rights to use all franchises, licenses, copyrights, copyright
applications, patents, patent rights or licenses, patent applications,
trademarks, trademark rights, trade names, trade name rights, copyrights and
rights with respect to the foregoing which are required to conduct its
business. No event has occurred which permits, or after notice or lapse of time
or both would permit, the revocation or termination of any such rights, and, to
the Borrowers' knowledge, none of the Borrowers is liable to any Person for
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infringement under Applicable Law with respect to any such rights as a result
of its business operations.
(h) Environmental Matters.
(i) The properties of the Borrowers do not contain, and to their
knowledge have not previously contained, any Hazardous Materials in
amounts or concentrations which (A) constitute or constituted a
violation of, or (B) could give rise to liability under, applicable
Environmental Laws;
(ii) Such properties and all operations conducted in connection
therewith are in compliance, and have been in compliance, with all
applicable Environmental Laws, and there is no contamination at, under
or about such properties or such operations which could interfere with
the continued operation of such properties or impair the fair saleable
value thereof;
(iii) None of the Borrowers has received any notice of violation,
alleged violation, noncompliance, liability or potential liability
regarding environmental matters or compliance with Environmental Laws
with regard to any of their properties or the operations conducted in
connection therewith, nor do any of the Borrowers have knowledge or
reason to believe that any such notice will be received or is being
threatened;
(iv) Hazardous Materials have not been transported or disposed of
from the properties of the Borrowers in violation of, or in a manner
or to a location which could give rise to liability under,
Environmental Laws, nor have any Hazardous Materials been generated,
treated, stored or disposed of at, on or under any of such properties
in violation of, or in a manner that could give rise to liability
under, any applicable Environmental Laws;
(v) No judicial proceedings or governmental or administrative
action is pending, or, to the knowledge of any of the Borrowers,
threatened, under any Environmental Law to which any of the Borrowers
is or will be named as a party with respect to such properties or
operations conducted in connection therewith, nor are there any
consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial
requirements outstanding under any Environmental Law with respect to
such properties or such operations; and
(vi) There has been no release, or to the best of the Borrowers'
knowledge, the threat of release, of Hazardous Materials at or from
such properties, in violation of or in amounts or in a manner that
could give rise to liability under Environmental Laws.
(i) ERISA.
(i) None of the Borrowers nor any ERISA Affiliate maintains or
contributes to, or has any obligation under, any Employee Benefit
Plans other than those identified on Schedule 6.1(i);
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(ii) Each of the Borrowers and each ERISA Affiliate is in
compliance with all applicable provisions of ERISA and the regulations
and published interpretations thereunder with respect to all Employee
Benefit Plans except for any required amendments for which the
remedial amendment period as defined in Section 401(b) of the Code has
not yet expired. Each Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code has been determined by the
Internal Revenue Service to be so qualified, and each trust related to
such plan has been determined to be exempt under Section 501(a) of the
Code. No liability has been incurred by any of the Borrowers or any
ERISA Affiliate which remains unsatisfied for any taxes or penalties
with respect to any Employee Benefit Plan or any Multiemployer Plan;
(iii) No Pension Plan has been terminated, nor has any accumulated
funding deficiency (as defined in Section 412 of the Code) been
incurred (without regard to any waiver granted under Section 412 of
the Code), nor has any funding waiver from the Internal Revenue
Service been received or requested with respect to any Pension Plan,
nor have any of the Borrowers or any ERISA Affiliate failed to make
any contributions or to pay any amounts due and owing as required by
Section 412 of the Code, Section 302 of ERISA or the terms of any
Pension Plan prior to the due dates of such contributions under
Section 412 of the Code or Section 302 of ERISA, nor has there been
any event requiring any disclosure under Section 4041(c)(3)(C) or
4063(a) of ERISA with respect to any Pension Plan;
(iv) None of the Borrowers nor any ERISA Affiliate has: (A)
engaged in a nonexempt prohibited transaction described in Section 406
of the ERISA or Section 4975 of the Code, (B) incurred any liability
to the PBGC which remains outstanding other than the payment of
premiums and there are no premium payments which are due and unpaid,
(C) failed to make a required contribution or payment to a
Multiemployer Plan, or (D) failed to make a required installment or
other required payment under Section 412 of the Code;
(v) No Termination Event has occurred or is reasonably expected to
occur; and
(vi) No proceeding, claim, lawsuit and/or investigation is
existing or, to the best knowledge of the Borrowers after due inquiry,
threatened concerning or involving any (A) employee welfare benefit
plan (as defined in Section 3(1) of ERISA) currently maintained or
contributed to by any of the Borrowers or any ERISA Affiliate, (B)
Pension Plan or (C) Multiemployer Plan.
(j) Margin Stock. None of the Borrowers is engaged principally or as
one of its activities in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" (as each such term is defined or
used in Regulations G and U of the Board of Governors of the Federal Reserve
System). No part of the proceeds of any of the Loans will be used for
purchasing or carrying margin stock or for any purpose which violates, or which
would be inconsistent with, the provisions of Regulation G, T, U or X of such
Board of Governors.
(k) Government Regulation. None of the Borrowers is an "investment
company" or a company "controlled" by an "investment company" (as each such
term is defined or used in the
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Investment Company Act of 1940, as amended) and none of the Borrowers is, or
after giving effect to any Extension of Credit will be, subject to regulation
under the Public Utility Holding Company Act of 1935 or the Interstate Commerce
Act, each as amended, or any other Applicable Law which limits its ability to
incur or consummate the transactions contemplated hereby.
(l) Material Contracts. Schedule 6.1(1) sets forth a complete and
accurate list of all Material Contracts of the Borrowers in effect as of the
Closing Date not listed on any other Schedule hereto; other than as set forth
in Schedule 6.1(1), each such Material Contract is, and after giving effect to
the consummation of the transactions contemplated by the Loan Documents will
be, in full force and effect in accordance with the terms thereof. The
Borrowers have delivered to the Agent a true and complete copy of each Material
Contract required to be listed on Schedule 6.1(1).
(m) Employee Relations. Each of the Borrowers has a stable work force
in place and is not, except as set forth on Schedule 6.1(m), party to any
collective bargaining agreement nor has any labor union been recognized as the
representative of its employees. The Borrowers know of no pending, threatened
or contemplated strikes, work stoppage or other collective labor disputes
involving their employees.
(n) Burdensome Provisions. None of the Borrowers is a party to any
indenture, agreement, lease or other instrument, or subject to any corporate or
partnership restriction, Governmental Approval or Applicable Law which is so
unusual or burdensome as in the foreseeable future could be reasonably expected
to have a Material Adverse Effect. The Borrowers do not presently anticipate
that future expenditures needed to meet the provisions of any statutes, orders,
rules or regulations of a Governmental Authority will be so burdensome as to
have a Material Adverse Effect.
(o) Financial Statements. The (i) Consolidated balance sheets of the
Borrowers as of December 31, 1996 and December 31, 1997 and the related
statements of income and retained earnings and cash flows for the Fiscal Years
then ended and (ii) unaudited Consolidated balance sheet of the Borrowers as of
September 30, 1998 and related unaudited interim statements of revenue and
retained earnings, copies of which have been furnished to the Agent and each
Lender, are complete and correct and fairly present the assets, liabilities and
financial position of the Borrowers as at such dates, and the results of the
operations and changes of financial position for the periods then ended. All
such financial statements, including the related schedules and notes thereto,
have been prepared in accordance with GAAP. The Borrowers have no Debt,
obligation or other unusual forward or long-term commitment which is not fairly
reflected in the foregoing financial statements or in the notes thereto and the
Borrowers know of no basis upon which their auditors may make adjustments to
unaudited interim financial statements, the effect of which would materially
adjust any previously reported interim financial statements.
(p) No Material Adverse Change. Since September 30, 1998, there has
been no material adverse change in the properties, business, operations,
prospects, or condition (financial or otherwise) of the Borrowers and no event
has occurred or condition arisen that could reasonably be expected to have a
Material Adverse Effect.
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(q) Solvency. As of the Closing Date and after giving effect to each
Extension of Credit made hereunder, each of the Borrowers will be Solvent.
(r) Titles to Properties. Each of the Borrowers has such title to the
real property owned by it as is necessary or desirable to the conduct of its
business and valid and legal title to all of its personal property and assets
other than personal property subject to Capital Leases, including, but not
limited to, those reflected on the balance sheets of the Borrowers delivered
pursuant to Section 6.1(o), except those which have been disposed of by the
Borrowers subsequent to such date which dispositions have been in the ordinary
course of business or as otherwise expressly permitted hereunder.
(s) Liens. None of the properties and assets of any of the Borrowers
is subject to any Lien, except Liens permitted pursuant to Section 10.3. No
financing statement under the Uniform Commercial Code of any state which names
any of the Borrowers or any of their respective trade names or divisions as
debtor and which has not been terminated, has been filed in any state or other
jurisdiction and none of the Borrowers has signed any such financing statement
or any security agreement authorizing any secured party thereunder to file any
such financing statement, except to perfect those Liens permitted by Section
10.3 hereof.
(t) Debt and Contingent Obligations. Schedule 6.1(t) is a complete and
correct listing of all Debt and Contingent Obligations of the Borrowers in
excess of $100,000. The Borrowers have performed and are in compliance with all
of the terms of such Debt and Contingent Obligations and all instruments and
agreements relating thereto, and no default or event of default, or event or
condition which with notice or lapse of time or both would constitute such a
default or event of default on the part of the Borrowers exists with respect to
any such Debt or Contingent Obligation.
(u) Litigation. Except as set forth on Schedule 6.1(u), there are no
actions, suits or proceedings pending nor, to the knowledge of the Borrowers,
threatened against or in any other way relating adversely to or affecting any
of the Borrowers or any of their respective properties in any court or before
any arbitrator of any kind or before or by any Governmental Authority.
(v) Absence of Defaults. To the Borrowers' knowledge, no event has
occurred or is continuing which constitutes a Default or an Event of Default,
or which constitutes, or which with the passage of time or giving of notice or
both would constitute, a default or event of default by any of the Borrowers
under any Material Contract or judgment, decree or order to which any of the
Borrowers is a party or by which any of the Borrowers or any of their
respective properties may be bound or which would require the Borrowers to make
any payment thereunder prior to the scheduled maturity date therefor.
(w) Accuracy and Completeness of Information. All written information,
reports and other papers and data produced by or on behalf of any of the
Borrowers and furnished to the Lenders were, at the time the same were so
furnished, complete and correct in all respects to the extent necessary to give
the recipient a true and accurate knowledge of the subject matter. No document
furnished or written statement made to the Agent or the Lenders by any of the
Borrowers in connection with the negotiation, preparation or execution of this
Agreement or any of the Loan
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Documents contains or will contain any untrue statement of a fact material to
the creditworthiness of the Borrowers or omits or will omit to state a fact
necessary in order to make the statements contained therein not misleading. The
Borrowers are not aware of any facts which they have not disclosed in writing
to the Agent having a Material Adverse Effect, or insofar as the Borrowers can
now foresee, could reasonably be expected to have a Material Adverse Effect.
(x) Year 2000 Matters. Each of the Borrowers (i) has initiated a
review and assessment of all areas within its business and operations
(including those affected by suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by any of the Borrowers (or suppliers, vendors and customers)
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999, (ii) has
developed a plan (the "Plan") and time line for addressing the Year 2000
Problem on a timely basis, but in any event, prior to June 30, 1999, and (iii)
to date, implements the Plan in accordance with that timetable. Based on the
foregoing, each of the Borrowers believes that all computer applications
(including those of its suppliers, vendors and customers) that are material to
its business and operations are reasonably expected on a timely basis, but in
any event, prior to June 30, 1999, to be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000 (that
is, be "Year 2000 Compliant") except to the extent that a failure to do so
could not reasonably be expected to have a Material Adverse Effect.
SECTION 6.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties set forth in this Article VI and all
representations and warranties contained in any certificate, or any of the Loan
Documents (including, but not limited to, any such representation or warranty
made in or in connection with any amendment thereto) shall constitute
representations and warranties made under this Agreement. All representations
and warranties made under this Agreement shall be made or deemed to be made at
and as of the Closing Date, shall survive the Closing Date and shall not be
waived by the execution and delivery of this Agreement, any investigation made
by or on behalf of the Lenders or any borrowing hereunder.
ARTICLE VII
FINANCIAL INFORMATION AND NOTICES
Until all the Obligations have been finally and indefeasibly paid and
satisfied in full and the Credit Facilities terminated, unless consent has been
obtained in the manner set forth in Section 13.11 hereof, the Borrowers will
furnish or cause to be furnished to the Agent at the Agent's Office (with
copies for each Lender) and the Agent at its address set forth in Section 13.1
hereof, or such other office as may be designated by the Agent from time to
time:
SECTION 7.1. FINANCIAL STATEMENTS AND PROJECTIONS.
(a) Quarterly Financial Statements. As soon as practicable and in any
event within forty-five (45) days after the end of each of the first three (3)
fiscal quarters, an unaudited Consolidated balance sheet of the Borrowers as of
the close of such fiscal quarter and unaudited Consolidated
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statements of income, retained earnings and cash flows for the fiscal quarter
then ended and that portion of the Fiscal Year then ended, including the notes
thereto, all in reasonable detail setting forth in comparative form the
corresponding figures for the preceding Fiscal Year and prepared by the
Borrowers in accordance with GAAP and, if applicable, containing disclosure of
the effect on the financial position or results of operations of any change in
the application of accounting principles and practices during the period, and
certified by the chief financial officer of the Company to present fairly in
all material respects the financial condition of the Borrowers as of their
respective dates and the results of operations of the Borrowers for the
respective periods then ended, subject to normal year end adjustments.
(b) Annual Financial Statements. As soon as practicable and in any
event within ninety (90) days after the end of each Fiscal Year, an audited
Consolidated balance sheet of the Borrowers as of the close of such Fiscal Year
and audited Consolidated statements of income, retained earnings and cash flows
for the Fiscal Year then ended, including the notes thereto, all in reasonable
detail setting forth in comparative form the corresponding figures for the
preceding Fiscal Year and prepared by an independent certified public
accounting firm acceptable to the Agent (which currently includes BDO Seidman,
LLP) in accordance with GAAP and, if applicable, containing disclosure of the
effect on the financial position or results of operation of any change in the
application of accounting principles and practices during the year, and
accompanied by a report thereon by such certified public accountants that is
not qualified with respect to scope limitations imposed by any of the Borrowers
or with respect to accounting principles followed by any of the Borrowers not
in accordance with GAAP.
(c) Monthly Financial Statements. As soon as practicable and in any
event within twenty (20) days after the end of each month (commencing with
April, 1999), an unaudited Consolidated balance sheet of the Borrowers as of
the end of such month and unaudited Consolidated statements of income, retained
earnings and cash flows for the month then ended and that portion of the Fiscal
Year then ended, all in reasonable detail setting forth in comparative form the
corresponding figures from their budget most recently furnished to the Lenders,
and prepared by the Borrowers in accordance with GAAP and, if applicable,
containing disclosure of the effect on the financial position or results of
operations of any change in the application of accounting principles and
practices during the period, and certified by the chief financial officer of
the Company to present fairly in all material respects the financial condition
of the Borrowers as of their respective dates and the results of operations of
the Borrowers for the respective periods then ended, subject to normal year end
adjustments.
(d) The financial statements required pursuant to Sections 7.1 (a) and
(b) shall be deemed to have been furnished to Lenders when reports filed with
the Securities and Exchange Commission which include such financial statements
become publicly available.
SECTION 7.2. OFFICERS COMPLIANCE CERTIFICATE. At each time financial
statements are delivered pursuant to Sections 7.1 (a), (b) or (c), at each time
that any of the Borrowers closes upon the acquisition of all or any significant
portion of the assets or stock of any other Person and at such other times as
the Agent shall reasonably request, a certificate of the chief financial
officer or the
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treasurer of the Company in the form of Exhibit F attached hereto (an
"Officer's Compliance Certificate").
SECTION 7.3. ACCOUNTANTS' CERTIFICATE. At each time financial
statements are delivered pursuant to Section 7.1(b), a certificate of the
independent public accountants certifying such financial statements addressed
to the Agent for the benefit of the Lenders:
(a) stating that in making the examination necessary for the
certification of such financial statements, they obtained no knowledge of any
Default or Event of Default or, if such is not the case, specifying such
Default or Event of Default and its nature and period of existence; and
(b) including the calculations prepared by such accountants required
to establish whether or not the Borrowers are in compliance with the financial
covenants set forth in Article IX hereof as at the end of each respective
period.
including a fully executed copy of a letter from such accountants to the
Borrowers (i) expressly acknowledging that a primary intent of the Borrowers
(with respect to such statements) is for such accountants' examination and
report with respect to such statements of the Borrowers to benefit or influence
the Lenders (A) in connection with Extensions of Credit and other financial
accommodations to the Borrowers from time to time, or (B) otherwise in
connection with the preparation, review, execution, delivery, amendment,
modification, administration, collection and/or enforcement of the Loan
Documents, and (ii) expressly authorizing the Lenders to rely on the
examination and report of such accountants with respect to the audited
financial statements of the Borrowers as of and for such Fiscal Year then
ending.
SECTION 7.4. OTHER CERTIFICATES AND REPORTS.
(a) Within twenty (20) days after the end of each calendar month, and
as often as the Agent may, in its sole discretion, additionally request, the
Borrowers shall deliver to the Agent a Borrowing Base Certificate, signed by
the Company's chief financial officer, dated such date (but, as to those
furnished monthly, effective as of the preceding month-end) and confirming to
the Agent such matters with respect to the Revolving Credit Facility as the
Agent may require;
(b) Within twenty (20) days after the end of each month and otherwise
after any request made by the Agent, current (but, as to those furnished
monthly, effective as of the preceding month-end) aging schedules for the
Borrowers' accounts receivable, in such form as shall be acceptable to the
Agent;
(c) Promptly upon receipt thereof, copies of all reports, if any,
submitted to the Borrowers or their Boards of Directors by their independent
public accountants in connection with their auditing function, including,
without limitation, any management report and any management responses thereto;
(d) Promptly after the same are sent or otherwise publicly available,
copies of all proxy statements, financial statements and reports which the
Borrowers send to their stockholders, and
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promptly after the same are filed, copies of all regular, periodic and special
reports, (including, but not limited to, reports on Forms 10-K, 10-Q and 8-K),
and all registration statements which the Borrowers file with the Securities
and Exchange Commission or any Governmental Authority which may be substituted
therefor, or with any national securities exchange; and
(e) Such other information regarding the operations, business affairs
and financial condition of any of the Borrowers as the Agent or any Lender may
reasonably request.
SECTION 7.5. NOTICE OF LITIGATION AND OTHER MATTERS. Prompt (but in no
event later than ten (10) days after an officer of any of the Borrowers obtains
knowledge thereof) telephonic and written notice of:
(a) the commencement of all proceedings and investigations by or
before any Governmental Authority and all actions and proceedings in any court
or before any arbitrator against or involving any of the Borrowers or any of
their respective properties, assets or businesses which, if determined
adversely, could have a Material Adverse Effect on any of the Borrowers;
(b) any notice of any violation received by any of the Borrowers from
any Governmental Authority including, without limitation, any notice of
violation of Environmental Laws which in any such case could reasonably be
expected to have a Material Adverse Effect;
(c) any labor controversy that has resulted in, or threatens to result
in, a strike or other work action against any of the Borrowers;
(d) any attachment, judgment, lien, levy or order exceeding $100,000
that may be assessed against or threatened against any of the Borrowers;
(e) any Default or Event of Default, or any event which constitutes or
which with the passage of time or giving of notice or both would constitute a
default or event of default under any Material Contract to which any of the
Borrowers is a party or by which any of the Borrowers or any of their
respective properties may be bound;
(f) (i) any unfavorable determination letter from the Internal Revenue
Service regarding the qualification of an Employee Benefit Plan under Section
401(a) of the Code (along with a copy thereof), (ii) all notices received by
any of the Borrowers or any ERISA Affiliate of the PBGC's intent to terminate
any Pension Plan or to have a trustee appointed to administer any Pension Plan,
(iii) all notices received by any of the Borrowers or any ERISA Affiliate from
a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA and (iv) any of the Borrowers
obtaining knowledge or reason to know that any of the Borrowers or any ERISA
Affiliate has filed or intends to file a notice of intent to terminate any
Pension Plan under a distress termination within the meaning of Section 4041(c)
of ERISA; and
(g) any event which makes any of the representations set forth in
Section 6.1 inaccurate in any respect.
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SECTION 7.6. ACCURACY OF INFORMATION. All written information, reports,
statements and other papers and data furnished by or on behalf of the Borrowers
to the Lender (other than financial forecasts) whether pursuant to this Article
VII or any other provision of this Agreement, or any of the Security Documents,
shall be, at the time the same is so furnished, complete and correct in all
material respects to the extent necessary to give the Agent or any Lender
complete, true and accurate knowledge of the subject matter based on the
Borrowers' knowledge thereof.
ARTICLE VIII
AFFIRMATIVE COVENANTS
Until all of the Obligations have been finally and indefeasibly paid
and satisfied in full and the Credit Facilities terminated, unless consent has
been obtained in the manner provided for in Section 13.11, each of the
Borrowers will:
SECTION 8.1. PRESERVATION OF CORPORATE EXISTENCE AND RELATED MATTERS.
Except as permitted by Section 10.5, preserve and maintain its separate
corporate existence and all rights, franchises, licenses and privileges
necessary to the conduct of its business, and qualify and remain qualified as a
foreign corporation and authorized to do business in each jurisdiction in which
the failure to so qualify would have a Material Adverse Effect.
SECTION 8.2. MAINTENANCE OF PROPERTY. Protect and preserve all
properties useful in and material to its business, including copyrights,
patents, trade names and trademarks; maintain in good working order and
condition all buildings, equipment and other tangible real and personal
property; and from time to time make or cause to be made all renewals,
replacements and additions to such property necessary for the conduct of its
business, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
SECTION 8.3. INSURANCE. Maintain insurance with financially sound and
reputable insurance companies against such risks and in such amounts as are
customarily maintained by similar businesses and as may be required by
Applicable Law, and on the Closing Date and from time to time thereafter
deliver to the Agent upon its request a detailed list of the insurance then in
effect, stating the names of the insurance companies, the amounts and rates of
the insurance, the dates of the expiration thereof and the properties and risks
covered thereby.
SECTION 8.4. ACCOUNTING METHODS AND FINANCIAL RECORDS. Maintain a
system of accounting, and keep such books, records and accounts (which shall be
true and complete in all material respects) as may be required or as may be
necessary to permit the preparation of financial statements in accordance with
GAAP and in compliance with the regulations of any Governmental Authority
having jurisdiction over it or any of its properties.
SECTION 8.5. PAYMENT AND PERFORMANCE OF OBLIGATIONS. Pay and perform
all Obligations under this Agreement and the other Loan Documents, and pay or
perform (a) all taxes, assessments and other governmental charges that may be
levied or assessed upon it or any of its
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property, and (b) all other indebtedness, obligations and liabilities in
accordance with customary trade practices; provided, that the Borrowers may
contest any item described in this Section 8.5 in good faith so long as
adequate reserves are maintained with respect thereto in accordance with GAAP.
SECTION 8.6. COMPLIANCE WITH LAWS AND APPROVALS. Observe and remain in
compliance with all Applicable Laws and maintain in full force and effect all
Governmental Approvals, in each case applicable to the conduct of its business.
SECTION 8.7. ENVIRONMENTAL LAWS. In addition to and without limiting
the generality of Section 8.6, (a) comply with, and ensure such compliance by
all tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply with and maintain, and ensure that all tenants and subtenants
obtain and comply with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws, (b) conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws, and promptly comply with all lawful orders and directives
of any Governmental Authority regarding Environmental Laws, and (c) jointly and
severally defend, indemnify and hold harmless the Agent and the Lenders, and
their respective parents, Subsidiaries, Affiliates, employees, agents, officers
and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs and expenses of whatever kind or
nature known or unknown, contingent or otherwise, arising out of, or in any way
relating to the violation of, noncompliance with or liability under any
Environmental Laws applicable to the operations of any of the Borrowers, or any
orders, requirements or demands of Governmental Authorities related thereto,
including, without limitation, reasonable attorneys' and consultants' fees,
investigation and laboratory fees, response costs, court costs and litigation
expenses, except to the extent that any of the foregoing directly result from
the gross negligence or willful misconduct of the party seeking indemnification
therefor.
SECTION 8.8. COMPLIANCE WITH ERISA. In addition to and without
limiting the generality of Section 8.6, (a) comply with all applicable
provisions of ERISA and the regulations and published interpretations
thereunder with respect to all Employee Benefit Plans, (b) not take any action
or fail to take action the result of which could be a liability to the PBGC or
to a Multiemployer Plan, (c) not participate in any prohibited transaction that
could result in any civil penalty under ERISA or tax under the Code, (d)
operate each Employee Benefit Plan in such a manner that will not incur any tax
liability under Section 4980B of the Code or any liability to any qualified
beneficiary as defined in Section 4980B of the Code and (e) furnish to the
Agent upon the Agent's request such additional information about any Employee
Benefit Plan as may be reasonably requested by the Agent.
SECTION 8.9. COMPLIANCE WITH AGREEMENTS. Comply in all respects with
each term, condition and provision of all leases, agreements and other
instruments entered into in the conduct of its business including, without
limitation, any Material Contract; provided, that any of the Borrowers may
contest any such lease, agreement or other instrument in good faith through
applicable proceedings so long as adequate reserves are maintained in
accordance with GAAP.
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SECTION 8.10. CONDUCT OF BUSINESS. Engage only in businesses in
substantially the same fields as the businesses conducted on the Closing Date.
SECTION 8.11. VISITS AND INSPECTIONS. Permit representatives of the
Agent or any Lender, from time to time, at the Borrowers' expense, to visit and
inspect its properties; inspect, audit (including, without limitation,
quarterly audits of Accounts) and make extracts from its books, records and
files, including, but not limited to, management letters prepared by
independent accountants; and discuss with its principal officers, and its
independent accountants, its business, assets, liabilities, financial
condition, results of operations and business prospects.
SECTION 8.12. YEAR 2000 COMPLIANCE. Each of the Borrowers will
implement the Plan in accordance with the timetable and other terms of the
Plan, will monitor and cause audits to be performed to test the continuing
effectiveness of the Plan and, if appropriate, will make all necessary
modifications to the Plan to cause each of the Borrowers to be Year 2000
Compliant prior to June 30, 1999. The Borrowers will promptly notify the Agent
in the event any of the Borrowers discovers or determines that any computer
application (including those of its suppliers, vendors and customers) that is
material to any of their business and operations will not be Year 2000
Compliant prior to June 30, 1999, except to the extent that such failure could
not reasonably be expected to have a Material Adverse Effect.
SECTION 8.13. FURTHER ASSURANCES. Make, execute and deliver all such
additional and further acts, things, deeds and instruments as the Agent or any
Lender may reasonably require to document and consummate the transactions
contemplated hereby and to vest completely in and insure the Agent and the
Lenders their respective rights under this Agreement, the Notes and the other
Loan Documents.
ARTICLE IX
FINANCIAL COVENANTS
Until all of the Obligations have been finally and indefeasibly paid
and satisfied in full and the Credit Facilities terminated, unless consent has
been obtained in the manner set forth in Section 13.11 hereof, none of the
Borrowers on a Consolidated basis will:
SECTION 9.1. CURRENT RATIO. Permit their Consolidated Current Ratio to
be less than 1.25 to 1.00 at the end of any fiscal quarter.
SECTION 9.2. LIABILITIES TO NET WORTH. Permit their Consolidated ratio
of Total Liabilities (less Subordinated Debt) to Net Worth (plus Subordinated
Debt) to be greater than 1.50 to 1.00 at the end of any fiscal quarter.
SECTION 9.3. NET LOSS. Permit a Net Loss to be incurred for any fiscal
quarter.
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SECTION 9.4. INTEREST COVERAGE RATIO. Permit their Consolidated
Interest Coverage Ratio to be less than 2.50 to 1.00 for any fiscal quarter.
SECTION 9.5. FUNDED DEBT TO CASH FLOW. Permit their Consolidated ratio
of Senior Funded Debt to EBITDA (defined as Annualized actual EBITDA for the
most recent fiscal quarter plus Annualized actual pre-acquisition EBITDA for
the most recent fiscal quarter of Persons acquired by the Company during that
quarter) to be greater than 4.00 to 1.00 for any fiscal quarter.
ARTICLE X
NEGATIVE COVENANTS
Until all of the Obligations have been finally and indefeasibly paid
and satisfied in full and the Credit Facilities terminated, unless consent has
been obtained in the manner set forth in Section 13.11 hereof, none of the
Borrowers will:
SECTION 10.1. LIMITATIONS ON DEBT. Create, incur, assume or suffer to
exist any Debt except:
(a) the Obligations;
(b) Debt incurred in connection with a Hedging Agreement with a
counterparty and upon terms and conditions reasonably satisfactory to the
Agent;
(c) Subordinated Debt;
(d) existing Debt set forth on SCHEDULE 6.1(t) and the renewal and
refinancing (but not the increase) thereof;
(e) Debt of the Borrowers incurred in connection with Capital Leases
in an aggregate amount not to exceed $1,200,000.00 on any date of
determination;
(f) purchase money Debt of the Borrowers in an aggregate amount not to
exceed Five Hundred Thousand Dollars ($500,000.00) in any fiscal year, on any
date of determination;
(g) Debt consisting of Contingent Obligations permitted by Section
10.2.; and
(h) Debt assumed in connection with any acquisition of a Person by the
Company, provided that no Default is otherwise caused thereby.
SECTION 10.2. LIMITATIONS ON CONTINGENT OBLIGATIONS. Create, incur,
assume or suffer to exist any Contingent Obligations except:
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(a) Contingent Obligations in favor of the Agent for the benefit of
the Agent and the Lenders; and
(b) Contingent Obligations in an aggregate amount not to exceed
$300,000.00 (i) to secure payment or performance of obligations incurred in the
ordinary course of business and/or (ii) assumed in connection with any
permitted acquisition of a Person by the Company.
SECTION 10.3. LIMITATIONS ON LIENS. Create, incur, assume or suffer to
exist, any Lien on or with respect to any of its assets or properties
(including shares of capital stock), real or personal, whether now owned or
hereafter acquired, except:
(a) Liens for taxes, assessments and other governmental charges or
levies (excluding any Lien imposed pursuant to any of the provisions of ERISA
or Environmental Laws) not yet due or as to which the period of grace (not to
exceed thirty (30) days), if any, related thereto has not expired or which are
being contested in good faith and by appropriate proceedings if adequate
reserves are maintained to the extent required by GAAP;
(b) the claims of materialmen, mechanics, carriers, warehousemen,
processors or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, (i) which are not overdue for a period of more
than thirty (30) days or (ii) which are being contested in good faith and by
appropriate proceedings;
(c) Liens consisting of deposits or pledges made in the ordinary
course of business in connection with, or to secure payment of, obligations
under workers' compensation, unemployment insurance or similar legislation;
(d) Liens constituting encumbrances in the nature of zoning
restrictions, easements and rights or restrictions of record on the use of real
property, which in the aggregate are not substantial in amount and which do
not, in any case, detract from the value of such property or impair the use
thereof in the ordinary conduct of business;
(e) Liens of the Agent for the benefit of the Agent and the Lenders;
(f) Existing liens described on SCHEDULE 10.3;
(g) Capital Leases permitted pursuant to Section 10.1 (e);
(h) Liens on property (real or personal) acquired in connection with
any permitted acquisition of a Person by the Company; and
(i) Liens securing Debt which refinances existing Debt secured by the
existing Liens described on SCHEDULE 10.3.
SECTION 10.4. LIMITATIONS ON LOANS, ADVANCES, INVESTMENTS AND
ACQUISITIONS. Purchase, own, invest in or otherwise acquire, directly or
indirectly, any capital stock, interests in
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any partnership or joint venture, evidence of Debt or other obligation or
security, substantially all or a portion of the business or assets of any other
Person or any other investment or interest whatsoever in any other Person, or
make or permit to exist, directly or indirectly, any loans, advances or
extensions of credit to, or any investment in cash or by delivery of property
in, any Person, or enter into, directly or indirectly, any commitment or option
in respect of the foregoing except:
(a) the Company's investments in Subsidiary Borrowers existing on the
Closing Date and the other existing loans, advances and investments described
on Schedule 10.4;
(b) investments in (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency
thereof maturing within 120 days from the date of acquisition thereof, (ii)
commercial paper maturing no more than 120 days from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., (iii) certificates of
deposit maturing no more than 120 days from the date of creation thereof issued
by commercial banks incorporated under the laws of the United States of
America, each having combined capital, surplus and undivided profits of not
less than $500,000,000 and having a rating of "A" or better by a nationally
recognized rating agency; PROVIDED, that the aggregate amount invested in such
certificates of deposit shall not at any time exceed $5,000,000 for any one
such certificate of deposit and $10,000,000 for any one such bank, (iv)
obligations of the type described in (i), (ii) or (iii) above purchased
pursuant to a repurchase agreement obligating the counterparty to repurchase
such obligations not later than thirty (30) days after the purchase thereof,
secured by a fully perfected security interest in any such obligation, and
having a market value at the time such repurchase agreement is entered into of
not less than 100% of the repurchase obligation of the issuing counterparty, or
(v) time deposits maturing no more than 30 days from the date of creation
thereof with commercial banks or savings banks or savings and loan associations
each having membership either in the FDIC or the deposits of which are insured
by the FDIC and in amounts not exceeding the maximum amounts of insurance
thereunder; and
(c) investments by the Company in the form of acquisitions of all or
substantially all of the business or a line of business (whether by the
acquisition of capital stock, assets or any combination thereof) of any other
Person if the representations and warranties set forth in Section 6.1 (x) shall
be true with respect to such business or line of business and (i) such
acquisition has been previously approved in writing by the Lenders or (ii) the
purchase price for such acquisition does not exceed Five Million Dollars
($5,000,000.00) and the Borrowers' consolidated ratio of Senior Funded Debt to
EBITDA, as referenced in Section 9.4, does not, immediately following such
acquisition, exceed 3.00 to 1.00.
SECTION 10.5. LIMITATIONS ON MERGERS AND LIQUIDATION. Merge,
consolidate or enter into any similar combination with any other Person or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution) except:
(a) any Wholly-Owned Subsidiary of the Company may merge with any
other Wholly-Owned Subsidiary of the Company; and
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(b) any Wholly-Owned Subsidiary may merge into the Person such
Wholly-Owned Subsidiary was formed to acquire in connection with an acquisition
permitted by Section 10.4(c).
SECTION 10.6. LIMITATIONS ON SALE OF ASSETS. Convey, sell, lease,
assign, transfer or otherwise dispose of any of its property, business or
assets (including, without limitation, the sale of any stock of any Borrower
(other than the Company), receivables and leasehold interests and any sale,
leaseback or similar transaction), whether now owned or hereafter acquired
except:
(a) the sale of inventory in the ordinary course of business; and
(b) the sale or other disposition of assets no longer used or usable
in the business of any of the Borrowers.
SECTION 10.7. LIMITATIONS ON DIVIDENDS AND DISTRIBUTIONS. Declare or
pay any dividends upon any of its capital stock; purchase, redeem, retire or
otherwise acquire, directly or indirectly, any shares of its capital stock, or
make any distribution of cash, property or assets among the holders of shares
of its capital stock, or make any change in its capital structure that could
reasonably be expected to have a Material Adverse Effect; provided that:
(a) any of the Borrowers may pay dividends in shares of its own
capital stock;
(b) any Subsidiary Borrower may pay cash dividends to the Company; and
(c) the Company may, provided that no Event of Default shall have
occurred and be continuing, pay such cash dividends as are required by its
outstanding shares of preferred stock.
SECTION 10.8. LIMITATIONS ON EXCHANGE AND ISSUANCE OF CAPITAL STOCK.
Issue, sell or otherwise dispose of any class or series of capital stock that,
by its terms or by the terms of any security into which it is convertible or
exchangeable, is, or upon the happening of an event or passage of time would
be, (a) convertible or exchangeable into Debt or (b) required to be redeemed or
repurchased, including at the option of the holder, in whole or in part, or
has, or upon the happening of an event or passage of time would have, a
redemption or similar payment due.
SECTION 10.9. TRANSACTIONS WITH AFFILIATES. Directly or indirectly:
(a) make any loan or advance to, or purchase or assume any note or other
obligation to or from, any of its officers, directors, shareholders or other
Affiliates, or to or from any member of the immediate family of any of its
officers, directors, shareholders or other Affiliates, or subcontract any
operations to any of its Affiliates, or (b) enter into, or be a party to, any
transaction with any of its Affiliates, except pursuant to the reasonable
requirements of its business and upon fair and reasonable terms that are fully
disclosed to and approved in writing by the required Lenders and are no less
favorable to it than it would obtain in a comparable arm's length transaction
with a Person not its Affiliate.
SECTION 10.10. CERTAIN ACCOUNTING CHANGES. Change its Fiscal Year end,
or make any change in its accounting treatment and reporting practices except
as required by GAAP.
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SECTION 10.11. AMENDMENTS, PAYMENTS AND PREPAYMENTS OF SUBORDINATED
DEBT. Amend or modify (or permit the modification or amendment of) any of the
terms or provisions of any Subordinated Debt, or cancel or forgive, make any
voluntary or optional payment or prepayment on, or redeem or acquire for value
(including without limitation by way of depositing with any trustee with
respect thereto money or securities before due for the purpose of paying when
due) any Subordinated Debt, except in connection with its conversion to common
stock of the Company.
SECTION 10.12. RESTRICTIVE AGREEMENTS. Enter into any Debt which
contains any negative pledge on assets or any covenants more restrictive than
the provisions of Articles VIII, IX and X hereof, or which restricts, limits or
otherwise encumbers its ability to incur Liens on or with respect to any of its
assets or properties other than the assets or properties securing such Debt.
SECTION 10.13. CAPITAL EXPENDITURES. Make capital expenditures
aggregating in excess of Two Million Dollars ($2,000,000.00) per annum in 1999,
and Five Hundred Thousand Dollars ($500,000.00) in each subsequent fiscal year.
ARTICLE XI
DEFAULT AND REMEDIES
SECTION 11.1. EVENTS OF DEFAULT. Each of the following shall
constitute an Event of Default, whatever the reason for such event and whether
it shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment or order of any court or any order, rule or regulation
of any Governmental Authority or otherwise:
(a) Default in Payment of Principal of Loans. The Borrowers shall
default in any payment of principal of any Loan or Note when and as due
(whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. The Borrowers shall default in the payment
when and as due (whether at maturity, by reason of acceleration or otherwise)
of interest on any Loan or Note or the payment of any other Obligation.
(c) Misrepresentation. Any representation or warranty made or deemed
to be made by any of the Borrowers under this Agreement, any Loan Document or
any amendment hereto or thereto, shall at any time prove to have been incorrect
or misleading in any material respect when made or deemed made.
(d) Default in Performance of Certain Covenants. The Borrowers shall
default in the performance or observance of any covenant or agreement contained
in Section 7.5(e) or Articles IX or X of this Agreement.
(e) Default in Performance of Other Covenants and Conditions. Any of
the Borrowers shall default in the performance or observance of any term,
covenant, condition or agreement
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contained in this Agreement (other than as specifically provided for otherwise
in this Section 11.1) or any other Loan Document and such default shall
continue for a period of thirty (30) days after written notice thereof has been
given to the Company by the Agent.
(f) Hedging Agreement. Any termination payment shall be due by the
Borrowers under any Hedging Agreement and such amount is not paid within one
(1) Business Day of the due date thereof.
(g) Debt Cross-Default. Any of the Borrowers shall (i) default in the
payment of any Debt (other than the Notes) the aggregate outstanding amount of
which is in excess of $100,000 beyond the period of grace if any, provided in
the instrument or agreement under which such Debt was created, or (ii) default
in the observance or performance of any other agreement or condition relating
to any Debt (other than the Notes) the aggregate outstanding amount of which is
in excess of $100,000 or contained in any instrument or agreement evidencing,
securing or relating thereto or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Debt (or a trustee or agent on behalf of
such holder or holders) to cause, with the giving of notice if required, any
such Debt to become due prior to its stated maturity (any applicable grace
period having expired).
(h) Other Cross-Defaults. Any of the Borrowers shall default in the
payment when due, or in the performance or observance, of any obligation or
condition of any Material Contract unless, but only as long as, the existence
of any such default is being contested by the Borrowers in good faith by
appropriate proceedings and adequate reserves in respect thereof have been
established on the books of the Borrowers to the extent required by GAAP.
(i) Change in Control. Any person or group of persons (within the
meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended)
other than those whom Lender may, in its sole discretion, approve, shall obtain
ownership or control in one or more series of transactions of more than fifty
percent (50%) of the common stock and fifty percent (50%) of the voting power
of the Company entitled to vote in the election of members of the board of
directors of the Company or there shall have occurred under any indenture or
other instrument evidencing any Debt any "change in control" (as defined in
such indenture or other evidence of Debt) obligating the Company to repurchase,
redeem or repay all or any part of the Debt or capital stock provided for
therein (any such event, a "Change in Control").
(j) Voluntary Bankruptcy Proceeding. Any of the Borrowers shall (i)
commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (ii) file a petition seeking to take advantage of any
other laws, domestic or foreign, relating to bankruptcy, insolvency,
reorganization, winding up or composition for adjustment of debts, (iii)
consent to or fail to contest in a timely and appropriate manner any petition
filed against it in an involuntary case under such bankruptcy laws or other
laws, (iv) apply for or consent to, or fail to contest in a timely and
appropriate manner, the appointment of, or the taking of possession by, a
receiver, custodian, trustee, or liquidator of itself or of a substantial part
of its property, domestic or foreign, (v) admit in writing its inability to pay
its debts as they become due, (vi) make a general assignment for the benefit of
creditors, or (vii) take any corporate action for the purpose of authorizing
any of the foregoing.
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(k) Involuntary Bankruptcy Proceeding. A case or other proceeding
shall be commenced against any of the Borrowers in any court of competent
jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or
hereafter in effect) or under any other laws, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, winding up or adjustment of debts and
which is not dismissed within 60 days of such filing, or (ii) the appointment
of a trustee, receiver, custodian, liquidator or the like for any of the
Borrowers or for all or any substantial part of their respective assets,
domestic or foreign, and such case or proceeding shall continue undismissed or
unstayed for a period of sixty (60) consecutive days, or an order granting the
relief requested in such case or proceeding (including, but not limited to, an
order for relief under such federal bankruptcy laws) shall be entered.
(l) Failure of Agreements. Any provision of this Agreement or of any
other Loan Document shall for any reason cease to be valid and binding on the
Borrowers party thereto or any such Person shall so state in writing, or this
Agreement or any other Loan Document shall for any reason cease to create a
valid and perfected first priority Lien on, or security interest in, any of the
collateral purported to be covered thereby, in each case other than in
accordance with the express terms hereof or thereof.
(m) Termination Event. The occurrence of any of the following events:
(i) any of the Borrowers or any ERISA Affiliate fails to make full payment when
due of all amounts which, under the provisions of any Pension Plan or Section
412 of the Code, any of the Borrowers or any ERISA Affiliate is required to pay
as contributions thereto, (ii) an accumulated funding deficiency in excess of
$50,000 occurs or exists, whether or not waived, with respect to any Pension
Plan, (iii) a Termination Event or (iv) any of the Borrowers or any ERISA
Affiliate as employers under one or more Multiemployer Plan makes a complete or
partial withdrawal from any such Multiemployer Plan and the plan sponsor of
such Multiemployer Plans notifies such withdrawing employer that such employer
has incurred a withdrawal liability requiring payments in an amount exceeding
$50,000.
(n) Judgment. A judgment or order for the payment of money which
causes the aggregate amount of such judgments to exceed $100,000 in any Fiscal
Year shall be entered against any of the Borrowers by any court and such
judgment or order shall continue undischarged or unstayed for a period of
thirty (30) days.
(o) Survey. Failure to furnish to the Agent, on or before January 31,
1999, a current certified survey (in triplicate), sufficient for deletion of
the survey exception under the title insurance policy insuring the Mortgage,
and otherwise in form and substance acceptable to the Agent.
(p) Insurance Assignment. Failure to furnish to the Agent, within
ninety (90) days from the date of this Agreement, the Insurance Assignment, in
form and substance acceptable to the Agent.
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(q) Change in Management. The Company's chief executive officer, chief
operating officer and chief financial officer shall be any Person other than
Daniel A. Stauber, Carlos M. Campos and George Mas, respectively.
SECTION 11.2. REMEDIES. Upon the occurrence of an Event of Default,
with the consent of the Required Lenders, the Agent may, or upon the request of
the Required Lenders, the Agent shall, by notice to the Borrowers:
(a) Acceleration; Termination of Facilities. Declare the principal of
and interest on the Loans and the Notes at the time outstanding, and all other
amounts owed to the Lenders and to the Agent under this Agreement or any of the
other Loan Documents and all other Obligations, to be forthwith due and
payable, whereupon the same shall immediately become due and payable without
presentment, demand, protest or other notice of any kind (except as expressly
provided therein), all of which are expressly waived, anything in this
Agreement or the other Loan Documents to the contrary notwithstanding, and
terminate the Credit Facilities and any right of the Borrowers to request
borrowings thereunder; provided, that upon the occurrence of an Event of
Default specified in Section 11.1(j) or (k), the Credit Facilities shall be
automatically terminated and all Obligations shall automatically become due and
payable.
(b) Rights of Collection. Exercise, on behalf of the Lenders, all of
its other rights and remedies under this Agreement, the other Loan Documents
and Applicable Law, in order to satisfy all of the Borrowers' Obligations.
SECTION 11.3. RIGHTS AND REMEDIES CUMULATIVE; NON-WAIVER; ETC. The
enumeration of the rights and remedies of the Agent and the Lenders set forth
in this Agreement is not intended to be exhaustive and the exercise by the
Agent and the Lenders of any right or remedy shall not preclude the exercise of
any other rights or remedies, all of which shall be cumulative, and shall be in
addition to any other right or remedy given hereunder or under the Loan
Documents or that may now or hereafter exist in law or in equity or by suit or
otherwise. No delay or failure to take action on the part of the Agent or any
Lender in exercising any right, power or privilege shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude other or further exercise thereof or the exercise of any
other right, power or privilege or shall be construed to be a waiver of any
Event of Default. No course of dealing between the Borrowers, the Agent and the
Lenders or their respective agents or employees shall be effective to change,
modify or discharge any provision of this Agreement or any of the other Loan
Documents or to constitute a waiver of any Event of Default.
ARTICLE XII
THE AGENT
SECTION 12.1. APPOINTMENT. Each of the Lenders hereby irrevocably
designates and appoints Union Planters as Agent of such Lender under this
Agreement and the other Loan Documents and each such Lender irrevocably
authorizes Union Planters as Agent for such Lender, to take such action on its
behalf under the provisions of this Agreement and the other Loan
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Documents and to exercise such powers and perform such duties as are expressly
delegated to the Agent by the terms of this Agreement and such other Loan
Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement or such other Loan Documents, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein and therein, or any
fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or the other Loan Documents or otherwise exist against the Agent.
SECTION 12.2. DECLARATION OF DUTIES. The Agent may execute any of its
respective duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by the Agent with reasonable care.
SECTION 12.3. EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates shall be (a) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or the
other Loan Documents (except for actions occasioned solely by its or such
Person's own gross negligence or willful misconduct), or (b) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by any of the Borrowers or any officer thereof contained in
this Agreement or the other Loan Documents or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or the other Loan Documents
or for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or the other Loan Documents or for any failure of
any of the Borrowers to perform its obligations hereunder or thereunder. The
Agent shall not be under any obligation to any Lender to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement, or to inspect the properties, books or
records of any of the Borrowers.
SECTION 12.4. RELIANCE BY THE AGENT. The Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and
statements of legal counsel (including, without limitation, counsel to the
Borrowers), independent accountants and other experts selected by the Agent.
The Agent may deem and treat the payee of any Note as the owner thereof for all
purposes, unless such Note shall have been transferred in accordance with
Section 13.10 hereof. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement and the other Loan Documents, unless it
shall first receive such advice or concurrence of the Required Lenders (or,
when expressly required hereby or by the relevant other Loan Document, all the
Lenders as it deems appropriate or it shall first be indemnified, to its
satisfaction, by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action, except for its own gross negligence or willful misconduct. The Agent
shall, in all cases, be fully protected in acting, or in refraining from
acting, under this Agreement and the Notes in accordance with a request of the
Required Lenders (or, when expressly required hereby, all the
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Lenders), and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Notes.
SECTION 12.5. NOTICE OF DEFAULT. If any Lender becomes aware of any
Default or Event of Default, it shall promptly notify the Agent thereof,
provided however, that a Lender shall not be deemed to have knowledge of any
matter until such time as such Lender's officer(s) responsible for
administration of the Loans shall receive written notice thereof or have actual
knowledge of such matter. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder, unless
the Agent's officer(s) responsible for administration of the Loans have actual
knowledge of such Default or Event of Default or the Agent has received notice
from a Lender or the Borrowers referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Agent receives such a notice, it shall promptly
give notice thereof to the Lenders. The Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Lenders; provided that, unless and until the Agent shall have
received such directions, the Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default
or Event of Default as it shall deem advisable in the best interests of the
Lenders. In the event Agent fails, within a commercially reasonable time, to
take such action, assert such rights, or pursue such remedies as the Required
Lenders or all of the Lenders, as the case may be as provided for hereunder
(without taking into account the Agent, if the Agent is also a Lender) deem
necessary, the Required Lenders or all of the Lenders, as the case may be as
provided for hereunder (without taking into account the Agent, if the Agent is
also a Lender), shall have the right to take such action, to assert such
rights, or pursue such remedies on behalf of all of the Lenders unless the
terms hereof otherwise require the consent of all of the Lenders to the taking
of such actions.
SECTION 12.6. NON-RELIANCE ON THE AGENT AND OTHER LENDERS. Each Lender
expressly acknowledges that neither the Agent nor any of its respective
officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates has made any representations or warranties to it and that no act by
the Agent hereafter taken, including any review of the affairs of any of the
Borrowers, shall be deemed to constitute any representation or warranty by the
Agent to any Lender. Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, operations, property,
financial and other condition and creditworthiness of the Borrowers and made
its own decision to make its Loans hereunder and enter into this Agreement.
Each Lender also represents that it will, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Loan Documents, and to make such investigation as it
deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrowers. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Agent hereunder or by the other Loan Documents, the Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the business, operations, property, financial and
other condition or creditworthiness of any of the Borrowers which may come into
the possession of the Agent or any of its respective officers, directors,
employees, agents, attorneys-in-fact, Subsidiaries or Affiliates.
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SECTION 12.7. INDEMNIFICATION. The Lenders agree to indemnify the
Agent, in its capacity as such, and (to the extent not reimbursed by the
Borrowers and without limiting the obligation of the Borrowers to do so),
ratably according to the respective amounts of their Commitment Percentages,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may, at any time (including, without limitation, at any
time following the payment of the Notes) be imposed on, incurred by or asserted
against the Agent, in any way relating to or arising out of this Agreement or
the other Loan Documents, or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any
action taken or omitted by the Agent under or in connection with any of the
foregoing; provided that, no Lender shall be liable for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's bad faith, gross negligence or willful misconduct. The agreements in
this Section 12.7 shall survive the payment of the Notes and all other amounts
payable hereunder and the termination of this Agreement.
SECTION 12.8. THE AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its
respective Subsidiaries and Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrowers, as though the
Agent were not an Agent hereunder. With respect to any Loans made or renewed by
it and any Note issued to it, the Agent shall have the same rights and powers
under this Agreement and the other Loan Documents as any Lender and may
exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include the Agent in its individual capacity.
SECTION 12.9. RESIGNATION OF THE AGENT; SUCCESSOR AGENT. Subject to the
appointment and acceptance of a successor as provided below, the Agent may
resign at any time by giving notice thereof to the Lenders and the Borrowers.
Upon any such resignation, the Required Lenders shall have the right to appoint
a successor Agent, which successor shall have minimum capital and surplus of at
least $500,000,000. If no successor Agent shall have been so appointed by the
Required Lenders and shall have accepted such appointment within thirty (30)
days after the Agent's giving of notice of resignation, then the Agent may, on
behalf of the Lenders, appoint a successor Agent, which successor shall have
minimum capital and surplus of at least $500,000,000. Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Section 12.9
shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as Agent. The Agent may be
removed, replaced or succeeded, without its consent, by the Required Lenders
(without taking into account the Agent, if the Agent is also a Lender) for its
gross negligence or willful misconduct.
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ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. NOTICES.
(a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or by
telephone subsequently confirmed in writing. Any notice shall be effective if
delivered by hand delivery or sent via telecopy, recognized overnight courier
service or certified mail, return receipt requested, and shall be presumed to
be received by a party hereto (i) on the date of delivery if delivered by hand
or sent by telecopy, (ii) on the next Business Day if sent by recognized
overnight courier service and (iii) on the third Business Day following the
date sent by certified mail, return receipt requested. A telephonic notice to
the Agent as understood by the Agent will be deemed to be the controlling and
proper notice in the event of a discrepancy with or failure to receive a
confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at
the following addresses, or any other address as to which all the other parties
are notified in writing.
If to the Borrowers: Med/Waste, Inc.
6175 N.W. 153rd Street, Suite 324
Miami Lakes, Florida 33014
Attention: President
Telephone No.: (305) 819-8877
Telecopy No.: (305) 819-4028
With copies to: Wallace Bauman Legon Fodiman & Shannon, P.A.
1200 Brickell Avenue, Suite 1720
Miami, Florida 33131
Attention: Bryan Bauman, Esq
Telephone No.: (305) 444-9991
Telecopy No.: (305) 444-9937
If to Union Planters, Union Planters Bank, N.A.
as Agent: 169 East Flagler Street
Miami, Florida 33131
Attention: Mark J. Romzick, Vice President
Telephone No.: (305) 755-6800
Telecopy No.: (305) 755-6833
If to any Lender: To the Address set forth on Schedule 1 hereto
(c) Agent's Office. The Agent hereby designates its office located at
the address set forth above, or any subsequent office which shall have been
specified for such purpose by written notice
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to the Borrowers and Lenders, as the Agent's Office referred to herein, to
which payments due are to be made and at which Loans will be disbursed.
SECTION 13.2. EXPENSES; INDEMNITY. The Borrowers will (a) pay all
out-of-pocket expenses of the Agent in connection with: (i) the preparation,
execution and delivery of this Agreement and each other Loan Document, whenever
the same shall be executed and delivered, including without limitation all
out-of-pocket syndication and due diligence expenses and reasonable fees and
disbursements of counsel for the Agent, (ii) the preparation, execution and
delivery of any waiver, amendment or consent by the Agent or the Lenders
relating to this Agreement or any other Loan Document, including, without
limitation, reasonable fees and disbursements of counsel for the Agent and
(iii) the administration and enforcement of any rights and remedies of the
Agent and Lenders under the Credit Facilities, including consulting with
appraisers, accountants, engineers, attorneys and other Persons concerning the
nature, scope or value of any right or remedy of the Agent or any Lender
hereunder or under any other Loan Document or any factual matters in connection
therewith, which expenses shall include, without limitation, the reasonable
fees and disbursements of such Persons, and (b) defend, indemnify and hold
harmless the Agent and the Lenders, and their respective parents, Subsidiaries,
Affiliates, employees, agents, officers and directors, from and against any
losses, penalties, fines, liabilities, settlements, damages, costs and
expenses, suffered by any such Person in connection with any claim,
investigation, litigation or other proceeding (whether or not the Agent or any
Lender is a party thereto) and the prosecution and defense thereof, arising out
of or in any way connected with the Agreement, any other Loan Document or the
Loans, including, without limitation, reasonable attorneys' and consultants'
fees, except to the extent that any of the foregoing directly result from the
gross negligence or willful misconduct of the party seeking indemnification
therefor.
SECTION 13.3. SET-OFF. In addition to any rights now or hereafter
granted under Applicable Law and not by way of limitation of any such rights,
upon and after the occurrence of any Event of Default and during the
continuance thereof, the Lenders and any assignee or participant of a Lender in
accordance with Section 12.10 are hereby authorized by the Borrowers at any
time or from time to time, without notice to the Borrowers or to any other
Person, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates
of deposit, whether matured or unmatured) and any other indebtedness at any
time held or owing by the Lenders, or any such assignee or participant to or
for the credit or the account of any of the Borrowers against and on account of
the Obligations irrespective of whether or not (a) the Lenders shall have made
any demand under this Agreement or any of the other Loan Documents or (b) the
Agent shall have declared any or all of the Obligations to be due and payable
as permitted by Section 11.2 and although such Obligations shall be contingent
or unmatured.
SECTION 13.4. GOVERNING LAW. This Agreement, the Notes and the other
Loan Documents, unless otherwise expressly set forth therein, shall be governed
by, construed and enforced in accordance with the laws of the State of Florida,
without reference to the conflicts or choice of law principles thereof.
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SECTION 13.5. CONSENT TO JURISDICTION. The Borrowers hereby
irrevocably consent to the personal jurisdiction of the state and federal
courts located in Miami-Dade County, Florida, in any action, claim or other
proceeding arising out of any dispute in connection with this Agreement, the
Notes and the other Loan Documents, any rights or obligations hereunder or
thereunder, or the performance of such rights and obligations. Nothing in this
Section 12.5 shall affect the right of the Agent or any Lender to serve legal
process in any other manner permitted by Applicable Law or affect the right of
the Agent or any Lender to bring any action or proceeding against any of the
Borrowers or their properties in the courts of any other jurisdictions.
SECTION 13.6. WAIVER OF JURY TRIAL. THE AGENT, EACH LENDER AND EACH OF
THE BORROWERS HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY
DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN
DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE
PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
SECTION 13.7. REVERSAL OF PAYMENTS. To the extent the Borrowers make a
payment or payments to the Agent for the ratable benefit of the Lenders or the
Agent receives any payment or proceeds of the collateral which payments or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, state or federal
law, common law or equitable cause, then, to the extent of such payment or
proceeds repaid, the Obligations or part thereof intended to be satisfied shall
be revived and continued in full force and effect as if such payment or
proceeds had not been received by the Agent.
SECTION 13.8. INJUNCTIVE RELIEF. The Borrowers recognize that, in the
event the Borrowers fail to perform, observe or discharge any of their
obligations or liabilities under this Agreement, any remedy of law may prove to
be inadequate relief to the Lenders. Therefore, the Borrowers agree that the
Lenders, at the Lenders' option, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
SECTION 13.9. ACCOUNTING MATTERS. All financial and accounting
calculations, measurements and computations made for any purpose relating to
this Agreement, including, without limitation, all computations utilized by any
of the Borrowers to determine compliance with any covenant contained herein,
shall, except as otherwise expressly contemplated hereby or unless there is an
express written direction by the Agent to the contrary agreed to by the
Company, be performed in accordance with GAAP as in effect on the Closing Date.
In the event that changes in GAAP shall be mandated by the Financial Accounting
Standards Board, or any similar accounting body of comparable standing, or
shall be recommended by the Company's certified public accountants, to the
extent that such changes would modify such accounting terms or the
interpretation or computation thereof, such changes shall be followed in
defining such accounting terms only from and after the date the Borrowers and
the Lenders shall have amended this Agreement to the extent necessary to
reflect any such changes in the financial covenants and other terms and
conditions of this Agreement.
54
<PAGE> 61
SECTION 13.10. SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, the Agent and the Lenders, all future
holders of the Notes, and their respective successors and assigns, except that
the Borrowers shall not assign or transfer any of their rights or obligations
under this Agreement without the prior written consent of each Lender.
(b) Assignment by Lenders. Each Lender may, with the consent of the
Agent, which consent shall not be unreasonably withheld, assign, to one or more
Eligible Assignees, all or a portion of its interests, rights and obligations
under this Agreement (including, without limitation, all or a portion of the
Extensions of Credit at the time owing to it and the Notes held by it);
provided that:
(i) each such assignment shall be of a constant, and not a
varying, percentage of all the assigning Lender's rights and
obligations under this Agreement;
(ii) if less than all of the assigning Lender's Commitment is to
be assigned, the Commitment so assigned shall not be less than
$5,000,000.00;
(iii) the parties to each such assignment shall execute and
deliver to the Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance in the form of Exhibit G
attached hereto (an "Assignment and Acceptance"), together with any
Note or Notes subject to such assignment;
(iv) such assignment shall not, without the consent of the
Company, require the Company to file a registration statement with the
Securities and Exchange Commission or apply to or qualify the Loans or
the Notes under the blue sky laws of any state; and
(v) the assigning Lender shall pay to the Agent an assignment fee
of $2,000.00 upon the execution by such Lender of the Assignment and
Acceptance; provided that, no such fee shall be payable upon any
assignment by a Lender to an Affiliate thereof.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective
date shall be at least five (5) Business Days after the execution thereof, (A)
the assignee thereunder shall be a party hereto and, to the extent provided in
such Assignment and Acceptance, have the rights and obligations of a Lender
hereby, and (B) the Lender thereunder shall, to the extent provided in such
assignment, be released from its obligations under this Agreement.
(c) Rights and Duties Upon Assignment. By executing and delivering an
Assignment and Acceptance, the assigning Lender thereunder and the assignee
thereunder confirm to and agree with each other and the other parties hereto as
set forth in such Assignment and Acceptance.
(d) Register. The Agent shall maintain a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of the names and
addresses of the Lenders and the amount of the Extensions of Credit with
respect to each Lender from time to time (the "Register").
55
<PAGE> 62
The entries in the Register shall be conclusive, in the absence of manifest
error, and the Borrowers, the Agent and the Lenders may treat each person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrowers or
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Issuance of New Notes. Upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an Eligible Assignee, together
with any Note or Notes subject to such assignment and the written consent to
such assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is substantially in the form of Exhibit G:
(i) accept such Assignment and Acceptance;
(ii) record the information contained therein in the Register;
(iii) give prompt notice thereof to the Lenders and the Company;
and
(iv) promptly deliver a copy of such Assignment and Acceptance to
the Company.
Within five (5) Business Days after receipt of notice, the Borrowers shall
execute and deliver to the Agent, in exchange for the surrendered Note or
Notes, a new Note or Notes to the order of such Eligible Assignee, in amounts
equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance, and a new Note or Notes to the order of the assigning Lender in an
amount equal to the Commitment retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of the assigned Notes delivered to the assigning Lender. Each surrendered Note
or Notes shall be canceled and returned to the Borrowers.
(f) Participations. Each Lender may sell participations to one or more
banks or other entities (but in no event to any entity which is in the same or
similar business as the Borrowers) in all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Extensions of Credit and the Notes held by it) provided that:
(i) each such participation shall be in an amount not less than
$2,000,000.00;
(ii) such Lender's obligations under this Agreement (including,
without limitation, its Commitment) shall remain unchanged;
(iii) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(iv) such Lender shall remain the holder of the Notes held by it
for all purposes of this Agreement;
56
<PAGE> 63
(v) the Borrowers, the Agent and the other Lenders shall continue
to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement;
(vi) such Lender shall not permit such participant the right to
approve any waivers, amendments or other modifications to this
Agreement or any other Loan Document, other than waivers, amendments
or modifications which would reduce the principal of or the interest
rate on any Loan, extend the term or increase the amount of the
Commitment, reduce the amount of any fees to which such participant is
entitled, extend any scheduled payment date for principal of any Loan
or, except as expressly contemplated hereby or thereby, release any
collateral securing the Obligations or any Security Document; and
(vii) any such disposition shall not, without the consent of the
Company, require the Company to file a registration statement with the
Securities and Exchange Commission to apply to qualify the Loans or
the Notes under the blue sky law of any state.
(g) Disclosure of Information; Confidentiality. The Agent and the
Lenders shall hold all non-public information with respect to the Borrowers
obtained pursuant to the Loan Documents in accordance with their customary
procedures for handling confidential information. Any Lender may, in connection
with any assignment, proposed assignment, participation or proposed
participation pursuant to this Section 13.10, disclose to the assignee,
participant, proposed assignee or proposed participant, any information
relating to the Borrowers furnished to such Lender by or on behalf of the
Borrowers; provided, that, prior to any such disclosure, each such assignee,
proposed assignee, participant or proposed participant shall agree with the
Borrowers or such Lender to preserve the confidentiality of any confidential
information relating to the Borrowers received from such Lender.
(h) Certain Pledges or Assignments. Nothing herein shall prohibit any
Lender from pledging or assigning any Note to any Federal Reserve Bank in
accordance with Applicable Law.
SECTION 13.11. AMENDMENTS, WAIVERS AND CONSENTS. Except as set forth
below, any term, covenant, agreement or condition of this Agreement or any of
the other Loan Documents may be amended or waived by the Lenders, and any
consent given by the Lenders, if, but only if, such amendment, waiver or
consent is in writing signed by the Required Lenders (or by the Agent with the
consent of the Required Lenders) and delivered to the Agent and, in the case of
an amendment, signed by the Borrowers; provided, that no amendment, waiver or
consent shall (a) increase the amount or extend the time of the obligation of
the Lenders to make Loans (including, without limitation, pursuant to Section
2.4), (b) extend the originally scheduled time or times of payment of the
principal of any Loan or Reimbursement Obligation or the time or times of
payment of interest on any Loan, (c) reduce the rate of interest or fees
payable on any Loan, (d) permit any subordination of the principal or interest
on any Loan, (e) release any collateral or Security Document (other than as
specifically permitted in this Agreement or the applicable Security Document),
or (f) amend the provisions of Section 11.1 or this Section 13.11 or the
definition of Required Lenders, without the prior written consent of each
Lender. In addition, no amendment, waiver or consent to the provisions of
Article XII shall be made without the written consent of the Agent.
57
<PAGE> 64
SECTION 13.12. PERFORMANCE OF DUTIES. The Borrowers' obligations under
this Agreement and each of the Loan Documents shall be performed by the
Borrowers at their sole cost and expense.
SECTION 13.13. ALL POWERS COUPLED WITH INTEREST. All powers of
attorney and other authorizations granted to the Lenders, the Agent and any
Persons designated by the Agent or any Lender pursuant to any provisions of
this Agreement or any of the other Loan Documents shall be deemed coupled with
an interest and shall be irrevocable so long as any of the Obligations remain
unpaid or unsatisfied or the Credit Facilities have not been terminated.
SECTION 13.14. SURVIVAL OF INDEMNITIES. Notwithstanding any
termination of this Agreement, the indemnities to which the Agent and the
Lenders are entitled under the provisions of this Article XIII and any other
provision of this Agreement and the Loan Documents shall continue in full force
and effect and shall protect the Agent and the Lenders against events arising
after such termination as well as before.
SECTION 13.15. TITLES AND CAPTIONS. Titles and captions of Articles,
Sections and subsections in this Agreement are for convenience only, and
neither limit nor amplify the provisions of this Agreement.
SECTION 13.16. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement or any other Loan Document which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating the
remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 13.17. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and shall be binding upon all parties, their successors and assigns, and all of
which taken together shall constitute one and the same agreement.
SECTION 13.18. TERM OF AGREEMENT. This Agreement shall remain in
effect from the Closing Date through and including the date upon which all
Obligations shall have been indefeasibly and irrevocably paid and satisfied in
full. No termination of this Agreement shall affect the rights and obligations
of the parties hereto arising prior to such termination.
SECTION 13.19. CONSOLIDATION, AMENDMENT AND RESTATEMENT OF EXISTING
AGREEMENTS; NO NOVATION. Upon this Agreement becoming effective, the terms and
provisions of the Existing Agreements shall be and hereby are consolidated,
amended, superseded and restated in their entirety by the terms and provisions
of this Agreement. This Agreement shall not constitute a novation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers, all as of the day and year first
written above.
58
<PAGE> 65
[CORPORATE SEAL] MED/WASTE, INC., a Delaware corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] SAFETY DISPOSAL SYSTEM, INC., a
Florida corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] SAFETY DISPOSAL SYSTEM OF SOUTH
CAROLINA, INC., a South Carolina corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] SAFETY DISPOSAL SYSTEM OF
PENNSYLVANIA, INC., a Pennsylvania corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] SAFETY DISPOSAL SYSTEM OF
GEORGIA, INC., a Georgia corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
59
<PAGE> 66
[CORPORATE SEAL] SAFETY DISPOSAL SYSTEM OF
VIRGINIA, INC., a Virginia corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] SAFETY DISPOSAL SYSTEM OF
TENNESSEE, INC., a Tennessee corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] SAFETY DISPOSAL SYSTEM OF NEW
YORK, INC., a New York corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] MED/WASTE OF FLORIDA, INC., a Florida corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] INCENDERE, INC., a Virginia corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
60
<PAGE> 67
[CORPORATE SEAL] TARGET MEDICAL WASTE SERVICES, LLC,
an Alabama limited liability company
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] MED-WASTE, INC., an Alabama corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] SANFORD MOTORS, INC.,
a Pennsylvania corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] BMW MEDTEC OF WEST VIRGINIA, INC.,
a West Virginia corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] EAST COAST MEDICAL WASTE, INC.,
a New Jersey corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
61
<PAGE> 68
[CORPORATE SEAL] BUCKS COUNTY RESOURCE AND RECOVERY,
INC., a Pennsylvania corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
[CORPORATE SEAL] MED WASTE, INC.,
a Pennsylvania corporation
By: _____________________________________________
Name: George Mas
Title: Vice President and Chief Financial Officer
62
<PAGE> 69
UNION PLANTERS BANK, N.A., as the Agent
and a Lender
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
BANKATLANTIC, a federal savings bank
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
REPUBLIC NATIONAL BANK OF MIAMI, a
national banking association
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
THE PROVIDENT BANK
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
63
<PAGE> 70
________________________ )
) SS:
________________________ )
The foregoing instrument was acknowledged before me this _____ day of
January, 1999 by George Mas, as Vice President and Chief Financial Officer of
MED/WASTE, INC., a Delaware corporation, SAFETY DISPOSAL SYSTEM, INC., a
Florida corporation, SAFETY DISPOSAL SYSTEM OF SOUTH CAROLINA, INC., a South
Carolina corporation, SAFETY DISPOSAL SYSTEM OF PENNSYLVANIA, INC., a
Pennsylvania corporation, SAFETY DISPOSAL SYSTEM OF GEORGIA, INC., a Georgia
corporation, SAFETY DISPOSAL SYSTEM OF VIRGINIA, INC., a Virginia corporation,
SAFETY DISPOSAL SYSTEM OF TENNESSEE, INC., a Tennessee corporation, SAFETY
DISPOSAL SYSTEM OF NEW YORK, INC., a New York corporation, MED/WASTE OF
FLORIDA, INC., a Florida corporation, INCENDERE, INC., a Virginia corporation,
TARGET MEDICAL WASTE SERVICES, LLC, an Alabama limited liability company,
MED-WASTE, INC., an Alabama corporation. SANFORD MOTORS, INC., a Pennsylvania
corporation, BMW MEDTEC OF WEST VIRGINIA, INC., a West Virginia corporation,
EAST COAST MEDICAL WASTE, INC., a New Jersey corporation, BUCKS COUNTY RESOURCE
AND RECOVERY, INC., a Pennsylvania corporation, and MED WASTE, INC., a
Pennsylvania corporation, on behalf of those entities. Personally Known
_________ OR Produced Identification ___________ Type of Identification
Produced:
_________________________________________________________
NOTARY PUBLIC
_________________________________________________________
(Print, Type or Stamp Commissioned Name of Notary Public)
Commission No.: _________________________________________
My Commission Expires: __________________________________
64
<PAGE> 71
SCHEDULE 1: LENDERS AND COMMITMENTS
<TABLE>
<CAPTION>
COMMITMENT
AND COMMITMENT
LENDER PERCENTAGE ADDRESS
- ------ --------------- -------
<S> <C> <C>
Union Planters $15,000,000.00 169 East Flagler Street
Bank, N.A. 42.8571428571% Miami, Florida 33131
Attention: Corporate Banking
Telephone No.: 305-755-6800
Telecopy No.: 305-755-6833
BankAtlantic, F.S.B. $6,500,000.00 100 North Biscayne Boulevard
18.5714285714% Miami, Florida 33132
Attention: Ana Bolduc
Telephone No.: (305) 577-6119
Telecopy No.: (305) 377-0599
Republic National Bank of Miami $7,500,000.00 2800 Ponce de Leon Boulevard
21.4285714286% Coral Gables, Florida 33134
Attention: Corporate Banking
Telephone No.: (305) 774-5190
Telecopy No.: (305) 774-5189
The Provident Bank $6,000,000.00 One East Fourth Street
17.1428571429% Cincinnati, Ohio 45202
Attention: Thomas Doe
Telephone No.: (513) 639-4376
Telecopy No.: (513) 579-2858
</TABLE>
65
<PAGE> 1
MED/WASTE INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF NET INCOME (LOSS) PER SHARE
<PAGE> 1
MED/WASTE, INC. AND SUBSIDIARIES
EXHIBIT 21 - SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF
NAME OF SUBSIDIARY INCORPORATION DATE OF INCORPORATION
- ------------------ ------------- ---------------------
<S> <C> <C>
1. Safety Disposal System, Inc. Florida 1990
2. Med/Waste of Florida, Inc. Florida 1993
3. Safety Disposal System of South Carolina, Inc. South Carolina 1996
4. Safety Disposal System of Pennsylvania, Inc. Pennsylvania 1997
5. Safety Disposal System of Georgia, Inc. Georgia 1997
6. Safety Disposal System of Tennessee, Inc. Tennessee 1997
7. Safety Disposal System of Virginia, Inc. Virginia 1997
8. Incendere, Inc. Virginia 1986
9. Med Waste, Inc. Pennsylvania 1995
10. Target Medical Waste Services, LLC. Alabama 1993
11. Med-Waste, Inc. Alabama 1993
12. Safety Disposal System of New York, Inc. New York 1997
13. BMW Med Tec of West Virginia, Inc. West Virginia 1992
14. Sanford Motors, Inc. Pennsylvania 1989
15. East Coast Medical Waste, inc. New Jersey 1989
16. Bucks County Resource and Recovery, Inc. Pennsylvania 1994
17. Safety Disposal System Consulting, Inc. New York 1998
18. RxMed, Inc. Florida 1999
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 113,146
<SECURITIES> 0
<RECEIVABLES> 6,453,044
<ALLOWANCES> 740,000
<INVENTORY> 352,941
<CURRENT-ASSETS> 7,538,567
<PP&E> 16,755,788
<DEPRECIATION> 2,583,528
<TOTAL-ASSETS> 50,156,044
<CURRENT-LIABILITIES> 27,499,916
<BONDS> 0
0
289
<COMMON> 6,659
<OTHER-SE> 19,828,128
<TOTAL-LIABILITY-AND-EQUITY> 50,156,044
<SALES> 24,924,664
<TOTAL-REVENUES> 24,924,664
<CGS> 0
<TOTAL-COSTS> 33,649,126
<OTHER-EXPENSES> 1,245,827
<LOSS-PROVISION> 631,600
<INTEREST-EXPENSE> 1,598,628
<INCOME-PRETAX> (9,970,289)
<INCOME-TAX> (580,835)
<INCOME-CONTINUING> (9,389,454)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,389,454)
<EPS-BASIC> 1.68
<EPS-DILUTED> 1.68
</TABLE>
