Registration No. 333-__________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
Registration Statement
Under the
Securities Act of 1933
IDM ENVIRONMENTAL CORP.
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(Exact Name of Registrant as Specified in its Charter)
New Jersey 22-2194790
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(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
396 Whitehead Avenue
South River, New Jersey 08882
(732) 390-9550
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(Address, including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Joel A. Freedman, President
IDM Environmental Corp.
396 Whitehead Avenue
South River, New Jersey 08882
(732) 390-9550
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(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
A copy to:
Michael Sanders, Esq.
Vanderkam & Sanders
440 Louisiana, Suite 475
Houston, Texas 77002
(713) 547-8900
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Proposed maximum Proposed maximum
Title of securities to Amount to be offering price per aggregate offering Amount of
be registered registered (1) share (2) price registration fee
- ---------------------------------------------------------------------------------------------------------------
Common stock,
$.001 par value 5,800,000 $ 3.359 $ 19,482,200 $ 5,747.25
===============================================================================================================
</TABLE>
(1) Includes a presently indeterminate number of shares issued or issuable upon
conversion of or otherwise in respect of Registrant's (i) Series C
Convertible Preferred Stock, (ii) 2,350,000 Warrants issued in conjunction
with the Preferred Stock, (iii) 1,270,000 Warrants issued pursuant to
Lock-Up Agreements, (iv) 266,875 $6.00 Warrants, and (v) 266,875 $6.75
Warrants.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) based on the average bid and asked price as reported on
Nasdaq on June 5, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS
IDM ENVIRONMENTAL CORP.
5,800,000 Shares of Common Stock
$.001 par value
All of the shares of Common Stock, par value $.001 per share ("Common
Stock"), of IDM Environmental Corp., a New Jersey corporation ("IDM" or the
"Company"), offered hereby are being offered for resale by certain stockholders
of the Company (the "Selling Stockholders") as described more fully herein. The
Company will not receive any proceeds from the sale of the shares offered
hereby. The Common Stock of the Company is quoted on the Nasdaq National Market
under the symbol "IDMC." The last reported sales price of the Company's Common
Stock on the Nasdaq National Market on June 5, 1998 was $3.375 per share.
The shares of Common Stock offered hereby by the Selling Stockholders
consist of a presently indeterminate number of shares issued or issuable upon
conversion or otherwise in respect of (i) 3,600 shares of Series C Convertible
Preferred Stock (the "Series C Preferred Shares"); (ii) 2,350,000 Warrants
issued in conjunction with the Series C Preferred Shares (the "$3.75 Warrants");
(iii) 1,270,000 Warrants issued pursuant to certain Lock-Up Agreements (the
"Lock-Up Warrants"); (iv) 266,875 Warrants exercisable at $6.00 per share (the
"$6.00 Warrants"); and (v) 266,875 Warrants exercisable at $6.75 per share (the
"$6.75 Warrants"). For the purpose of determining the number of shares of Common
Stock to be registered hereby, the number of shares of Common Stock calculated
to be issuable in connection with the conversion of the Series C Preferred
Shares is based on an average closing bid price of the Common Stock on the five
trading days ended June 5, 1998 ($3.412 per share), and has been arbitrarily
selected. The number of shares available for resale is subject to adjustment and
could be materially less or more than such estimated amount depending on factors
which cannot be predicted by IDM at this time, including, among others, the
timing of conversion of the Series C Preferred Shares and the future market
price of the Common Stock at the time of conversion. This presentation is not
intended, and should in no way be construed, to constitute a prediction as to
the future market price of the Common Stock. See "Selling Stockholders" for a
description of the rights and conversion terms of the Series C Preferred Shares,
$3.75 Warrants, Lock-Up Warrants, $6.00 Warrants and $6.75 Warrants.
The Selling Stockholders, directly or through agents, broker-dealers or
underwriters, may sell the Common Stock offered hereby from time to time on
terms to be determined at the time of sale, in transactions on the Nasdaq
National Market, in privately negotiated transactions or otherwise. The Selling
Stockholders and any agents, broker-dealers or underwriters that participate in
the distribution of the Common Stock may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended (the "Act"), and any
commission received by them and any profit on the resale of the Common Stock
purchased by them may be deemed to be underwriting discounts or commissions
under the Act. See "Plan of Distribution."
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE
A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June , 1998
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All expenses of this offering will be paid by the Company except for
commissions, fees and discounts of any underwriters, brokers, dealers or agents
retained by the Selling Stockholders. Estimated expenses payable by the Company
in connection with this offering are approximately $45,000. The aggregate
proceeds to the Selling Stockholders from the Common Stock will be the purchase
price of the Common Stock sold less the aggregate agents' commissions and
underwriters' discounts, if any. The Company has agreed to indemnify the Selling
Stockholders and certain other persons against certain liabilities, including
liabilities under the Act.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR
TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
TABLE OF CONTENTS
Available Information...................................................... 3
Incorporation of Certain Documents by
Reference................................................................. 3
The Company................................................................ 4
Risk Factors............................................................... 4
Selling Stockholders....................................................... 11
Plan of Distribution....................................................... 14
Legal Matters.............................................................. 14
Experts.................................................................... 14
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AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information may be inspected and copied at
the Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York,
New York 10048; and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Common Stock of the Company is quoted on the Nasdaq
National Market. Reports and other information concerning the Company may be
inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006. The Commission also maintains a World Wide
Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission.
A registration statement on Form S-3 with respect to the Common Stock
offered hereby (the "Registration Statement") has been filed with the Commission
under the Act. This Prospectus does not contain all of the information contained
in such Registration Statement and the exhibits and schedules thereto, certain
portions of which have been omitted pursuant to the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus
regarding the contents of any contract or any other document are not necessarily
complete and, in each instance, reference is hereby made to the copy of such
contract or document filed as an exhibit to the Registration Statement. The
Registration Statement, including the exhibits thereto, may be inspected without
charge at the Commissions' principal office in Washington, D.C., and copies of
all or any part thereof may be obtained from the Public Reference Section,
Securities and Exchange Commission, Washington, D.C. 20549, upon payment of the
prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, filed or to be filed with the Commission under the
Exchange Act are hereby incorporated by reference into this Prospectus:
(1) The Company's Annual Report on Form 10-K/A for the year ended December 31,
1997.
(2) The Company's Quarterly Report on Form 10-Q/A for the quarter ended March
31, 1998.
(3) All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange
Act since the end of the fiscal year covered by the Annual Report referred
to in (1) above.
(4) The description of securities included in Form 8-A declared effective by
the Commission on April 26, 1994 (Commission File No. 0-23900).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing such documents. Any
statements contained in this Prospectus or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed documents which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus has been delivered, upon written or
oral request of such person, a copy of any or all of the documents that have
been incorporated by reference herein (not including exhibits to such documents
unless such exhibits are specifically incorporated by reference herein or into
such documents). Such requests may be directed to Mr. Michael B. Killeen, Chief
Financial Officer, IDM Environmental Corp., 396 Whitehead Avenue, South River,
New Jersey 08882, Telephone Number (732) 390-9550.
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THE COMPANY
IDM Environmental Corp. (the "Company") is a global diversified services
company offering a broad range of design, engineering, construction, project
development and management, and environmental services and technologies. The
Company, through its domestic and international affiliates and subsidiaries,
offers services and technologies in three principal areas: Energy Project
Development and Management, Environmental Remediation and Plant Relocation
Services.
The Company's energy project development and management services ("Energy
Services") are provided through IDM Energy Corporation and local project
subsidiaries. The Company actively entered the Energy Services market in 1997
and expects to begin construction of energy facilities during 1998 with
operating energy facilities expected to be connected to the local grid in El
Salvador by 1999. The Company is aggressively pursuing additional energy
facility "build, own and operate" opportunities in Asia, Eastern Europe, Central
and South America and expects to bring additional energy facilities on-line
beginning in 1999. Energy Services offered by the Company include project design
and development, engineering, finance, ownership and, soon to be, operation for
conventional and other energy projects.
The Company's environmental remediation services, the historical core
business of the Company, encompass a broad array of environmental consulting,
engineering and remediation services with an emphasis on the "hands-on" phases
of remediation projects. The Company is a leading provider of full-service
turnkey environmental remediation and plant decommissioning services and has
established a track record of safety and excellence in the performance of
projects for a wide range of private sector, public utility and governmental
clients worldwide. Additionally, the Company has melded its core expertise in
engineering, decommissioning and dismantlement services in environmentally
sensitive settings to establish a position in the forefront of the nuclear power
plant decommissioning, site remediation and reindustrialization market.
The Company's plant relocation services encompass a broad array of
non-traditional engineering projects, with an emphasis on plant dismantlement,
relocation and reerection. The Company has established itself as a world leader
in plant relocation services employing a proprietary, integrated matchmarking,
engineering, dismantling and documentation program that provide clients with
significant cost and schedule benefits when compared to traditional alternatives
for commencing plant operations.
The Company was incorporated under the laws of the State of New Jersey in
1978. The Company's executive offices are located at 396 Whitehead Avenue, South
River, New Jersey 08882, telephone number (732) 390-9550.
RISK FACTORS
The securities which are the subject of this Prospectus are subject to
certain risk factors, some of which are described below. The following risk
factors should not be considered to be all of the potential risks to which the
Company and the securities are subject. The risk factors set forth below should
be considered carefully with respect to any investment in the Common Stock
underlying the Series C Preferred Shares, $3.75 Warrants, Lock-Up Warrants,
$6.00 Warrants or $6.75 Warrants.
Losses From Operations. The Company has experienced significant operating
losses during the past three years. The Company had net losses of $9.9 million,
$9.1 million and $3.9 million during the years ended December 31, 1997, 1996 and
1995, respectively and a net loss of $6.5 million during the quarter ended March
31, 1998. Such losses have been attributable to a combination of reduced
revenues attributable to more selective project bidding, substantial
infrastructure expenditures to support anticipated future growth, delays in the
commencement of projects, unusual expenses and costs associated with the
Company's entry into the power production market and other ventures with the
potential of producing recurring revenues. Until such time as the Company is
able to begin one or more large projects on which delays in commencement have
been experienced, or until such time as other projects are begun, if ever, the
Company will continue to experience losses. While management believes that
multiple large projects will be performed during 1998 and that one or more power
production projects or other recurring revenue projects will become operational
during 1998, based on past delays and past operating results, there can be no
assurance that the Company will be able to operate profitably during 1998 or in
the future.
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Intense Competition. Competition in the environmental services industry is
intense. The industry is dominated by large architectural engineering firms such
as Bechtel, Fluor, Westinghouse, Foster Wheeler and ICF Kaiser, among others.
Such firms are called upon to serve as primary contractors and consultants on a
large portion of the Superfund, federal and state government and Department of
Energy projects. Additionally, many smaller engineering firms, construction
firms, consulting firms and other specialty firms have entered the environmental
services industry in recent years and additional firms can be expected to enter
into the industry. Many of the firms with which the Company competes in the
environmental services industry have significantly greater financial resources
and more established market positions than the Company. While management
believes that the Company's experience and expertise in the specialty areas of
decontamination and decommissioning will allow the Company to compete
successfully, there can be no assurance that other firms will not expand into or
develop expertise in the areas in which the Company specializes, thus decreasing
any competitive advantage which the Company may enjoy.
Maturation of Segments of the Environmental Industry. With the entry of
increasing competition, the market for certain labor intensive low technology
services, such as asbestos abatement, dismantling and demolition, has become
saturated resulting in lower margins in those segments. As a result of such
maturation and competitive pressures many participants in the environmental
services industry have incurred losses or significant declines in profitability
in recent years. While the Company has undertaken to focus on projects requiring
highly specialized services and/or technologies and to minimize its exposure to
lower margin highly competitive segments of the environmental services market,
such undertakings necessarily reduce the potential market for the Company's
environmental services and potential revenues from such services. Further, there
can be no assurance that other segments of the environmental services market not
previously effected by competition and lower margins will not be adversely
effected in the future.
Uncertainty Relating to Integration of Recent Acquisitions. As a result of
increasingly intense competition in the environmental services industry, the
Company has undertaken various strategic technology acquisitions and alliances
in recent years in order to improve the Company's competitive position and
increase the Company's potential revenues. Included in such acquisitions and
alliances have been (1) the acquisition of rights relating to the deployment of
the proprietary "Kocee Gas Generator" technology of Enviropower Industries, Inc.
(fka Continental Waste Conversion), (2) the acquisition of an exclusive license
from, and equity interest in, Life International Products pursuant to which the
Company utilizes Life's patented superoxygenation technology for long term
bioremediation of contaminated groundwater and (3) the formation of an alliance
with Solucorp Industries pursuant to which the Company received the rights to
utilize Solucorp's Molecular Bonding System soil remediation technology. Each of
such acquisitions and alliances entailed various funding commitments on the part
of the Company. While management believes that each of the described
acquisitions/alliances provides the Company with state-of-the-art technologies,
there can be no assurance that the Company will be successful in integrating
such new technologies with its existing service offerings. Further, it is
possible that certain state-of-the-art technologies, including technologies
which have been or may in the future be acquired by the Company, may not yet be
commercially viable or may require ongoing funding beyond the capabilities of
the Company before those technologies can be successfully deployed on a
commercial basis. In the event the Company is unable to successfully integrate
its technology acquisitions/alliances with its existing operations or the
Company is unable or unwilling to meet the funding requirements necessary to
fully commercialize such technologies, it is possible that the Company could
loss some or all of its investment in such technologies. Any such losses could
materially adversely impact the Company's operating results and financial
position.
While the Company is continually involved in the evaluation of new
technologies to supplement the Company's existing services offerings and to
enhance the Company's operating results and competitive position, the Company
has no current plans, arrangements or understandings with respect to future
acquisitions or mergers.
Uncertainty Relating to Entry into Power Production Market. During 1997,
the Company began to actively pursue projects in the international power
production market. As a result of such efforts, the Company has entered into,
and expects in the future to enter into, agreements whereby the Company will
design, construct, own and operate power production facilities outside of the
United States. The Company has devoted substantial resources to its entry into
the power production market and expects to devote substantial additional
resources to such efforts in the future. The Company's ability to profit from
its efforts in this regard is contingent upon the Company's ability to
successfully negotiate agreements with governmental, industrial and other
entities whereby those entities agree to purchase all or a substantial portion
of the power produced by those facilities, the Company's ability finance and
construct power production facilities on terms deemed acceptable to the Company
and the Company's ability to purchase feed stocks and operate facilities at
sufficiently low cost to generate operating profits and to recover the cost of
constructing such facilities. While the Company intends to contract out the
construction of facilities to qualified construction companies and to retain
employees and/or consultants with expertise in the operation of power production
facilities, the Company has no experience in constructing or operating power
production facilities. There can be no assurance that the Company will be
successful in consummating arrangements to construct, operate and sell power
from such facilities. Even if the Company is successful in consummating such
transactions, there can be no assurance that the facilities can or will be
operated profitably or, given the nature of the anticipated purchasers of such
production, that the foreign entities which have contracted to purchase such
production will have the financial capability to purchase the power committed to
be purchased.
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Additionally, a variety of independent power producers and private and
government owned entities may provide power in some of the markets in which the
Company expects to operate. Should those markets grow and undergo deregulation
similar to that experienced in the United States, it can be expected that new
competitors will enter those markets increasing pricing and competitive
pressures.
Accordingly, while the Company believes the international power production
market offers substantial profit opportunities for the Company, there can be no
assurance that the Company will be successful in its efforts to enter that
market, that the Company can operate on a profitable basis in the markets which
it may enter or that any profits which may be generated will be sufficient to
recover the Company's cost of entering the power production market.
Dependence on Ability to Secure Bonding. In order to bid on and
successfully secure contracts to perform environmental services of the nature
offered by the Company, the Company may, depending upon the bid specifications,
be required to provide surety bonds for each respective project. Thus, the
number and size of contracts which the Company can perform is directly dependent
upon the Company's ability to obtain bonding which, in turn, is dependent upon
the Company's net worth, liquid working capital, and the nature and projected
profitability of projects undertaken, among other factors. The Company, prior to
completion of its initial public offering, was unable to secure additional and
larger contracts as a result of such bonding requirements and may incur similar
difficulties in the future. While capital raising efforts in recent years have
allowed the Company to substantially increase its working capital and net worth,
thus increasing its bonding capacity, there can be no assurance that the Company
will have adequate bonding capacity to bid on all of the projects which it would
otherwise bid upon were it to have such bonding capacity or that it will in fact
be successful in obtaining additional jobs on which it may bid.
Compliance with, and Potential Liability under, Applicable Environmental
Regulations. The scope and nature of environmental regulation, at the federal,
state and local levels, has expanded dramatically in recent years. Such
regulations impose stringent guidelines on companies which generate and handle
hazardous materials as well as other companies involved in various aspects of
the environmental services industry. Any future increases or changes in
regulation may result in the Company incurring additional costs for equipment,
retraining, development of new remediation or abatement plans, handling of
hazardous materials and other costs.
In addition to the burdens imposed on Company operations by various
environmental regulations, federal law imposes strict joint and several
liability upon present and former owners and operators of facilities that
release hazardous substances into the environment and the generators and
transporters of such substances as well as persons arranging for the disposal of
such substances. All such persons may be liable for the costs and damages
(including penalties and fines) associated with environmental remediation
including investigation, clean up and natural resource damages. Such costs can
be very substantial. The Company may be liable for such costs and damages in
connection with the generation, transportation and disposal of hazardous
materials. Additionally, in light of the growing trend to impose and expand the
responsibility and scope of liability for environmental clean-up costs, there
can be no assurance that future regulations or court rulings will not result in
the Company being exposed to clean-up cost liability, or other liability, for
activities conducted by the Company which do not presently expose the Company to
such liability.
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While the Company has not incurred, or been notified that it may be treated
as a potentially responsible party with respect to, any liability as a generator
or transporter of hazardous materials, the Company on occasion has been named in
complaints, and may be named in future complaints, as violating various
regulations governing the removal of asbestos. The Company has settled certain
complaints in the past by agreeing to pay civil fines or penalties without
admitting liability. There can be no assurance, however, that any complaints
which may arise in the future can be settled on a favorable basis. In any event,
because of the nature of the Company's operations and the industry in which it
operates, the potential for liability and the extent of such potential liability
is very substantial. Any such liability which is determined to exist could have
a material adverse impact on the Company's business and financial condition.
Dependence on Continued Environmental Regulation. The growth of the
environmental services industry, as well as the growth of the Company, has been
largely attributable to, and tracks, the increase in environmental regulation
since the 1970's. The demand for environmental services has been largely the
result of facility owners attempting to comply with, or avoid liability under,
existing or newly imposed environmental regulations at the federal, state and
local levels. Because of the burden imposed on industry in complying with such
regulations, efforts have been made by various groups to seek the relaxation or
repeal of certain forms of environmental regulation. While such efforts to relax
environmental regulation have been largely unsuccessful to date, there can be no
assurance that the scope or growth of such regulation will not be curtailed in
the future. Any relaxation of environmental regulation may result in a decline
in demand for environmental services and may adversely effect the operations of
the Company.
Dependence on Spending Levels of Governmental and Industrial Entities.
Because of the nature of sites requiring environmental services, the growing
public emphasis on environmental matters and the cost of environmental services,
a significant portion of all funds spent for such services has been spent by
governmental agencies and large industrial concerns. While third party
reimbursement may be sought in various clean-ups, most Superfund clean-ups as
well as weapons and other nuclear facility clean-ups involve significant
spending by governmental agencies. As budget constraints and emphasis on
employment, international competition and other considerations grow, certain
governmental agencies and industrial concerns may choose to delay or curtail
expenditures for environmental services. Any curtailment or delays in spending
for environmental services by governmental agencies or large industrial concerns
can be expected to have a material adverse effect on the environmental services
industry and on the operations and profitability of the Company.
Limited Insurance Coverage. While the Company maintains insurance coverage,
including environmental impairment liability insurance covering such areas as
environmental clean ups, corrective action or damages, the Company's
environmental impairment insurance policy does not cover any liability arising
from radiological operations other than low level radioactive soil excavation
and facility cleaning. While the Company has evaluated such additional insurance
coverage in the past and may evaluate the same in the future, the Company does
not anticipate that such additional insurance will be available in the
foreseeable future at prices considered to be reasonable. If, in the absence of
such insurance, the Company were to incur liability for environmental impairment
in connection with its excluded radiological services, such liability could have
a material adverse effect on the financial condition and results of operations
of the Company. Further, as the cost of cleaning or correcting environmental
hazards can be extremely high, even if the Company is determined to be liable
for costs which are covered by insurance, there is no assurance that such
coverage will be adequate to pay the entire cost thereof and, therefor, the
Company may incur losses in excess of its insurance coverage.
Dependence on Major Customer. A significant portion of the Company's
revenues in recent years have come from, and a significant portion of the
Company's resources have been devoted to, one or more large clients (e.g.,
Manafort, Allied-Signal and FFC Jordan Fertilizer Company). Revenues from the
Manafort project constituted 29% of the Company's total revenues in 1997.
Revenues from the FFC Jordan project constituted 34% of the Company's total
revenues in 1995 and 44.7% of revenues in 1994. Likewise, the Allied-Signal
project accounted for 34.8% and 26.4% of the Company's total revenues in 1991
and 1992, respectively. In early 1993, the Company completed the Allied-Signal
project and the FFC Jordan project was completed during 1996. The Company
expects to complete the Manafort project during 1998. In order for the Company
to replace the revenues attributable to such large projects, the Company must
secure one or more large projects or a large number of smaller projects. While
the Company believes that it can successfully replace its past and ongoing large
projects with other large projects and with a large volume of smaller projects,
there is no assurance that the Company can adequately replace such projects with
other projects which will produce as much revenue. Further, there is no
assurance that the Company will not continue to be dependent upon a small number
of major customers for a significant portion of its revenues and earnings.
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Dependence on Key Personnel. The Company's operations are dependent upon
the continued efforts of senior management. While the Company has entered into
employment agreements with Joel Freedman and Frank Falco, the Company's
principal executive officers, the Company does not have employment agreements
with any of its other officers or employees. The Company has, however, entered
into agreements with certain executive personnel pursuant to which such persons
have agreed to maintain the confidentiality of certain information and to not
enter into competition with the Company for a period of three years after the
termination of their employment with the Company within 250 miles of the
Company's principal places of business. However, because of the lack of
accompanying employment agreements and the limited scope of such agreements and
the general difficulty of enforcing noncompetition agreements, there is no
assurance that such agreements can be enforced or that one or more of the
Company's key employees may not leave the Company and enter into direct
competition with the Company. Should any of the members of the Company's senior
management be unable or unwilling to continue in their present roles or should
such persons determine to enter into competition with the Company, the Company's
prospects could be adversely affected. The Company presently carries key-man
life insurance on its Chief Executive Officer, Joel Freedman, and its Chairman
of the Board and Chief Operating Officer, Frank Falco.
Dependence on Temporary Labor. As a result of the national and
international scope of the Company's operations, the Company is typically
required to staff jobs at least partially with temporary workers hired on
location. While all of the Company's jobs are performed under the supervision
and direction of the Company's supervisors and foremen and the Company attempts
to utilize as many of the Company's full time laborers as possible to staff
jobs, the location and other factors effecting jobs performed away from the
immediate vicinity of the Company's headquarters result in the Company regularly
hiring temporary workers on site. The Company carefully reviews the training and
qualifications of all temporary workers hired to assure that all such personnel
are qualified to perform the work in question. However, due to the temporary
nature of such employment, there is no assurance that all such temporary workers
will perform at levels acceptable to the Company and its customers. Accordingly,
the Company may experience difficulties in satisfactorily performing jobs and,
in some cases, may be exposed to certain liabilities as a result of the acts or
performance of such temporary workers. Additionally, in some locations, the
Company may be required to hire unionized temporary labor. The hiring of such
unionized workers may give rise to various other considerations affecting the
performance of jobs, including possible work stoppages and varying wage and
benefit demands, among others.
Seasonality of Business. While the Company provides its services on a
year-round basis, certain aspects of the Company's business display seasonal
characteristics. In particular, Company services provided outdoors or outside of
a sealed environment may be adversely affected by inclement weather conditions,
particularly in the northeast. Accordingly, extended periods of rain, cold
weather or other inclement weather conditions may result in delays in commencing
or completing projects, in whole or in part. Any such delays may adversely
effect the Company's operations and profitability and may adversely effect the
performance of other projects due to scheduling and staffing conflicts.
Substantial Working Capital and Additional Financing Requirements. The
Company requires substantial working capital to support its ongoing operations.
As is common in the environmental services industry, payment for services
rendered by the Company are generally received pursuant to specific draw
schedules after services are rendered. Thus, pending the receipt of payments for
services rendered, the Company must typically fund substantial project costs,
including significant labor and bonding costs, from financing sources within and
outside of the Company.
The Company historically relied heavily on bank financing to fund its
operations. With the consummation of the Company's initial public offering, the
Company has financed its operations internally without utilizing any substantial
new lines of credit. Because of expenditures relating to the opening of new
offices to serve strategic growth markets and other infrastructure expenditures
to support growth, the Company has experienced periodic working capital
shortages. As a result of such working capital shortages, the Company was
required to raise additional capital through the sale of $5 million of
convertible notes in the third quarter of 1995, through the sale of $3 million
of Series B Preferred Shares ("Series B Preferred Shares") in the first quarter
of 1997, through the sale of $3,025,000 of Convertible Notes ("Convertible
Notes") and $3.00 Warrants ("$3.00 Warrants") in the third quarter of 1997 and
through the sale of $3,600,000 of Series C Preferred Shares and $3.75 Warrants
in the first quarter of 1998. There is no assurance that the Company will not
require additional financing in the future. While the Company intends to seek
any bank or other financing which may be required in the future, no such source
of potential financing has been identified and there is no assurance that any
such financing will be available on terms acceptable to the Company, or at all,
if needed.
8
<PAGE>
Possible Liability in Connection with Legal and Administrative Proceedings.
The Company is periodically subject to lawsuits and administrative proceedings
arising in the ordinary course of its business. Included in such proceedings are
periodic administrative proceedings initiated by various environmental
regulatory agencies. In 1992, the Company was notified by the EPA of alleged
violations relating to the handling of asbestos containing materials. During
1994, the Company paid a $195,000 fine in settlement of such allegations without
any final determination or admission of liability. Similarly, in 1995, the
Company agreed to settle a complaint filed by the EPA in another asbestos
related proceeding. The Company and the EPA agreed to settle such matter without
any finding or admission of liability with the Company agreeing to pay $18,500.
The Company is presently a party to an ongoing administrative proceeding in
which the Occupational Safety and Health Administration has proposed to assess a
penalty against the Company in the amount of $147,000 as a result of the
accidental death of an employee of a subcontractor. On February 11, 1997, the
Company was served with a lawsuit naming the Company as a co-defendant in a
wrongful death cause of action arising out of the accidental death of an
employee of a subcontractor. The suit, styled The Estate of Percey L. Richard,
and Percey D. Richard, a minor by next of friend Patricia Cunningham v. American
Wrecking Corp. and its successors, IDM Environmental Corp. and its successors,
SECO Corp. and its successors, all joint and individually, and all unknown
persons, Case No. 2:97CV filed in the Federal District Court for the Northern
District of Indiana is based on the same facts as gave rise to the above
referenced administrative proceeding instituted by the Occupational Safety and
Health Administration. Management believes that the suit, as it relates to the
Company, is without merit, and intends to vigorously contest the cause of
action. Pursuant to its subcontract with American Wrecking, the Company is now
being defended and indemnified by the insurance carrier for American Wrecking.
In addition to potential liability in connection with the Company's
performance of services, the Company is presently a defendant in a shareholder
action filed in November of 1996 in New Jersey Superior Court styled Goldberg v.
IDM Environmental Corp., Docket No. L-11783-96. The plaintiff in that cause of
action has alleged that the Company made certain fraudulent misrepresentations
to the detriment of the investing public and that certain officers of the
Company were unjustly enriched as a result of their sales of common stock during
the period in question. Management believes the cause of action is without merit
and intends to vigorously contest such cause of action. Any liability which may
arise from the cause of action, including costs of defending such cause of
action are covered under the Company's general liability insurance policy
subject to a $200,000 deductible. Notwithstanding management's belief that the
cause of action is without merit and the existence of insurance coverage, the
Company will be liable for costs of defending said cause of action to the extent
of the deductible and any damages awarded, in the event an adverse judgment is
rendered, in excess of the Company's liability insurance coverage. While the
Company and the plaintiff have reached an agreement in principal to settle this
suit with a payment by the Company's insurer, there can be no assurance that
this litigation will not have a material adverse effect on the Company.
In April of 1997, the Company and its subsidiary, Global Waste & Energy,
Inc., were named as co-defendants in a cause of action styled Enviropower
Industries, Inc. v. IDM Environmental Corp., Global Waste & Energy, Inc., et al,
filed in the Court of Queen's Bench of Alberta, Judicial District of Calgary
(Action No. 9701-04774). The plaintiff, Enviropower (formerly known as
Continental Waste Conversion International, Inc.), has alleged that the license
granted to the Company to utilize and market Enviropower's proprietary
gasification technology was granted without proper corporate authority due to
the lack of shareholder approval. The plaintiff has asserted the subsequent
employment by Global Waste & Energy of two former officers of Enviropower as a
basis for its allegations. Enviropower is seeking to have the license and all
other agreements between Enviropower and the Company declared null and void in
addition to seeking damages for alleged lost profits and other unspecified
damages. The Company, in June of 1997, filed a separate cause of action against
Enviropower seeking injunctive relief against Enviropower, seeking to enforce
the agreements with Envirpower and to collect amounts owed to the Company by
Enviropower. On September 19, 1997, the Company was awarded an interim
injunction against Enviropower recognizing its exclusive rights to the licensed
technology throughout the pendency of the action and until further order of the
court.
While the Company has been able to settle all prior legal and
administrative proceedings on terms believed to be acceptable to and in the best
interests of the Company, there is no assurance that the Company will not be
subject to legal and administrative proceedings in the future which may
materially adversely effect the Company.
9
<PAGE>
Control by Management. Officers and directors of the Company, principally,
Messrs. Freedman and Falco, own an aggregate of approximately 5.4% of the issued
and outstanding shares of common stock as of June 5, 1998. Shareholders of the
Company do not have cumulative voting rights and, accordingly, each shareholder
is entitled to cast one vote per share held on all matters submitted to a vote
of shareholders, including the election of directors. Thus, shareholders holding
a majority of the outstanding shares will be able to elect all of the directors.
Further, Messrs. Freedman and Falco have entered into a Voting Agreement
pursuant to which each has agreed to vote for the other in all elections of
directors and, with respect to all other matters, they have agreed to vote as a
block.
Related Party Transactions and Possible Conflicts of Interest. The Company
has been controlled, and may continue to be controlled, by Joel Freedman and
Frank Falco, its principal shareholders, and has periodically engaged in
transactions with Messrs. Freedman and Falco and entities controlled by Messrs.
Freedman and Falco. During 1994, 1995, 1996 and 1997, the Company paid certain
personal expenses on behalf of Messrs. Freedman and Falco, which advances were
originally made on an unsecured non-interest bearing basis without definite
repayment terms. Interest on such loans began to accrue at 7% per annum
commencing in June of 1995. Mr. Freedman surrendered 36,621 shares of Common
Stock as payment in full of $192,260, representing all amounts owed by Mr.
Freedman to the Company, including excess draws under his employment agreement,
in September of 1995. In April of 1996, Mr. Falco surrendered 92,214 shares of
Common Stock as payment in full of $670,580 representing all amounts owed by Mr.
Falco to the Company as at such date, including excess draws under his
employment agreement. At December 31, 1997, Mr. Falco and Mr. Freedman owed a
total of approximately $361,576 and $7,965, respectively, to the Company. The
Company presently leases its principal facilities from a partnership controlled
by Messrs. Freedman and Falco and, in 1995, performed certain construction work
to expand such facilities. Additionally, the Company previously loaned funds to
such partnership in order to construct certain leasehold improvements on the
Company's premises and for various other purposes. While the loan to the
partnership had been repaid in full through periodic offsets against the lease
payments owed by the Company to the partnership, no formal terms for repayment
of such loan were ever established and no interest was paid on such loan.
Further, while the Company obtained an appraisal of the fair rental value of the
leased premises and management believes the terms of such lease to be fair,
there is no assurance that the Company could not obtain more favorable terms if
dealing with third parties. The Company has no present plans, proposals,
arrangements or understandings with respect to future related transactions.
While the Company has no formal policy relating to transactions with related
parties, the Company's audit committee reviews all proposed transactions with
related parties or entities controlled by related parties to determine the
fairness of such transactions. Any current or future transactions between the
Company and such affiliates may involve possible conflicts of interest.
Possible Issuance of Substantial Amounts of Additional Shares Without
Shareholder Approval. At June 5, 1998, the Company had an aggregate of
approximately 42,506,220 shares of Common Stock authorized but unissued and not
reserved for specific purposes and an additional 14,643,228 shares of Common
Stock unissued but reserved for issuance pursuant to (i) the Company's 1993,
1995 and 1998 Incentive Stock Option Plans, (ii) exercise of outstanding Class A
Warrants issued in the Company's initial public offering, (iii) exercise of
nonqualified options issued in connection with consulting services and
employment agreements, and (iv) exercise of the Lock-Up Warrants and warrants
issued in connection with the placement of the Series B Preferred Shares, Series
C Preferred Shares and Convertible Notes. Additionally, an indeterminate number
of shares of Common Stock will be issued if and when the Series C Preferred
Shares are converted. All of such shares may be issued without any action or
approval by the Company's shareholders. Although there are no other present
plans, agreements, commitments or undertakings with respect to the issuance of
additional shares, or securities convertible into any such shares by the
Company, any shares issued would further dilute the percentage ownership of the
Company held by the public shareholders.
Possible Issuance of Preferred Stock and Superior Rights of Preferred
Stock. In addition to the above referenced shares of Common Stock which may be
issued without shareholder approval, the Company has 1,000,000 shares of
authorized preferred stock. The Company, at June 5, 1998, had 3,600 Series C
Preferred Shares issued and outstanding and has reserved a total of 200,000
shares for issuance pursuant to a Share Rights Plan adopted by the Company in
1996. Prior to the distributions of any amounts to the holders of Common Stock,
whether as dividends or on liquidation, the holders of outstanding preferred
stock must have received their cumulative dividend or liquidation preference, as
appropriate. While the Company has no present plans to issue any additional
shares of preferred stock, other than shares which may be issued in the event
the Company's Share Rights Plan is triggered, the Board of Directors has the
authority, without shareholder approval, to create and issue one or more series
of such preferred stock and to determine the voting, dividend and other rights
of holders of such preferred stock. The issuance of any of such series of
preferred stock could have an adverse effect on the holders of Common Stock.
10
<PAGE>
The ability of the board of directors to fix the terms of and issue shares
of Preferred Stock without shareholder approval, combined with the Share Rights
Plan and other anti-takeover provisions in the Company's certificate of
incorporation and bylaws, could (1) result in the Company being less attractive
to a potential acquiror and (2) result in shareholders receiving less for their
shares than otherwise might be available in the event of a take over attempt.
Shares Eligible for Future Sales. All of the shares of the Company's Common
Stock owned by non-public shareholders are "restricted securities" as that term
is defined under Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Act") and may only be sold pursuant to a registered offering or in
accordance with applicable exemptions from the registration requirements of the
Act. Rule 144 provides for the sale of limited quantities of restricted
securities without registration under the Act. In general, under Rule 144 a
person (or persons whose shares are aggregated) who has satisfied a one (1) year
holding period may, under certain circumstances, sell within any three (3) month
period, a number of shares which does not exceed the greater of one percent (1%)
of the then outstanding shares of common stock or the average weekly trading
volume during the four (4) calendar weeks prior to such sale. Rule 144(k) also
permits, under certain circumstances, the sale of shares without any quantity
limitation by a person who is not an affiliate of the Company and who has
satisfied a two (2) year holding period. The Company is unable to predict the
effect that future sales under Rule 144 may have on the then prevailing market
price of Common Stock. It can be expected, however, that the sale of any
substantial number of shares of Common Stock will have a depressive effect on
the market price of the Common Stock.
No Dividends. The Company has not declared or paid, and does not anticipate
declaring or paying in the foreseeable future, any cash dividends on its Common
Stock. The Company's ability to pay dividends is dependent upon, among other
things, future earnings, the operating and financial condition of the Company,
its capital requirements, general business conditions and other pertinent
factors, and is subject to the discretion of the Board of Directors. Further, as
noted above, no distributions may be made with respect to the Company's Common
Stock unless all cumulative dividends with respect to outstanding preferred
stock, if any, have been paid. Accordingly, there is no assurance that any
dividends will ever be paid on the Company's Common Stock.
Amendment of Reports and Restatement of Financial Statements. As a result
of cost overruns and unapproved change orders on a series of projects during
1996 and the first quarter of 1997, the Company has implemented certain changes
in the manner in which it accounts for job costs and revenues. In conjunction
with those accounting changes, the Company restated its financial statements and
amended its reports on Forms 10-Q for the quarters ended March 31, 1996, June
30, 1996, September 30, 1996, March 31, 1997, June 30, 1997 and September 30,
1997 and on Form 10-K for the year ended December 31, 1996.
SELLING STOCKHOLDERS
The Selling Stockholders are the holders of (i) shares of Series C
Preferred Stock; (ii) $3.75 Warrants; (iii) Lock-Up Warrants; (iv) $6.00
Warrants; and (v) $6.75 Warrants. The shares of Common Stock covered by this
Prospectus are being registered so that the Selling Stockholders may offer the
shares of common stock underlying those securities for resale from time to time.
See "Plan of Distribution." Except as described below, none of the Selling
Stockholders has had a material relationship with the Company within the past
three years other than as a result of the ownership of the above referenced
securities, certain other convertible securities of the Company and the Common
Stock issuable pursuant to the conversion or exercise of, or dividends or
interest on, convertible securities.
The following table sets forth the names of the Selling Stockholders, the
number of shares of Common Stock owned beneficially by each of the Selling
Stockholders as of June 5, 1998, and the number of shares which may be offered
for resale pursuant to this Prospectus. For the purposes of calculating the
number of shares of Common Stock beneficially owned by the Selling Stockholders,
the number of shares of Common Stock calculated to be issuable in connection
with the conversion of the Series C Preferred Shares is based on a conversion
price that is derived from the average closing bid price of the Common Stock on
the five trading days ended June 5, 1998 (which was $3.412).
The information included below is based upon information provided by the
Selling Stockholders. Because the Selling Stockholders may offer all, some or
none of their Common Stock, no definitive estimate as to the number of shares
that will be held by the Selling Stockholders after such offering can be
provided and the following table has been prepared on the assumption that all
shares of Common Stock offered under this Prospectus will be sold.
11
<PAGE>
<TABLE>
Shares of Shares of
Common Stock Shares of Common Stock
Beneficially Common Stock Owned After
Name Owned (1)(2) Offered Offering (1)
- ------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Murray Huberfeld/David Bodner
Partnership (3)(4)(5)(6).................... 2,789,071 2,159,071 -0-
Profinsa Investments Limited (3)(4).......... 1,559,071 1,559,071 -0-
Congregation Ahavas Tzedokah
V Chesed (3)(4)............................. 300,544 300,544 -0-
Rita Folger (3)(4)(5)(6)..................... 365,408 295,408 -0-
Shlomoh Kupetz-Kahal Tefico
Lemoshe (3)(4).............................. 112,704 112,704 -0-
Adar Equities L.L.C. (5)(6).................. 1,350,000 600,000 -0-
Jules Nordlicht (6)(7)....................... 420,000 140,000 -0-
Newark Sales Corp. (7)....................... 315,000 315,000 -0-
Seymour Huberfeld (6)(7)..................... 26,250 8,750 -0-
Mirrer Yeshiva Central Institute (6)(7)...... 26,250 8,750 -0-
Seth J. Antine (6)(7)........................ 26,250 8,750 -0-
Connie Lerner (6)(7)......................... 26,250 8,750 -0-
Milwaukee Kollel Inc. (6)(7)................. 26,250 8,750 -0-
Moshe Mueller (7)............................ 8,750 8,750 -0-
Shor Yoshuv Institute Inc. (6)(7)............ 26,250 8,750 -0-
Harry Adler (6)(7)........................... 13,125 4,375 -0-
Fred Rudy (6)(7)............................. 13,125 4,375 -0-
Clifton Management & Trading (6)(7).......... 13,125 4,375 -0-
Jonathan Mayer (6)(7)........................ 13,125 4,375 -0-
--------- --------- --------
Total 7,430,548 5,560,548 -0-
</TABLE>
(1) Unless otherwise indicated in the footnotes to this table, the persons and
entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property
laws where applicable.
(2) As required by regulations of the Commission, the number of shares shown as
beneficially owned includes shares which can be purchased within 60 days
after June 5, 1998. The actual number of shares of Common Stock
beneficially owned is subject to adjustment and could be materially less or
more than the estimated amount indicated depending upon factors which
cannot be predicted by the Company at this time, including, among others,
the market price of the Common Stock prevailing at the actual date of
conversion of the Series C Preferred Shares, and whether or to what extent
dividends to the holders of the Series C Preferred Shares are paid in
Common Stock.
(3) The listed Selling Stockholders hold an aggregate of 3,600 Series C
Convertible Preferred Shares which are convertible into shares of Common
Stock. The Series C Preferred Shares were issued by the Company in a
private placement in February 1998 for $1,000 per share. The Series C
Preferred Shares are convertible, in whole or in part, at the option of the
holder. The Series C Preferred Shares are convertible into Common Stock at
the lesser of (i) $3.25 per share, or (ii) 75% of the average closing bid
price of the Common Stock over the five trading-day period preceding
conversion. The conversion price will be adjusted to reflect stock
dividends, stock splits and certain other capital reorganizations or
reclassifications. Further, the company has the right, upon notice to the
holders, to redeem, for 125% of the amount proposed to be converted, any
Series S Preferred Shares submitted for conversion at a conversion price of
less than $2.75. The number of shares shown as being offered in the table
is based on the assumed conversion of all 3,600 Series B Preferred Shares
at a hypothetical conversion price of $2.559 per share (which is the
conversion price based on the average closing bid price of $3.412 on the
five trading-days ended June 5, 1998) and assumes payment of dividends on
the Series C Preferred Shares in cash. The Series C Preferred Shares pay a
7% annual dividend payable quarterly and at maturity or on conversion in
cash or Common Stock, at the Company's option. The dividend rate on the
Series C Preferred Shares is subject to increase in the event a
registration statement covering the resale of shares underlying the Series
C Preferred Shares is not effective on or before September 15, 1998. The
Series C Preferred Shares mature on August 15, 1999 at which time the
Series C Preferred Shares automatically convert to Common Stock, provided
that the Company's Common Stock continues to be listed on The Nasdaq Stock
Market and provided that the shares issuable upon conversion of the Series
C Preferred Shares may, at that time, be resold pursuant to an effective
registration statement or pursuant to Rule 144. In the event that the
conditions for automatic conversion of the Series C Preferred Shares are
not satisfied at August 15, 1999, the Series C Preferred Shares shall be
redeemed by the Company at $1,000 per share plus accrued dividends.
Conversion of the Series C Preferred Shares is subject to the restrictions
that the holders, individually, will not beneficially own in excess of
4.99% of the Company's Common Stock following any conversion. For a further
description of the rights of the holders of the Series C Preferred Shares,
see the Amended and Restated Certificate of Designation filed as an exhibit
to the registration statement filed with the Securities and Exchange
Commission, of which this Prospectus constitutes a part.
12
<PAGE>
(4) The listed Selling Shareholders hold an aggregate of 2,350,000 $3.75
Warrants. The $3.75 Warrants were issued in conjunction with the Company's
private placement of Series C Preferred Shares in February of 1998. The
$3.75 Warrants are exercisable for a period of four years to purchase
Common Stock at $3.75 per share or, if less, the lowest conversion price of
the Series C Preferred Shares occurring prior to each exercise. Exercise of
the $3.75 Warrants is limited to the same extent as the Series C Preferred
Shares (i.e., no exercise permitted where the holder will beneficially own
in excess of 4.99% of the Company's Common Stock). For a further
description of the rights of the holders of the $3.75 Warrants, see the
form of Amended and Restated $3.75 Warrant filed as an exhibit to the
registration statement filed with the Securities and Exchange Commission,
of which this Prospectus constitutes a part.
(5) The listed Selling Shareholders hold an aggregate of 1,270,000 Lock-Up
Warrants. The Lock-Up Warrants were issued pursuant to the terms of certain
Lock-Up Agreements whereby the Lock-Up Warrants were issued in
consideration of the holders' agreement not to sell shares of Common Stock
underlying 1,450,000 $3.00 Warrants before July 30, 1998. The Lock-Up
Warrants are exercisable commencing July 6, 1998 and ending February 11,
2001 to purchase Common Stock at $4.50 per share. Exercise of the Lock-Up
Warrants is subject to the restrictions that the holders, individually,
will not beneficially own in excess of 4.99% of the Company's Common Stock
following any exercise. For a further description of the rights of the
holders of the Lock-Up Warrants, see the form of Lock-Up Warrant filed as
an exhibit to the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1997.
(6) The listed Selling Shareholders hold an aggregate of 2,657,500 $3.00
Warrants. The $3.00 Warrants were issued in conjunction with the Company's
private placement of Convertible Notes in August of 1997. The $3.00
Warrants are exercisable for a period of three years to purchase Common
Stock at $3.00 per share or, if less, the lowest conversion price of the
Convertible Notes occurring prior to each exercise. Certain Selling
Shareholders have entered into Lock-Up Agreements pursuant to which the
shares of Common Stock underlying the $3.00 Warrants may not be resold
prior to July 30, 1998 (See Note 5 above). Exercise of the $3.00 Warrants
is limited to the same extent as the Convertible Notes (i.e., no exercise
permitted where the holder will beneficially own in excess of 4.99% of the
Company's Common Stock). The shares of Common Stock underlying the $3.00
Warrants are not included in the securities offered pursuant to this
Prospectus and are not registered under the registration statement of which
this Prospectus is a part but are included in a registration statement and
prospectus previously filed with the Securities and Exchange Commission.
Inasmuch as the shares underlying the $3.00 Warrants are deemed to be
beneficially owned by the Selling Shareholders under applicable SEC rules
and such shares are being offered pursuant to the above described
prospectus, such shares are included in the shares beneficially owned
column but are excluded from the shares offered column of the table and in
the shares owned after offering column. For a further description of the
rights of the holders of the Warrants, see the form of Warrant filed as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997.
(7) The listed Selling Shareholders hold an aggregate of 266,875 $6.00 Warrants
and 266,875 $6.75 Warrants. The $6.00 Warrants and $6.75 Warrants were
issued as an inducement for early exercise by the holders of certain $3.00
Warrants and are exercisable to the extent of one $6.00 Warrant and one
$6.75 Warrant for each $3.00 Warrant previously exercised. The $6.00
Warrants and $6.75 Warrants are exercisable for a period of one year
commencing June 8, 1998 to purchase Common Stock at $6.00 and $6.75 per
share, respectively. Exercise of the $6.00 Warrants and $6.75 Warrants is
subject to the restrictions that the holders, individually, will not
beneficially own in excess of 4.99% of the Company's Common Stock following
any exercise. Exercise of the $6.00 Warrants and $6.75 Warrants is also
subject to amendment of the Company's Certificate of Incorporation to
increase the authorized shares of Common Stock to provide for an adequate
number of authorized and unissued shares of Common Stock to permit the
exercise or conversion of all outstanding convertible securities. For a
further description of the rights of the holders of the $6.00 Warrants and
$6.75 Warrants, see the form of $6.00 Warrant and $6.75 Warrant filed as
exhibits to the registration statement filed with the Securities and
Exchange Commission, of which this Prospectus constitutes a part.
PLAN OF DISTRIBUTION
The Company is registering the shares of Common Stock offered by the
Selling Stockholders hereunder pursuant to contractual registration rights.
The shares of Common Stock offered hereunder may be sold from time to time
by the Selling Stockholders, or by pledgees, donees, transferees or other
successors in interest. Such sales may be made on the Nasdaq National Market or
in the over-the-counter market or otherwise at prices and on terms then
prevailing or related to the then current market price, or in negotiated
transactions. The shares of Common Stock may be sold to or through one or more
broker-dealers, acting as agent or principal in underwritten offerings, block
trades, agency placements, exchange distributions, brokerage transactions or
otherwise, or in any combination of transactions.
In connection with any transaction involving the Common Stock,
broker-dealers or others may receive from the Selling Stockholders, and may in
turn pay to other broker-dealers or others, compensation in the form of
commissions, discounts or concessions in amounts to be negotiated at the time.
Broker-dealers and any other person participating in a distribution of the
Common Stock may be deemed to be "underwriters" within the meaning of the Act in
connection with such distribution, and any such commissions, discounts or
concessions may be deemed to be underwriting discounts or commissions under the
Act.
Any or all of the sales or other transactions involving the Common Stock
described above, whether effected by the Selling Stockholders, any broker-dealer
or others, may be made pursuant to this Prospectus. In addition, any shares of
Common Stock that qualify for sale pursuant to Rule 144 under the Act may be
sold under Rule 144 rather than pursuant to this Prospectus.
To comply with the securities laws of certain states, if applicable, the
Common Stock may be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, shares of Common Stock may not be sold
unless they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with
under applicable state securities laws.
The Company and the Selling Stockholders have agreed, and hereafter may
further agree, to indemnify each other and certain persons, including
broker-dealers or others, against certain liabilities in connection with any
offering of the Common Stock, including liabilities arising under the Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Vanderkam &
Sanders, of Houston, Texas.
EXPERTS
The consolidated financial statements of IDM appearing in the IDM
Environmental Corp. Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1997, have been audited by Samuel Klein and Company, independent
certified public accountants, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is a list of the estimated expenses to be incurred in
connection with the issuance and distribution of the securities being registered
hereby, all of which are payable by the Company, other than underwriting
discounts and commissions.
Registration Fee...........................................$ 5,747.25
Accountants' Fees and Expenses............................. 5,000.00
Legal Fees and Expenses.................................... 30,000.00
Miscellaneous.............................................. 4,252.75
Total....................................................$45,000.00
Item 15. Indemnification of Directors and Officers
The Company's Articles of Incorporation, as amended, eliminate the personal
liability of directors to the Company or its stockholders for monetary damages
for breach of fiduciary duty to the extent permitted by New Jersey law. The
Company's Bylaws provide that the Company shall indemnify its officers and
directors to the extent permitted by the Business Corporation Act of the State
of New Jersey. Section 14A:3-5 of the New Jersey Business Corporation Act
authorizes a corporation to indemnify directors, officers, employees or agents
of the corporation in non-derivative suits if such party acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interest
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful, as determined in
accordance with New Jersey law. Section 14A:3-5 further provides that
indemnification shall be provided if the party in question is successful on the
merits or otherwise.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to the Company and its shareholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty, which is generally described as the duty not to engage in any
transaction which involves a conflict between the interest of the Company and
those of the director, or for violations of the federal securities laws.
The provisions regarding indemnification provide, in essence, that the
Company will indemnify its directors against expenses (including attorneys
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
director's status as a director of the Company, including actions brought by or
on behalf of the Company (shareholder derivative actions). The provisions do not
require a showing of good faith. Moreover, they do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. The Company currently provides such insurance to its directors.
The provisions also limit or indemnify against liability resulting from
grossly negligent decisions including grossly negligent business decisions
relating to attempts to change control of the Company.
II-1
Item 16. Exhibits
4.1 Amended and Restated Certificate of Designations, Voting Powers,
Preferences and Rights of Series C Convertible Preferred Stock
5.1 Opinion and consent of Vanderkam & Sanders re: the legality of the
shares being registered
10.1 Form of Amended and Restated Four Year $3.75 Warrant
10.2(1) Form of Lock-Up Warrant
10.3 Form of $6.00 Warrant
10.4 Form of $6.75 Warrant
23.1 Consent of Vanderkam & Sanders (including in Exhibit 5.1)
23.2 Consent of Samuel Klein and Company
- -----------------
(1) Incorporated by reference to the respective exhibits filed with the
Company's Annual Report on Form 10-K/A for the year ended December 31,
1997.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The registrant hereby undertakes:
(1) (i) To include any prospectus required by Section 10(a)(3) of the Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post effective amendment by these
paragraphs is contained in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Act, each
filing of the Company's annual report pursuant to Section 13(a) or 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit's plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of South River, State of New Jersey on the 12th day of
June, 1998.
IDM ENVIRONMENTAL CORP.
By: /s/ Joel Freedman
-------------------------------
JOEL FREEDMAN, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
Signatures Title Date
---------- ----- ------
/s/ Joel A. Freedman President, Chief Executive Officer June 12, 1998
- ------------------------- and Director (Principal Executive
JOEL A. FREEDMAN Officer)
/s/ Frank A. Falco Chairman of the Board, Chief Operating June 12, 1998
- ------------------------- Officer, Executive Vice President and
FRANK A. FALCO Director
/s/ Michael B. Killeen Treasurer and Chief Financial Officer June 12, 1998
- ------------------------- (Principal Financial and Accounting
MICHAEL B. KILLEEN Officer)
Director June , 1998
- -------------------------
FRANK PATTI
/s/ Robert McGuinness Director June 12, 1998
- -------------------------
ROBERT MCGUINNESS
/s/ Richard Keller Director June 12, 1998
- -------------------------
RICHARD KELLER
/s/ Mark Franceschini Director June 12, 1998
- ------------------------
MARK FRANCESCHINI
[EXHIBIT A]
IDM ENVIRONMENTAL CORP.
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION
SERIES C PREFERRED STOCK
There is hereby created a series of the Preferred Stock of this corporation to
consist of 3,600 of the shares of Series C Preferred Stock, $1.00 par value per
share, which this corporation now has authority to issue.
This Amended and Restated Certificate of Designation amends and supercedes a
previously filed Certificate of Designation setting forth the rights and
preferences of the Series C Preferred Stock of IDM Environmental Corp. (the
"Company") and has been duly approved by the holders of shares of Series C
Preferred Stock.
1. The distinctive designation of the series shall be "Series C Convertible
Preferred Stock" (the "Preferred Stock" or the "Series C Preferred Stock"). The
number of shares of Series C Convertible Preferred Stock shall be 3,600.
2. For purposes of this Certificate of Designation and the Company's
Certificate of Incorporation, (i) any series of Preferred Stock of the Company
entitled to dividends and liquidation preference on a parity with the Series C
Preferred Stock shall be referred to as "Parity Preferred Stock," (ii) any
series of Preferred Stock ranking senior to the Series C and Parity Preferred
Stock with respect to dividends and liquidation preference shall be referred to
as "Senior Stock," and (iii) the Common Stock and any series of Preferred Stock
ranking junior to the Series C and Parity Preferred Stock with respect to
dividends and liquidation preference shall be referred to as "Junior Stock." As
of the date of this Certificate of Designation there is not outstanding any
Parity Preferred Stock other than Series B Preferred Stock or any Senior Stock.
3. In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, after setting apart or paying in full
the preferential amounts due to holders of Senior Stock, the holders of Series C
Preferred Stock and Parity Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds of
the Company to the holders of Junior Stock or Common Stock by reason of their
ownership thereof, an amount equal to their full liquidation preference, which
in the case of shares of Series C Preferred Stock shall be $1,000 per share,
plus accrued and unpaid dividends (the "Redemption Value"). If, upon such
liquidation, dissolution or winding-up of the Company, the assets of the Company
available for distribution to the holders of its stock be insufficient to permit
the distribution in full of the amounts receivable as aforesaid by the holders
of Preferred Stock and Parity Preferred Stock, then all such assets of the
Company shall be distributed ratably among the holders of Preferred Stock and
Parity Preferred Stock in proportion to the amounts which each would have been
entitled to receive if such assets were sufficient to permit distribution in
full as aforesaid. Neither the consolidation nor merger of the Company nor the
sale, lease or transfer by the Company of all or any part of its assets shall be
deemed to be a liquidation, dissolution or winding-up of the Company for the
purposes of this paragraph.
4. Certain Definitions and References.
(a) The Preferred Stock is being issued under Private Placement Purchase
Agreements between the Company and the holders of the Preferred Stock
(each, a "Subscription Agreement").
(b) The term "Registration Statement" shall have the meaning attributed
thereto in the Subscription Agreement, and the term "Effective Date"
means the date on which the Registration Statement shall be declared
to be effective.
(c) The reference in Section 5 to the "First Delay Period" shall apply
only if the Effective Date has not occurred by the close of business
on September 15, 1998, and means the period which begins on September
16, 1998 and ends on the earlier of December 15, 1998 or the Effective
Date.
<PAGE>
(d) The reference in Section 5 to the "Extended Delay Period" shall apply
only if the Effective Date has not occurred by December 15, 1998, and
means the period which begins on December 16, 1998 and ends on the
Effective Date.
5. Dividends
(a) The holders of the Preferred Stock shall be entitled to receive a
dividend, payable quarterly on the first day of each calendar quarter
commencing October 1, 1998, which accrues from the date of issuance at
the annual rate of $70 per share, provided that the annual rate shall
be $180 during any First Delay Period and the annual rate shall be
$240 during any Extended Delay Period.
(b) The dividends shall be payable at the option of the Company either in
cash or in shares of Common Stock which on the date of the dividend
payment are convertible into shares of Common Stock which have a value
equal to the dividend, provided that dividends may be paid in Common
Stock only if the public sale thereof is permitted under a then
effective registration statement (or, as to the dividend payable in
October 1998, if a registration statement has theretofore been filed).
The value of each share of Common Stock for the purposes of any
dividend payment shall be equal to the average of the last reported
sales prices therefor on the NASDAQ National Market on the last five
trading days prior to the date of the payment.
(c) Nothing in this Section 5 shall limit any other remedies which may be
available to the Holder by reason of any delay in the filing or the
effectiveness of the Registration Statement.
6. Conversion
(a) The holder shall have the right at any time in its sole discretion, to
convert the Preferred Stock, in whole or in part, into a number of
shares (the "Conversion Shares") of the Company's common stock (the
"Common Stock") equal to $1,000 per share converted divided by the
Conversion Price. The Conversion Price means the lesser of (1) $3.25
or (2) 75% of the average of the closing bid price of a share of
Common Stock of the Company during the five trading days prior to such
conversion.
(b) In the event that the holder elects to exercise its conversion rights
hereunder, it shall give to the Company written notice (by fax or
overnight courier service or personal delivery) of such election and
shall surrender his Preferred Stock to the Company for cancellation.
Conversion shall be effective upon the giving of such notice provided
that the certificate for the converted Preferred Stock is received by
the Company within three days thereafter. The Company shall, within
three business days after receipt by the Company of notice of
conversion and the Preferred Stock being converted, deliver
irrevocable instructions to its transfer agent (with a copy to Holder)
to issue on an expedited basis the shares of Common Stock issuable on
such conversion.
(c) The Preferred Stock shall on August 15, 1999 automatically convert
into Common Stock at the then Conversion Price, provided that such
conversion shall occur on such date only if the Company's listing on
the NASDAQ National Market has then been in effect at all times from
and after January 1, 1999, and only if the Common Stock issuable upon
conversion of the Preferred Stock may then be resold publicly pursuant
to an effective registration statement under the Securities Act of
1933 or under Rule 144 thereunder. If by reason of the proviso in the
preceding sentence the Preferred Stock shall not convert automatically
on August 15, 1999, the Holder may, in addition to such Holder's other
remedies, by written notice to the Company, require the Company
forthwith to redeem the Preferred Stock at a redemption price equal to
$1,000 per share plus accrued dividends. The redemption price shall
accrue interest payable on demand at the rate of 15% per annum.
2
<PAGE>
(d) The Company shall reserve for issuance on conversion and exercise of
the Preferred Stock and the Warrant (as defined in the Subscription
Agreement) the number shares of Common Stock which would be issuable
under the Preferred Stock if converted at a Conversion Price of $2.25.
The Company shall use its diligent efforts promptly to list on NASDAQ
all shares of Common Stock which are issued upon conversion of this
Preferred Stock.
(e) The Preferred Stock shall be convertible at any time only to the
extent that Holder would not as a result of such exercise beneficially
own more that 4.99% of the then outstanding Common Stock. Beneficial
ownership shall be defined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. The opinion of counsel to Holder
shall prevail in the event of any dispute on the calculation of
Holder's beneficial ownership.
(f) If any capital reorganization or reclassification of the common stock,
or consolidation, or merger of the Company with or into another
corporation, or the sale or conveyance of all or substantially all of
its assets to another corporation shall be effected, then, as a
condition precedent of such reorganization or sale, the following
provision shall be made: The Holder of the Preferred Stock shall from
and after the date of such reorganization or sale have the right to
receive (in lieu of the shares of common stock of the Company
immediately theretofore receivable with respect to the Preferred
Stock, upon the exercise of conversion rights), such shares of stock,
securities or assets as would have been issued or payable with respect
to or in exchange for the number of outstanding shares of such common
stock immediately theretofore receivable with respect to the Preferred
Stock (assuming the Preferred Stock were then convertible). In any
such case, appropriate provision shall be made with respect to the
rights and interests of the Holders to the end that such conversion
rights (including, without limitation, provisions for appropriate
adjustments) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise thereof.
(g) In the event that the Holder proposes to convert all or any portion of
the Preferred Stock at a conversion price of less than $2.75, the
Company shall at its option be entitled to redeem all or any portion
of the Preferred Stock proposed to be converted. Such option shall be
exercisable by paying to the Holder, within three business days after
the date of such proposed conversion, 125% of the amount of principal
proposed to be converted, together with accrued and unpaid dividends.
(h) The Company covenants at its next annual meeting of shareholders to
call for shareholders to approve the issuance of shares on conversion
of the Preferred Stock and Warrants issued to the Purchasers (as
defined in the Subscription Agreement). Joel Freedman and Frank Falco
have on this date agreed to vote in favor of such approval, and the
Board of Directors of the Company will recommend that the shareholders
of the Company vote in favor of such approval. Until such approval is
obtained, the maximum number of shares which will be issued on
conversion of the Preferred Stock and exercise of the Warrants is
3,285,438, issuable on a first converted-first exercised basis. Should
such approval not be obtained by June 30, 1998, then until such
approval is obtained, the Company shall on demand by Holder made at
any time or times redeem any portion of the Preferred Stock designated
for redemption (the "Redeemed Portion") at a redemption price per
share equal to $1,250 plus accrued dividends. The redemption price
shall be payable within five business days after demand for redemption
is made, and shall accrue interest payable on demand at 11% per annum.
7. Purchase for Investment. The Holder, by acceptance of shares of
Preferred Stock, acknowledges that the Preferred Stock (and the Common Stock
into which the Preferred Stock is convertible) has not been registered under the
Act, covenants and agrees with the Company that such Holder is taking and
holding the Preferred Stock (and the Common Stock into which the Preferred Stock
is convertible) for investment purposes and not with a view to, or for sale in
connection with, a distribution thereof and that the Preferred Stock (and the
Common Stock into which the Preferred Stock is convertible) may not be assigned,
hypothecated or otherwise disposed of in the absence of an effective
registration statement under the Act or an opinion of counsel for the Holder,
which counsel shall be reasonably satisfactory to the Company, to the effect
that such disposition is in compliance with the Act, and represents and warrants
that such Holder is an "accredited investor" that such Holder has, or with its
representative has, such knowledge and experience in financial and business
matters to be capable of evaluating the merits and risks in respect of this
Preferred Stock (and the Common Stock into which the Preferred Stock is
convertible) and is able to bear the economic risk of such investment.
3
<PAGE>
8. The Company covenants and agrees that all shares of Common Stock which
may be issued upon conversion of the Preferred Stock will, upon issuance, be
duly and validly issued, fully paid and non-assessable and no personal liability
will attach to the holder thereof.
9. Certain Payments. In the event the Company fails to deliver irrevocable
instructions to its transfer agent as required under Section 6(b) within three
days after conversion, or fails to make any redemption payment when due, then
without limiting Holder's other rights and remedies, the Company shall forthwith
pay to the Holder an amount accruing at the rate of $10 per day for each day of
such breach for each share of Preferred Stock.
10. Certain Events of Mandatory Redemption.
(a) An "event of redemption" with respect to this Preferred Stock
shall exist if any of the following shall occur, if:
(i) The Company shall breach or fail to comply with any
provision of this Preferred Stock and such breach or failure
shall continue for 15 days after written notice by any
Holder of any Preferred Stock to the Company.
(ii) A receiver, liquidator or trustee of the Company or of a
substantial part of its properties shall be appointed by
court order and such order shall remain in effect for more
than 15 days; or the Company shall be adjudicated bankrupt
or insolvent; or a substantial part of the property of the
Company shall be sequestered by court order and such order
shall remain in effect for more than 15 days; or a petition
to reorganize the Company under any bankruptcy,
reorganization or insolvency law shall be filed against the
Company and shall not be dismissed within 45 days after such
filing.
(iii)The Company shall file a petition in voluntary bankruptcy
or request reorganization under any provision of any
bankruptcy, reorganization or insolvency law, or shall
consent to the filing of any petition against it under any
such law.
(iv) The Company shall make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its
debts generally as they become due, or consent to the
appointment of a receiver, trustee or liquidator of the
Company, or of all or any substantial part of its
properties.
(b) If an event of redemption shall occur, the Holder may, in addition to
such Holder's other remedies, by written notice to the Company,
require the Company forthwith to redeem the Preferred Stock at a
redemption price equal to $1,000 per share plus accrued dividends. The
redemption price shall accrue interest payable on demand at the rate
of 15% per annum.
11. Without the consent of a majority in interest of the holders of the
Preferred Stock, the Company shall not create any class of equity security which
is senior to or on parity with the Preferred Stock in liquidation rights, other
than in connection with the sale of shares to existing stockholders of the
Company; or to an entity whose relationship with the Company creates intangible
value for the Company; or to fund merger and/or acquisition related activity.
4
<PAGE>
12. All share, redemption and similar amounts are subject to appropriate
adjustment in the event of stock splits, stock dividends, recapitalization and
similar events.
13. Miscellaneous.
(a) All notices and other communications required or permitted to be given
hereunder shall be in writing and shall be given (and shall be deemed
to have been duly given upon receipt) by delivery in person, by
telegram, by facsimile, recognized overnight mail carrier, telex or
other standard form of telecommunications, or by registered or
certified mail, postage prepaid, return receipt requested, addressed
as follows: (a) if to the Holder, to such address as such Holder shall
furnish to the Company in accordance with this Section, or (b) if to
the Company, to it at its headquarters office, or to such other
address as the Company shall furnish to the Holder in accordance with
this Section.
(b) The waiver of any event of default or the failure of the Holder to
exercise any right or remedy to which it may be entitled shall not be
deemed a waiver of any subsequent event of default or of the Holder's
right to exercise that or any other right or remedy to which the
Holder is entitled.
(c) The Holder shall be entitled to recover its legal and other costs of
collecting on this Preferred Stock, and such costs shall accrue
interest, payable on demand, at the rate of 15% per annum.
(d) In addition to all other remedies to which the Holder may be entitled
hereunder, Holder shall also be entitled to decrees of specific
performance without posting bond or other security.
June 9, 1998
IDM Environmental Corp.
396 Whitehead Avenue
South River, New Jersey 08882
Re: Form S-3 Registration Statement
Gentlemen:
You have requested that we furnish you our legal opinion with respect to
the legality of the following described securities of IDM Environmental Corp.
(the "Company") covered by a Form S-3 Registration Statement, as amended through
the date hereof (the "Registration Statement"), filed with the Securities and
Exchange Commission for the purpose of registering such securities under the
Securities Act of 1933:
1. Up to 5,800,000 shares of common stock, $.001 par value (the "Shares")
issuable upon conversion of, or otherwise with respect to, (i) 3,600
shares of Series C Convertible Preferred Stock (the "Series C
Preferred Shares"), (ii) 2,350,000 $3.75 warrants (the "$3.75
Warrants"), (iii) 1,270,000 $4.50 warrants issued pursuant to the
terms of certain lock-up agreements (the "Lock-Up Warrants"), (iv)
266,875 $6.00 Warrants, and (v) 266,875 $6.75 Warrants (the $6.00
Warrants and $6.75 Warrants are referred to herein, collectively, as
the "Reload Warrants").
In connection with this opinion, we have examined the corporate records of
the Company, including the Company's Articles of Incorporation, Bylaws, and the
Minutes of its Board of Directors and Shareholders meetings, the Series C
Preferred Shares, the $3.75 Warrants, the Lock-Up Warrants, the Reload Warrants,
the Registration Statement, and such other documents and records as we deemed
relevant in order to render this opinion.
Based on the foregoing, it is our opinion that, after the Registration
Statement becomes effective and the Shares have been issued and delivered as
described therein, the Shares will be validly issued, fully paid and
non-assessable.
<PAGE>
IDM Environmental Corp.
June 9, 1998
Page 2
We hereby consent to the filing of this opinion with Securities and
Exchange Commission as an exhibit to the Registration Statement and further
consent to statements made therein regarding our firm and use of our name under
the heading "Legal Matters" in the Prospectus constituting a part of such
Registration Statement.
Sincerely,
VANDERKAM & SANDERS
/s/ Vanderkam & Sanders
Neither this Warrant nor the shares of Common Stock issuable on exercise of this
Warrant have been registered under the Securities Act of 1933. None of such
securities may be transferred in the absence of registration under such Act or
an opinion of counsel to the effect that such registration is not required.
IDM ENVIRONMENTAL CORP.
AMENDED AND RESTATED WARRANT
DATED:
Number of Shares:
Holder:
Address:
- --------------------------------------
1. THIS CERTIFIES THAT the Holder is entitled to purchase from IDM ENVIRONMENTAL
CORP., a New Jersey corporation (hereinafter called the "Company"), the number
of shares of the Company's common stock ("Common Stock") set forth above, at an
exercise price equal to $3.75, or, if less, the lowest Conversion Price at
which, prior to exercise, any Purchaser shall have converted any Preferred or
any portion of any Preferred. The terms "Conversion Price," "Preferred" and
"Purchaser" have the meanings attributed to them in the Subscription Agreement
(as hereinafter defined). This Warrant may be exercised in whole or in part at
any time prior to expiration. The exercise price for each exercise shall be
computed separately, so that if after any given exercise, a Preferred is
converted at a Conversion Price lower than $3.75, and lower than the exercise
price relating to such first exercise, the exercise price for the later exercise
shall be equal to such Conversion Price.
2. All rights granted under this Warrant shall expire on the fourth anniversary
of the date of issuance of this Warrant.
3. Notwithstanding anything to the contrary contained herein, Holder shall not
have the right to exercise this Warrant so long as and to the extent that at the
time of such exercise, such exercise would cause the Holder then to be the
"beneficial owner" of five percent (5%) or more of the Company's then
outstanding Common Stock. For purposes hereof, the term "beneficial owner" shall
have the meaning ascribed to it in Section 13(d) of the Securities Exchange Act
of 1934. The opinion of legal counsel to Holder, in form and substance
satisfactory to the Company and the Company's counsel, shall prevail in all
matters relating to the amount of Holder's beneficial ownership.
4. In the event the Company breaches its obligation to deliver irrevocable
instructions to its transfer agent as required under Section 14, or timely to
make any payment required under Section 7 for Common Stock under this Warrant
upon exercise, then, without limiting Holder's other rights and remedies, the
Company shall forthwith pay to the Holder an amount accruing at the rate of
$1,000 per day for each day of such breach for each 20,000 shares of common
stock subject to this Warrant, with pro rata payments for shares in an amount
less than 20,000.
5. This Warrant and the Common Stock issuable on exercise of this Warrant (the
"Underlying Shares") may be transferred, sold, assigned or hypothecated, only if
registered by the Company under the Securities Act of 1933 (the "Act") or if the
Company has received from counsel to the Company a written opinion to the effect
that registration of the Warrant or the Underlying Shares is not necessary in
connection with such transfer, sale, assignment or hypothecation. The Warrant
and the Underlying Shares shall be appropriately legended to reflect this
restriction and stop transfer instructions shall apply. The Holder shall through
its counsel provide such information as is reasonably necessary in connection
with such opinion.
<PAGE>
6. The holder of this warrant is entitled to certain registration rights under
an Agreement dated of even date herewith (the "Subscription Agreement"). Upon
each permitted transfer of this Warrant after the registration statement has
been declared effective, the Company will within two business days after receipt
of notice thereof supplement the registration statement to reflect the name of
the transferee as a selling shareholder thereunder.
7. The Company covenants at its next annual meeting of shareholders to call for
shareholders to approve the issuance of shares on conversion of the Preferred
(as defined in the Subscription agreement) and Warrants issued to the Purchasers
(as defined in the Subscription Agreement). Joel Freedman and Frank Falco have
on this date agreed to vote in favor of such approval, and the Board of
Directors of the Company will recommend that the shareholders of the Company
vote in favor of such approval. Until such approval is obtained, the maximum
number of shares which will be issued on conversion of the Preferred and
exercise of the Warrants is 3,285,438, issuable on a first converted-first
exercised basis. Should such approval not be obtained by June 30, 1998, then
until such approval is obtained, the Company shall on demand by Holder made at
any time or times redeem any portion of the Warrant designated for redemption
(the "Redeemed Portion") at a redemption price equal to the pre-tax profit
Holder would have earned had Holder, at the close of business on the date of its
demand for redemption, exercised the Redeemed Portion and simultaneously sold
the shares received on such exercise at the closing NASDAQ sales price on such
date. The redemption price shall be payable within five business days after
demand for redemption is made, and shall accrue interest payable on demand at
11% per annum.
8. Any permitted assignment of this Warrant shall be effected by the Holder by
(i) executing a standard form of assignment, (ii) surrendering the Warrant for
cancellation at the office of the Company, accompanied by the opinion of counsel
to the Company referred to above; and (iii) unless in connection with an
effective registration statement which covers the sale of this Warrant and or
the shares underlying the Warrant, delivery to the Company of a statement by the
transferee (in a form acceptable to the Company and its counsel) that such
Warrant is being acquired by the Holder for investment and not with a view to
its distribution or resale; whereupon the Company shall issue, in the name or
names specified by the Holder (including the Holder) new Warrants representing
in the aggregate rights to purchase the same number of Shares as are purchasable
under the Warrant surrendered. Such Warrants shall be exercisable immediately
upon any such assignment of the number of Warrants assigned. The transferor will
pay all relevant transfer taxes. Replacement warrants shall bear the same legend
as is borne by this Warrant.
9. The term "Holder" should be deemed to include any permitted record transferee
of this Warrant.
10. The Company covenants and agrees that all shares of Common Stock which may
be issued upon exercise hereof will, upon issuance, be duly and validly issued,
fully paid and non-assessable and no personal liability will attach to the
holder thereof. The Company further covenants and agrees that, during the
periods within which this Warrant may be exercised, the Company will at all
times have authorized and reserved a sufficient number of shares of Common Stock
for issuance upon exercise of this Warrant and all other Warrants.
11. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
12. In the event that as a result of reorganization, merger, consolidation,
liquidation, recapitalization, stock split, combination of shares or stock
dividends payable with respect to such Common Stock, the outstanding shares of
Common Stock of the Company are at any time increased or decreased or changed
into or exchanged for a different number or kind of share or other security of
the Company or of another corporation, then appropriate adjustments in the
number and kind of such securities then subject to this Warrant shall be made
effective as of the date of such occurrence so that the position of the Holder
upon exercise will be the same as it would have been had it owned immediately
prior to the occurrence of such events the Common Stock subject to this Warrant.
Such adjustment shall be made successively whenever any event listed above shall
occur and the Company will notify the Holder of the Warrant of each such
adjustment. Any fraction of a share resulting from any adjustment shall be
eliminated and the price per share of the remaining shares subject to this
Warrant adjusted accordingly.
2
<PAGE>
13. The rights represented by this Warrant may be exercised at any time within
the period above specified by (i) surrender of this Warrant (with the purchase
form at the end hereof properly executed) at the principal executive office of
the Company (or such other office or agency of the Company as it may designate
by notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price for the
number of Shares specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) unless in connection with an
effective registration statement which covers the sale of the shares underlying
the Warrant, the delivery to the Company of a statement by the Holder (in a form
acceptable to the Company and its counsel) that such Shares are being acquired
by the Holder for investment and not with a view to their distribution or
resale.
14. Within two business days following each receipt by the Company of the
documents required to exercise all any part of this Warrant as provided in
Section 13, the Company shall deliver irrevocable instructions to its transfer
agent (with a copy to Holder) to issue on an expedited basis certificates
evidencing the shares of common stock so purchased. Such certificates shall bear
appropriate restrictive legends in accordance with applicable securities laws,
but shall be unrestricted and bear no legends once the registration statement
referred to above has been declared effective.
15. This Warrant shall be governed by and construed in accordance with the laws
of the State of New Jersey. The federal and state courts in the city of Newark,
New Jersey shall have exclusive jurisdiction over this instrument and the
enforcement thereof. Service of process shall be effective if by certified mail,
return receipt requested. All notices shall be in writing and shall be deemed
given upon receipt by the party to whom addressed. This instrument shall be
enforceable by decrees of specific performances well as other remedies.
IN WITNESS WHEREOF, IDM Environmental Corp. has caused this Warrant to be
signed by its duly authorized officers under Its corporate seal, and to be dated
as of the date set forth above.
IDM ENVIRONMENTAL CORP.
By
--------------------
Neither this Warrant nor the shares of Common Stock issuable on exercise of this
Warrant have been registered under the Securities Act of 1933. None of such
securities may be transferred in the absence of registration under such Act or
an opinion of counsel to the effect that such registration is not required.
IDM ENVIRONMENTAL CORP.
WARRANT
DATED: _________________, 1998
Number of Shares:
Holder:
Address:
- -------------------------------
1. THIS CERTIFIES THAT the Holder is entitled to purchase from IDM ENVIRONMENTAL
CORP., a New Jersey corporation (hereinafter called the "Company"), shares of
the Company's common stock ("Common Stock") in an amount equal to one share of
Common Stock for every four $3.00 Warrants (as defined below) exercised by the
Holder to date, not to exceed in aggregate the number of shares set forth above,
at an exercise price equal to $6.00. This Warrant may be exercised from time to
time, as to the number of shares of Common Stock then purchasable by the Holder,
in whole or in part at any time prior to expiration. For purposes hereof, $3.00
Warrants consist of those certain warrants issued by the Company in August of
1997 in connection with the placement of $3,025,000 of Convertible Notes.
2. All rights granted under this Warrant shall expire on the first anniversary
of the date of issuance of this Warrant.
3. Notwithstanding anything to the contrary contained herein, Holder shall not
have the right to exercise this Warrant (a) so long as and to the extent that at
the time of such exercise, such exercise would cause the Holder then to be the
"beneficial owner" of five percent (5%) or more of the Company's then
outstanding Common Stock, or (b) prior to the amendment of the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
authorized for issuance to a number sufficient to permit the issuance of shares
upon the exercise of this Warrant assuming the conversion or exercise of all
other then outstanding convertible securities of the Company. For purposes
hereof, the term "beneficial owner" shall have the meaning ascribed to it in
Section 13(d) of the Securities Exchange Act of 1934. The opinion of legal
counsel to Holder, in form and substance satisfactory to the Company and the
Company's counsel, shall prevail in all matters relating to the amount of
Holder's beneficial ownership. The Company hereby undertakes to submit to the
shareholders of the Company for approval at its next annual shareholders meeting
a proposal to amend the Company's Certificate of Incorporation to increase the
number of shares of authorized Common Stock to a number sufficient to permit the
issuance of shares upon the exercise of this Warrant.
1
<PAGE>
4. This Warrant and the Common Stock issuable on exercise of this Warrant (the
"Underlying Shares") may be transferred, sold, assigned or hypothecated, only if
registered by the Company under the Securities Act of 1933 (the "Act") or if the
Company has received from counsel to the Company a written opinion to the effect
that registration of the Warrant or the Underlying Shares is not necessary in
connection with such transfer, sale, assignment or hypothecation. The Warrant
and the Underlying Shares shall be appropriately legended to reflect this
restriction and stop transfer instructions shall apply. The Holder shall through
its counsel provide such information as is reasonably necessary in connection
with such opinion.
5. The holder of this warrant is entitled to "piggy-back registration rights"
pursuant to which the Company shall include the shares of Common Stock
underlying this Warrant in any registration statement filed by the Company with
the U.S. Securities and Exchange Commission relating to the sale of equity
securities of the Company or the resale of equity securities of the Company by
existing securities holders, other than registration statements on Form S-4 or
S-8 or other registration statements on which the registration of the shares
underlying this Warrant would not be appropriate. Upon each permitted transfer
of this Warrant after the registration statement has been declared effective,
the Company will within two business days after receipt of notice thereof
supplement the registration statement to reflect the name of the transferee as a
selling shareholder thereunder.
6. Any permitted assignment of this Warrant shall be effected by the Holder by
(i) executing a form of assignment acceptable to the Company, (ii) surrendering
the Warrant for cancellation at the office of the Company, accompanied by the
opinion of counsel to the Company referred to above; and (iii) unless in
connection with an effective registration statement which covers the sale of
this Warrant and or the shares underlying the Warrant, delivery to the Company
of a statement by the transferee (in a form acceptable to the Company and its
counsel) that such Warrant is being acquired by the Holder for investment and
not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by the Holder (including the Holder) new
Warrants representing in the aggregate rights to purchase the same number of
Shares as are purchasable under the Warrant surrendered. Such Warrants shall be
exercisable immediately upon any such assignment of the number of Warrants
assigned. The transferor will pay all relevant transfer taxes. Replacement
warrants shall bear the same legend as is borne by this Warrant.
7. The term "Holder" should be deemed to include any permitted record transferee
of this Warrant.
8. Subject to amendment of the Company's Certificate of Incorporation as
described in paragraph 3, the Company covenants and agrees that all shares of
Common Stock which may be issued upon exercise hereof will, upon issuance, be
duly and validly issued, fully paid and non-assessable and no personal liability
will attach to the holder thereof. The Company further covenants and agrees
that, during the periods within which this Warrant may be exercised and subject
to amendment of the Company's Certificate of Incorporation as described in
paragraph 3, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock for issuance upon exercise of this
Warrant and all other Warrants.
2
<PAGE>
9. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
10. In the event that as a result of reorganization, merger, consolidation,
liquidation, recapitalization, stock split, combination of shares or stock
dividends payable with respect to such Common Stock, the outstanding shares of
Common Stock of the Company are at any time increased or decreased or changed
into or exchanged for a different number or kind of share or other security of
the Company or of another corporation, then appropriate adjustments in the
number and kind of such securities then subject to this Warrant shall be made
effective as of the date of such occurrence so that the position of the Holder
upon exercise will be the same as it would have been had it owned immediately
prior to the occurrence of such events the Common Stock subject to this Warrant.
Such adjustment shall be made successively whenever any event listed above shall
occur and the Company will notify the Holder of the Warrant of each such
adjustment. Any fraction of a share resulting from any adjustment shall be
eliminated and the price per share of the remaining shares subject to this
Warrant adjusted accordingly.
11. The rights represented by this Warrant may be exercised at any time within
the period above specified by (i) surrender of this Warrant (with a notice of
purchase in form acceptable to the Company and properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the exercise price for the number of Shares specified in the above-mentioned
purchase form together with applicable stock transfer taxes, if any; and (iii)
unless in connection with an effective registration statement which covers the
sale of the shares underlying the Warrant, the delivery to the Company of a
statement by the Holder (in a form acceptable to the Company and its counsel)
that such Shares are being acquired by the Holder for investment and not with a
view to their distribution or resale.
12. As soon as practicable following each receipt by the Company of the
documents required to exercise all any part of this Warrant as provided in
Section 11, the Company shall deliver irrevocable instructions to its transfer
agent (with a copy to Holder) to issue on an expedited basis certificates
evidencing the shares of common stock so purchased. Such certificates shall bear
appropriate restrictive legends in accordance with applicable securities laws,
but shall be unrestricted and bear no legends once the registration statement
referred to above has been declared effective.
13. This Warrant shall be governed by and construed in accordance with the laws
of the State of New Jersey. The federal and state courts in the city of Newark,
New Jersey shall have exclusive jurisdiction over this instrument and the
enforcement thereof. Service of process shall be effective if by certified mail,
return receipt requested. All notices shall be in writing and shall be deemed
given upon receipt by the party to whom addressed. This instrument shall be
enforceable by decrees of specific performances well as other remedies.
IN WITNESS WHEREOF, IDM Environmental Corp. has caused this Warrant to be
signed by its duly authorized officers under Its corporate seal, and to be dated
as of the date set forth above.
IDM ENVIRONMENTAL CORP.
By:
---------------------------------
JOEL A. FREEDMAN, President
Neither this Warrant nor the shares of Common Stock issuable on exercise of this
Warrant have been registered under the Securities Act of 1933. None of such
securities may be transferred in the absence of registration under such Act or
an opinion of counsel to the effect that such registration is not required.
IDM ENVIRONMENTAL CORP.
WARRANT
DATED: _________________, 1998
Number of Shares:
Holder:
Address:
- -------------------------------
1. THIS CERTIFIES THAT the Holder is entitled to purchase from IDM ENVIRONMENTAL
CORP., a New Jersey corporation (hereinafter called the "Company"), shares of
the Company's common stock ("Common Stock") in an amount equal to one share of
Common Stock for every four $3.00 Warrants (as defined below) exercised by the
Holder to date, not to exceed in aggregate the number of shares set forth above,
at an exercise price equal to $6.75. This Warrant may be exercised from time to
time, as to the number of shares of Common Stock then purchasable by the Holder,
in whole or in part at any time prior to expiration. For purposes hereof, $3.00
Warrants consist of those certain warrants issued by the Company in August of
1997 in connection with the placement of $3,025,000 of Convertible Notes.
2. All rights granted under this Warrant shall expire on the first anniversary
of the date of issuance of this Warrant.
3. Notwithstanding anything to the contrary contained herein, Holder shall not
have the right to exercise this Warrant (a) so long as and to the extent that at
the time of such exercise, such exercise would cause the Holder then to be the
"beneficial owner" of five percent (5%) or more of the Company's then
outstanding Common Stock, or (b) prior to the amendment of the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
authorized for issuance to a number sufficient to permit the issuance of shares
upon the exercise of this Warrant assuming the conversion or exercise of all
other then outstanding convertible securities of the Company. For purposes
hereof, the term "beneficial owner" shall have the meaning ascribed to it in
Section 13(d) of the Securities Exchange Act of 1934. The opinion of legal
counsel to Holder, in form and substance satisfactory to the Company and the
Company's counsel, shall prevail in all matters relating to the amount of
Holder's beneficial ownership. The Company hereby undertakes to submit to the
shareholders of the Company for approval at its next annual shareholders meeting
a proposal to amend the Company's Certificate of Incorporation to increase the
number of shares of authorized Common Stock to a number sufficient to permit the
issuance of shares upon the exercise of this Warrant.
1
<PAGE>
4. This Warrant and the Common Stock issuable on exercise of this Warrant (the
"Underlying Shares") may be transferred, sold, assigned or hypothecated, only if
registered by the Company under the Securities Act of 1933 (the "Act") or if the
Company has received from counsel to the Company a written opinion to the effect
that registration of the Warrant or the Underlying Shares is not necessary in
connection with such transfer, sale, assignment or hypothecation. The Warrant
and the Underlying Shares shall be appropriately legended to reflect this
restriction and stop transfer instructions shall apply. The Holder shall through
its counsel provide such information as is reasonably necessary in connection
with such opinion.
5. The holder of this warrant is entitled to "piggy-back registration rights"
pursuant to which the Company shall include the shares of Common Stock
underlying this Warrant in any registration statement filed by the Company with
the U.S. Securities and Exchange Commission relating to the sale of equity
securities of the Company or the resale of equity securities of the Company by
existing securities holders, other than registration statements on Form S-4 or
S-8 or other registration statements on which the registration of the shares
underlying this Warrant would not be appropriate. Upon each permitted transfer
of this Warrant after the registration statement has been declared effective,
the Company will within two business days after receipt of notice thereof
supplement the registration statement to reflect the name of the transferee as a
selling shareholder thereunder.
6. Any permitted assignment of this Warrant shall be effected by the Holder by
(i) executing a form of assignment acceptable to the Company, (ii) surrendering
the Warrant for cancellation at the office of the Company, accompanied by the
opinion of counsel to the Company referred to above; and (iii) unless in
connection with an effective registration statement which covers the sale of
this Warrant and or the shares underlying the Warrant, delivery to the Company
of a statement by the transferee (in a form acceptable to the Company and its
counsel) that such Warrant is being acquired by the Holder for investment and
not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by the Holder (including the Holder) new
Warrants representing in the aggregate rights to purchase the same number of
Shares as are purchasable under the Warrant surrendered. Such Warrants shall be
exercisable immediately upon any such assignment of the number of Warrants
assigned. The transferor will pay all relevant transfer taxes. Replacement
warrants shall bear the same legend as is borne by this Warrant.
7. The term "Holder" should be deemed to include any permitted record transferee
of this Warrant.
8. Subject to amendment of the Company's Certificate of Incorporation as
described in paragraph 3, the Company covenants and agrees that all shares of
Common Stock which may be issued upon exercise hereof will, upon issuance, be
duly and validly issued, fully paid and non-assessable and no personal liability
will attach to the holder thereof. The Company further covenants and agrees
that, during the periods within which this Warrant may be exercised and subject
to amendment of the Company's Certificate of Incorporation as described in
paragraph 3, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock for issuance upon exercise of this
Warrant and all other Warrants.
2
<PAGE>
9. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
10. In the event that as a result of reorganization, merger, consolidation,
liquidation, recapitalization, stock split, combination of shares or stock
dividends payable with respect to such Common Stock, the outstanding shares of
Common Stock of the Company are at any time increased or decreased or changed
into or exchanged for a different number or kind of share or other security of
the Company or of another corporation, then appropriate adjustments in the
number and kind of such securities then subject to this Warrant shall be made
effective as of the date of such occurrence so that the position of the Holder
upon exercise will be the same as it would have been had it owned immediately
prior to the occurrence of such events the Common Stock subject to this Warrant.
Such adjustment shall be made successively whenever any event listed above shall
occur and the Company will notify the Holder of the Warrant of each such
adjustment. Any fraction of a share resulting from any adjustment shall be
eliminated and the price per share of the remaining shares subject to this
Warrant adjusted accordingly.
11. The rights represented by this Warrant may be exercised at any time within
the period above specified by (i) surrender of this Warrant (with a notice of
purchase in form acceptable to the Company and properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); (ii) payment to the Company
of the exercise price for the number of Shares specified in the above-mentioned
purchase form together with applicable stock transfer taxes, if any; and (iii)
unless in connection with an effective registration statement which covers the
sale of the shares underlying the Warrant, the delivery to the Company of a
statement by the Holder (in a form acceptable to the Company and its counsel)
that such Shares are being acquired by the Holder for investment and not with a
view to their distribution or resale.
12. As soon as practicable following each receipt by the Company of the
documents required to exercise all any part of this Warrant as provided in
Section 11, the Company shall deliver irrevocable instructions to its transfer
agent (with a copy to Holder) to issue on an expedited basis certificates
evidencing the shares of common stock so purchased. Such certificates shall bear
appropriate restrictive legends in accordance with applicable securities laws,
but shall be unrestricted and bear no legends once the registration statement
referred to above has been declared effective.
13. This Warrant shall be governed by and construed in accordance with the laws
of the State of New Jersey. The federal and state courts in the city of Newark,
New Jersey shall have exclusive jurisdiction over this instrument and the
enforcement thereof. Service of process shall be effective if by certified mail,
return receipt requested. All notices shall be in writing and shall be deemed
given upon receipt by the party to whom addressed. This instrument shall be
enforceable by decrees of specific performances well as other remedies.
IN WITNESS WHEREOF, IDM Environmental Corp. has caused this Warrant to be
signed by its duly authorized officers under Its corporate seal, and to be dated
as of the date set forth above.
IDM ENVIRONMENTAL CORP.
By:
---------------------------------
JOEL A. FREEDMAN, President
CONSENT OF SAMUEL KLEIN AND COMPANY, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of IDM Environmental
Corp. for the registration of 5,800,000 shares of its common stock and to the
incorporation by reference therein of our report dated April 8, 1998, with
respect to the consolidated financial statements of IDM Environmental Corp.
included in its Annual Report on Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission.
SAMUEL KLEIN AND COMPANY
/s/ Samuel Klein and Company
Newark, New Jersey
June 12, 1998
